I was at a meeting in London recently, organised by a href="http://www.theigc.org/">the IGC, on the subject of theresearch agenda in macroeconomics for developing countries. This mademe think about how to make progress./aThe US as the shared dataset for mainstream macroeconomicsAll existing knowledge on macroeconomics is rooted in data aboutthe US economy. The US is seen as a canonical developedcountry. Economists all over the world have treated it as a commonobject of study, when building macroeconomics. It is a shareddataset. Researchers and...
Sunday, 23 October 2011
Saturday, 22 October 2011
A few days ago, I wrote a blog post about India's inflation crisis. For five years now, in every single month, the y-o-y CPI inflation has exceeded 5%. Under these conditions, economic agents have little confidence that RBI cares about inflation. They are now reporting double digit inflationary expectations. Under these conditions, inflation will be persistent. By itself, inflation is not going to go back to the target range of 4 to 5 per cent. This...
Friday, 21 October 2011
Suppose a government tries to boost demand in the economy by boosting the deficit.A fascinating feature of the situation is: Households are not wood, households are not stones, but men. And being men, they will look forward, they will optimise. Households know that all government expenditure requries taxation: all that is achieved by running a deficit today is postponing taxes to tomorrow.India's fiscal stance is now likely to lead to increased taxation in the future. We have a nice wide deficit today, but it's increasingly likely that fresh taxation...
Saturday, 15 October 2011
A lot is being written about inflation in India today. I thought it's worth writing about the fascinating insights into inflation that come from focusing on the distinction between tradeables and non-tradeables.What is a tradeableA tradeable is a product which can be transported across the world at relatively low cost. As an example, steel is tradeable while cement or paint are mostly non-tradeable barring special short-hop opportunities like Gujarat-Karachi or Amritsar-Lahore or Calcutta-Chittagong or Trivandrum-Colombo.Steel is a nice tradeable...
Thursday, 13 October 2011
Steve Jobs and Dennis Ritchie both died within a few days of each other.In my mind, there are four most important people in the story of computer software. The story begins with Ken Thompson and Dennis Ritchie, who figured out how to write an operating system (Unix). With this, we got the first powerful beasts.The third person in the story is Bill Joy, who got the beasts to talk to each other (BSD). This gave us the Internet.The fourth person in the story is Steve Jobs, who gave the networked beasts a pretty face, who got mere mortals to command...
Wednesday, 12 October 2011
Shekhar Gupta in the Indian Express on the most important questions that the UPA-2 must now confront.ahref="http://www.indianexpress.com/news/noose-tightens-around-shadow-owners/854733/0">The2G scandal is teaching us many things./aa href="http://www.livemint.com/2011/10/02210130/What-ails-asset-reconstruction.html">Whatails asset reconstruction firms? and a href="http://www.livemint.com/2011/10/09213318/Reconstructing-asset-reconstru.html?h=D">Reconstructingasset reconstruction firms by Tamal Bandyopadhyay inMint./a/aAn editorial...
Tuesday, 11 October 2011
In response to the Second Micro Finance Crisis in Andhra Pradesh, which took place in October 2010, the Ministry of Finance has proposed a new ``Micro Finance Institutions (Development & Regulation)Bill''. A new working paper by Shubho Roy, Renuka Sane and Susan Thomas analyses this bill from first principles of economics and law.A great deal of traditional work in India, in the field of finance and public policy, has been poorly grounded in terms of logical thinking. A variety of government interventions are proposed, without fully...
Thursday, 6 October 2011
The discussionabout StateBank of India (SBI) has treated one proposition as a given: thatit is the job of the Ministry of Finance to continually inject capitalinto SBI so as to enable the growth of the SBI balance sheet; that SBIhas a legitimate claim upon fiscal resources at all times.I'm not sure this is a good way to think about the business ofbanking. The first task of a bank should be to produce adequateretained earnings so as to support the desired growth. If a bankcannot produce retained earnings enough to grow, there is reason forthinking...
Wednesday, 5 October 2011
I was at a money changer at Heathrow, and saw a tariff card, for purchase and sale of a few currencies (all to the GBP). (This was a while ago: It was on 12 May 2011).This makes you think: What countries land up in this display, and how bad are the spreads? It's useful to express these spreads as 100*(offer-bid)/(0.5*(bid+offer)).Let's start with the tightest spreads: USD and EUR. The spread --19.98% for the Euro and 20.87% for the USD -- is a...
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