Two more prominent awards for Economics

Univ of Chicago has given 9 Nobel Prize Winners as per Nobel Prize Committee list (They basically see what Univ is one at at the time of award, so someone who gets an award when he is at MIT but has taught earlier at Univ of Chicago, The committee would cite MIT in its award). This press release from Univ of Chicago tells me till 2004, out of 55 Nobel laureates 23 were associated with Univ of Chicago either as students, associate professors etc. This is quite a number.

Thanks to Economic Principals, I just came to know about 2 more awards:

1. Bernácer Prize : awarded by Observatory of the European Central Bank given to European Economist under 40 (similar to Clark Medal). Given every year and is named in honour of Germán Bernácer (1883-1965), the first Spanish economist who made significant contributions to the development of macroeconomic research, the BERNÁCER PRIZE was established in 2001 to recognise the work of young economists from the European Union and to stimulate research on European macroeconomics and financial issues.

There have been 5 winners so far:

• 2001 Philip Lane (Trinity College Dublin),
• 2002 José Manuel Campa (Graduate School of Business New York University and University of Navarra)
• 2003 Luigi Zingales (GSB Chicago),
• 2004 Stephanie Schmitt-Grohe (Duke),
• 2005 Monika Piazzesi (GSB Chicago) and
• 2006 Hélène Rey (Princeton)

Again 3 out of 7 are from Univ of Chicago!! Another thing to note is that where as we have only one woman who has won the Clark Medal. here it pretty Even-Stevens.

2. The Elaine Bennett Research Prize : Awarded by American Economic Association (the one that also gives the Clark Medal) and is awarded every other year to recognize, support, and encourage outstanding contributions by young women in the economics profession. Elaine Bennett, made significant contributions in economic theory and experimental economics and encouraged the work of young women in all areas of economics.

The winners:

• 1998 Judith Chevalier (GSB Chicago....has now moved to Yale)
• 2000 Susan Athey (MIT.... has now moved to Harvard)
• 2002 Esther Duflo (MIT)
• 2004 Marianne Bertrand (GSB Chicago)
• 2006 Monika Piazzesi (GSB Chicago)

Out of the two lists I have only read Esther Duflo( just a bit though) and Luigi Zingales (a little more) . Duflo focuses on development research and Zingales on Financial Economics.

Zingales is a star and his research work on financial markets is quite extraordinary and always provides a lot of food for thought. He has written extensively with Raghuram Rajan and together have written some landmark papers on capital structure, impact of finance on growth, underdevelopment ( I mentioned about their work here and here). His/Their work is a must read for all looking at finance as their careers.

Assorted Links

1. A super speech by Fed Governor Mishkin on Globalisation and Financial Development. He also talks about the role of institutions in financial development, the topics I had blogged on previously (here and here) He is one of my favourite economists. His papers are one of the simplest to read.
2. On Hedge Funds (By Brad De Long) . On Hedge Fund salaries.
3. A good review of Susan Athey's work (mentioned in previous post). Here is David Warsh praising her work. Here is Economist Profiling her work
4. Lee Iacocca Interview .
5. Diary of an Investment Banker. How little money they make?
6. Contronyms?? Find out for yourself

Thanks to Marginal Revolution for 2 (1) & 6, Finance Professor for 2(2), 4 & 5 and New Economist for 3

A picture is worth a thousand words

I came across these 2 wonderful images.

1. State-wise comparison of Gasoline prices in USA (here)
2. How much the home prices have risen since 1890. (here)

Thanks to Econbrowser for 1 and Freakonomics for 2.

Profiling Daron Acemoglu's work

I came across this wonderful line in something I was reading:

To paraphrase Robert Lucas (1988), once one starts to think about economic growth, it is hard to think of anything else.

I can't agree more with this sentence. It sums up my state of mind in recent months. Initially, I used to understand this field as run of the mill types with little to offer only to realise how wrong I was. I continue to be amazed by the work done so far in the subject and the approaches taken by economists to arrive at their own set of conclusions.

As I am still new to this subject (which is a case with most of the subjects) I would like to take up the papers one by one. I have covered a paper by Rajan/Zingales which attributes low underdevelopment to the initial factor endowments in a country. Their idea is very different in the sense that even if you create reforms, development may not happen if the initial factor endowments are not distributed equally.

Recently, I have begun to read growth and development work by Daron Acemoglu. Another Clark Medal Winner (Here is Levitt congratulating Acemoglu) and has done some remarkable work on the same. There is a very good overview of his work by Robert Shimer whose name I picked from Freakonomics Blog. Levitt says he could have been one of the leading contenders for the Clark Medal. That got me to searching Shimer's work and I discovered this gem of a paper summarizing all of Acemoglu's work so far. Here is the paper. Considering the fact that Shimer has coauthored some work with Acemoglu, it again emphasises the importance of having a thinking partner.

