As part of the NIPFP-DEA Research Program, we have been running a conference series in the fields of macroeconomics and finance. The 10th of these conferences was a joint effort with Journal of International Money and Finance: a subset of the papers will appear as a special issue on the Macroeconomic and financial policy challenges of China and India. The materials of the conference are up on the website.
Monday, 17 December 2012
Friday, 14 December 2012
Interesting readings
Posted on 00:00 by Unknown
Ruminating over The Republic by Plato is the first step to
thinking about politics and the State, and many angry young men
that try to think about India do wrong by
on their intellectual foundations.
Datta in Mint worries about similar problems in the
domain of economics.
Patnaik analyses the two kinds of criticisms of Aadhaar: (a) That
a lot of money is being spent and this expenditure isn't justified and
(b) That building Aadhaar will threaten civil liberties in India.
Trampling on the individual in
India: Five
ways Indian Internet users are fighting for free speech by
Sruthi Gottipati on the India Ink blog on the New York
Times
website. Sec
66A: Curbs on free speech are part of Nehru family legacy by
R. Vaidyanathan on FirstPost.
Emerging Markets
Finance conference, 2012.
In thinking
about Why
is solving India's inflation crisis important?,
see Does
Inflation Harm Corporate Investment? Empirical Evidence from OECD
Countries by Piotr Cizkowicz and Andrzej Rzonca.
Vivek
Kaul has an excellent article in FirstPost about India's
problems with ponzi schemes. Also
see: Buying
respectability. Ponzi schemes are one of the many
consequences of the badly structured laws in Indian finance. We
have created silos such as securities and banking, and existing
agencies can wash their hands off what is going outside their
jagirdari. The legal foundations must change in the ways
proposed by FSLRC
In an
interview with Akshai Jain on Tehelka, Arvind Panagariya
says he isn't convinced the Indian child malnutrition data is
horribly out of line.
Ila
Patnaik on the role of FDI in non-tradeables as a essential
element of competition policy, analogous to what trade does for tradeables.
Lant
Pritchett and Shrayana Bhattacharya in the Indian
Express on what cash transfers can do and what they cannot.
Evgeny Morozov
has an
amazingly well written article in the New Republic about
new-age superficiality. Notes to self: One day I'm going to write
such a hatchet job about a management guru or such like.
Joseph
Sternberg has a great article on the things that went wrong
when Bangladesh attempted industrial policy.
David
Pogue of the New York Times is impressed at the new Samsung
Chromebook
. Hmm, $250 is Rs.13,000 for a laptop that's 1.1 kg, it is
nice.
Tunisia, Libya,
Egypt, Syria?,
and after that Lebanon?.
Thursday, 6 December 2012
International financial centres: Peering into the future
Posted on 01:09 by Unknown
I did the SIGFIRM Quarterly Lecture at the University of California in Santa Cruz recently:
Also see: Mumbai as an International Financial Centre, a project led by Percy Mistry.
You may like to subscribe to the NIPFP MF channel on youtube.
Also see: Mumbai as an International Financial Centre, a project led by Percy Mistry.
You may like to subscribe to the NIPFP MF channel on youtube.
Tuesday, 4 December 2012
The problems of the economics profession
Posted on 06:31 by Unknown
Ronald Coase has an interesting new piece titled Saving economics from the economics profession. You may like to see What is wrong with Economics on this blog.
Last week, in the US, I heard that the number of Ph.D. graduates coming out vastly exceeds the number of academic job openings. Most economics Ph.Ds. are going to end up in non-academic jobs. In fields like Physics, the basic arithmetic became clear early on. Each academic in a research university produces 12 Ph.D. students, on average, over his or her life. In steady state, 11 of them have to go into non-academic lives. For some time, in Economics, this phenomenon was masked by the rise of business schools and schools of government, which recruited a lot of economists. With that transition largely behind us, the simple logic of 1-in-12 comes back to hit us.
I feel the profession is not doing enough to prepare the 11-of-12 economics Ph.D. students for a life in the real world. I am a sunny optimist on the importance of economics in the real world. Whether it is Google or a hedge fund or a consulting firm: I think a good economist has a lot to say. But what we do to Ph.D. students is pretty bad. The skills required to succeed in academic economics seem to be precisely unlike the skills required to engage with the world. I feel that fairness to the students requires turning this upside down. We should be primarily training Ph.D. students to gear up to be useful in the real world, for only a tiny fraction of them will go back into academics.
Academic economics in India suffers from one additional layer of trouble: the legacy of development economics. India has moved on. Only 15% of Indian GDP is agriculture; the labour force is moving away from agriculture; only 20% of India is below the poverty line. This implies that development economics is of little use in thinking about India. Whether it is P. Chidambaram or Mukesh Ambani, the decision makers of India are not too interested in development economics.
The early days of physics shows us a nice three-step story. First, the datasets fell into place, with Tycho Brahe. Then came the empirical regularities, with Kepler. Once Kepler's laws were firmly established as hard facts of the data, you could curiously ask: Why might this be the case? And this gave us theory, in the hands of Newton. In economics, and particularly with economics in India, we are struggling with the first phase. We barely observe the economy.
When the physicists did not observe the world, the frontier lay in observation (Tycho Brahe), and not in the guys doing angels on pinheads. But in economics, in the early years, in the absence of data, the field got dominated by mathematicians analysing artificial worlds, the bulk of which was angels on pinheads exercises. Instead of looking at the world, we looked at blackboards and made up assumptions. Research papers got written by looking at other research papers, rather than looking at the world.
I am optimistic about where we will go from here, for the computer revolution is finally giving us datasets where there is high quality observation of the economy. E.g. retail stores are capturing scanner code data, financial exchanges see every order, massive databases of census or tax authorities are being prised open, google trends data is available, satellites measure illumination at night and give us estimates for the GDP of each square kilometre of the country every night, etc. The future of economics lies in data science. Just as astronomers are drowning in the data coming out of telescopes, we in economics will shake our heads in wonder, as we find our way around immense treasures of large datasets of high quality.
Yet, at present, most economists and economics Ph.D. students are focused on theory, or the old perspective where economics is seen as a part of axiomatic mathematics and not as an observational science. For most people in economics, there is a certain willingness to accept bad data and bad econometrics since all this is (in any case) just an excuse to get on with the thing that really matters, the model. Matters are made worse, in India, by the typical Western referee who does not ask questions about data quality. This gives the economist in India zero incentive to be careful about measurement, and gives us an equilibrium replete with garbage-in-garbage-out.
I don't want to overstate the problem. Things have changed enormously when compared with the 1970s and 1980s, when economics was almost entirely dominated by theory. Today, the most important work in the profession is applied. Applied papers get more citations. The ship is turning. But as Ronald Coase is saying, it's still far from where it needs to be.
Academic economics is a self-sustaining system, on the strength of the tuition fees paid by a large number of undergraduates who register for these course. There is relatively little pressure to change. The impetus for change will come from four directions:
- While wages for a small number of the superstars of the profession are sky high, most academic economists are not paid that well and are not experiencing real wage growth. This gives an incentive for some to engage with the world through consulting. Their work will matter.
- As Larry Summers has emphasised, a strength of the business school and the school of government (and the think tank) is that they engage with reality. They have incentives to look at the field with new eyes. The work done in these places will matter.
- The 11 of 12 freshly minted Ph.D.s who show up in the real world and puzzle over it matter a great deal. For the vast majority of them, the Economics Ph.D. will recede in their minds like a bad dream. A small fraction of them will do stuff that matters.
- The people with skills in data science will do unexpectedly cool things with the new datasets where we observe the economy. This stuff will matter.
Thursday, 29 November 2012
Rupee and Real futures at ICE
Posted on 08:10 by Unknown
Intercontinental Exchange has announced cash-settled futures on the Indian Rupee and the Brazilian Real [press release] [Saabira Chaudhuri in the Wall Street Journal]. With this, ICE is the first serious global exchange to start trading in the rupee.