His other work looks equally good but it his work on institutions and development, Investment and Growth and on Political Economy which has impressed me the most. I have been aware of his work on first of the three but to read the other two has been simply an eye-opener.

The question which often comes to mind is even US was a colony and so was Africa. Why and How did the two have such different levels of development? For how, there have been many factors - human capital formation, initial factor endowments, geography, education, institutions etc. Out of so many, institutions have been attributed as the most important cause for growth. And this is Acemoglu's view as well.

However, it is the answer to why that he has made a more valuable contribution to our understanding of growth theory. To cut the story short, in his landmark paper he attributes underdevelopment due to mortality rates in erstwhile colonies. Whichever colonies had higher mortality rates (due to malaria etc) the colonizers set up extractive institutions and wherever it was low, they set up good/efficient institutions. As the mortality rates were high in Africa, hence poor institutions and hence low development.

In another paper he shows that colonizers set up extractive poor institutions where the colonies were already rich & prosperous and efficient institutions where colonies were poor. Hence, India which was a rich country continues to be poor.

Well, again the basic idea is same that institutions are important. It is the approach towards understanding why certain countries grew and others didn't. There have been criticisms on the paper and there would continue to be more, but it is the basic freshness of the research which I feel is important.

But again, like other papers what is the hope for Africa and other poor countries. How do they change the institutions which have been set so many years back. How does somebody change the history? This is one aspect most economists agree is the most difficult part and continues to be a challenge for research.

I would continue to post on this fascinating subject. Keep visiting this blog.

Assorted Links

1. First and foremost Dani Rodrik has begun blogging. Well, this is going to be a treat to read. I had heard a lot about him and discovered his work just browsing and have been hooked on since. (For the uninitiated he writes on the topic I am currently really reading about- Growth and Development; He has criticised World Bank development program popularly called Washington Consensus really well in his papers). I loved the way he mentions about Hirschman award in his blog. You deserve it Sir! Here is a superb writeup cum interview on Rodrik and his work.
2. Milton Friedman's House :He had a great taste in interiors as well !!
3. Joshua Angrist (His profile is here) defends Levitt style research
4. How much should one Save? A nice one from Free Exchange Economist.com. Read this as well on Cottage Industry
5. Update 1: Here is Levitt defending his research

Thanks to Marginal Revolution for 1, 2 and 3

Assorted Links...mostly Hedge Funds (25 Apr 2007)

Read this about Hedge Fund pay packets (From FT)

The combined earnings of the world's top 25 hedge fund managers of more than $14bn (£7.49bn) exceeded the national income of Jordan last year and 3 individuals took home more than $1bn, according to the biggest annual industry survey.

The survey by Alpha Magazine put Jim Simons of Renaissance Technologies on earnings of $1.7bn, Ken Griffin of Citadel Investment Group on $1.4bn and Eddie Lampert of ESL Investments on $1.3bn. The previous year, two managers, Mr Simons and the septuagenarian T Boone Pickens of BP Capital Management, topped the $1bn mark.

1. An excellent series of articles on Hedge Funds
2. Read this good blog entry on Why is the top one percent earning more?
3. Hedge Fund - a billion dollar club
4. Return of the idiot ( a nice article on Latin America)

Thanks to Marginal Revolution for (3) and to Ajay Shah for (4)

Steven Levitt..time to defend your research

This morning I read two blogs (here and here) which mentioned about Steven Levitt (his wikipedia profile is here) and his impact on economic research. Both the blogs quote newspaper article which criticise Levitt's research ( R'ber he is somebody who has been awarded the Clark medal ; For the uninitiated Levitt's research is on crime, population etc; he has coauthored the popular book Freakonomics)

He has often been criticised for giving rise to something which has been called "cuteo- nomics" i.e. asking questions which may not be economics but could simply be a good reading ( most I am sure don't agree). As he is hugely admired (because of Clark Medal) , the traditional economists have criticised him for making this field popular and making people look at all kinds of questions and calling them economists. The article does talk about few students who trained under Levitt and have written papers which could be interesting to read but you really cannot call it economics.

My view on this is that Levitt kind of research is interesting in the sense it helps us look at answers to those questions which have not been attempted before and gives a new dimension to the research. We often come across problems related to research where we have no data, do not know how to interpret results in different ways, this is where Freakonomics kind of analysis helps. However, everything has to balanced. The problem is not with the research perse but the proliferation of the same and in times when we are still struggling to answer basic questions in economics (what drives growth, how to reduce poverty etc). This is an area of concern and as the article shows Levitt has not been doing enough to defend his style of research. He is in fact promoting his style to answer more cute questions than traditional economic questions.