Vimal Balasubramaniam and I have pointed out that the global market for the Indian rupee is adding up to some fairly big numbers. I recently noticed that in 2010, even though China is a much bigger economy than India, rupee trading was 0.9 per cent of global currency trading while RMB trading was at 0.7 per cent. Similarly, it appears that the INR NDF is bigger than the RMB NDF, even though China is a much bigger economy. Something is going right in the growth of the rupee as a big currency by world standards. Rupee trading at ICE would strengthen that process.
The ICE announcement also connects to the issues of global competition for Indian underlyings. The two biggest financial markets in India are Nifty and the rupee. So far, NSE faced serious competition with Nifty futures trading at SGX and CME, but there was no significant rival with the rupee. With the arrival of ICE, the competitive dynamics for the rupee changes, which is a welcome development. NSE now faces genuinely difficult competition from three first-tier rivals: CME, ICE, SGX. At the same time, the outlook for rupee trading in India is hobbled by an array of constraints:
- ICE can pitch for business from non-residents, while NSE cannot, since foreign participation in currency futures is banned. We seem to think that OTC trading of currency forwards requires encouragement from industrial policy operated by RBI.
- ICE is able to start contracts any time it likes on (say) the Brazilian Real while NSE is forbidden from starting any new contracts.
- India has mistakes on tax treatment, lacking residence based taxation, while the world has all this well sorted out.
- India has an array of other policy and regulatory mistakes that hobble local players. The ICE transaction charge is zero. I wonder if litigation will now start at CCI to try to block this.
A process is afoot, at present, through which the Indian financial system is being hollowed out. If this process runs unchecked, RBI and SEBI will be left lording over nothing. There is a need to reverse this policy framework of reverse protectionism.
Sunday, 25 November 2012
Interesting readings
Posted on 08:57 by Unknown
A talk by Pratap Bhanu Mehta.
Governance
2.0 by Ila Patnaik, on the notions of autonomy and
independence for agencies like the CVC.
Trampling on the individual in
India:
Jim
Yardley in the New York
Times. An
`Oppressive' Regime Limits Free Speech in India, Civil Liberties
Expert Says in the New York
Times. How
two Mumbai girls changed the Thackeray conversation by
G. Pramod Kumar on
Firstpost.
are India's politicians scared of social media? by Mahima
Kaul on
UnCut. Conceived
in haste, India's Internet law now targeted for change by
Niharika Mandhana on the New York Times. It is not enough to
solve the IT Act, we need to fix the IPC also.
Ila Patnaik on what ails the Indian economy
today: Growing
pains and Policy easing won't lift investment.
In the aftermath of the Emkay crash
[link, link], Mobis
Philipose in Mint worries about where SEBI is going.
A great piece
by Devesh
Kapur on how wrong Indian official thinking in higher education is.
Morten
Jerven on economic measurement in Africa. Seems like a fair
description of Indian official statistics to me.
Shareholder
lessons: Stay away from Ponty Chadha-like businesses by
Arjun Parthasarathy, is linked to a theme
from Indian
capitalism is not doomed.
One
head is better than many: Ila Patnaik on the need for
modifying the present Indian financial regulatory architecture.
The misery
of a
sixteen year old in 1984 in the USSR.
A
great debate
between Justice
Scalia
and Justice
Breyer of the Supreme Court of the United States.
Marco
Arment walks into a new Microsoft store. And,
see Charlie
Demerjian on the difficulties that they
face. Jakob
Nielsen, the expert on usability, analyses Windows 8 on the
tablet and the computer. So
far, the
market is giving Microsoft a thumbs-down, with a -9% return
over the last six months, net of macroeconomic fluctuations..
Tuesday, 20 November 2012
Did the Indian Capital Controls Work as a Tool of Macroeconomic Policy?
Posted on 07:21 by Unknown
A recent article: Did the Indian capital controls work as a tool for macroeconomic policy, Ila Patnaik and Ajay Shah. IMF Economic Review, page 439--464, volume 60, 2012.
At the main page for this paper, you will find all the materials: a video presentation, PDF paper, link into the journal, a compact summary on voxEU.
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