Some points from RBI Annual Policy

RBI has announced its Annual Policy Statement for the year 2007-08. The summary is here and details here .

Summing up the policy, there have been no changes in interest rates. However, the concerns over inflation have been mentioned in the statement.

The Statement is divided into 2 parts:

1. Annual Statement on Monetary Policy- which is further subdivided into 3 parts:
   i) Summary of the Macroeconomic and Monetary developments I mentioned in previous blog entry . ( So people who cannot read the huge report, can read the summary here ..Summary 30 pages Vs Report 99 pages)
   
   ii) Stance of Monetary Policy for 2007-08: It is the most important part of the Statement as from this one gauges the stance (whether hawkish or dovish) , RBI is taking.
   
   iii) Monetary Measures: Finally the measures taken, the part which matters the most for markets.
2. Statement on Developmental and Regulatory Policies for the year 2007-08: This statement lays down policies for strengthening the Indian Financial System.

On 1(i) and 1 (ii) I would write later, let me quickly go through the developments in 2 (my comments wherever reqd are in italics and in blue).

State Development Loans (State Govt. Bonds)

• Introduction of an indicative calendar for State Development Loans ins being worked out
• Non-competitive bidding in SDL auctions to be issued
• SDLs to also be reissued ( rather than issuing new SDLs evertytime)

G-Secs (Central Govt Bonds)

• Floating Rate Bonds have so far failed in India. (See an example of how floating rate bonds are valued here). There is a proposal to use average cut-off yield on 182 day T-Bills instead of 364 day T-Bills. (The bond failed as the coupon was reset once in an year and in a rising interest rate scenario it was not worth buying the bond, the statement does not mention that reset would also be changed to twice a year. Let us wait for further press release)

Corp Bonds

• After many years of dilly dallying, RBI says it will consider inclusion of corporate bonds in the repo market. (I don't understand why does it take so much time to consider? The guidelines for this would be interesting as corporate bonds are now under SEBI's domain and G-Sec under RBI, corp bonds are traded/reported on BSE and NSE and G-Sec on NDS-OM system. How would the whole thing be managed would be interesting to see)

Derivatives

• Plans to start a trading platform for Interest rate swaps (a nice move to bring transparency in this market, as it is largely traded OTC (Over the Counter) over telephone , I was wondering how should an exchange be designed for these products? Something like OTCEI I would believe....)

Towards fuller Capital a/c convertibility

• Overseas investment limit for corporates increased from 200% of their net worth to 300%
• Listed Indian companies are allowed to do portfolio investment in companies abroad. This limit has been increased from 25% of net worth to 35%.
• Mutual Funds on an aggregate basis are allowed to invest overseas and the ceiling is $3 bn. This has increased to $4 bn
• Individuals can now invest Us $ 100,000 in overseas markets from the $50,000 limit earlier
• Category-1 Dealers can offer Hedging solutions to domestic producers/users of following metals: aluminium, copper, zinc and nickel in international exchanges. Users of ATF are also allowed (It is welcome but why just 4 metals)
• Earlier corporates that used forward contracts to hedge currency risks could use them provided they are completed by delivery or rolled over on due date. From now, they can cancel the contract and rebook it. SMEs and individuals can also use forward contracts now.(Another good development; corporates can take a relook at the risk and hedge afresh)

I am a bit tired now. Would post more developments tomorrow.

Globalization and Inflation

The other day I was discussing with a friend wondering whether Globalization has any effect on inflation.

I just did some reading on that topic and the summary so far is that globalization should lead to lower inflation but so far empirical evidence shows negligible impact.

There are a number of ways in which globalization could effect prices in an economy and Janet Yellen provides a very good summary of the same. She also points to two studies both showing very little impact of globalization on inflation:

• IMF analysis estimates for a panel of eight industrial countries, including the U.S. The study finds that the slower rise in relative import prices in recent years has had only a fairly small impact on overall inflation. For the U.S., the study estimates that a 1 percent decline in relative import prices lowers CPI inflation by only 15 basis points after one year and 6 basis points after three years. Based on such estimates, the IMF calculates that non-oil import price reductions lowered U.S. inflation by an average of ½ percentage point a year over 1997 to 2005.
• Federal Reserve Board study estimates that lower (core) import prices have reduced core U.S. inflation by an annual average of ½ to 1 percentage.

Krozner and Bernanke have also given very insightful speeches on the above.

Ken Rogoff has taken a step further. He says Chinese exports lower relative prices and as long as Central Bank targets the overall price level, the prices of the other goods must actually be rising. Hence, China could actually be exporting inflation and not deflation as is the common perception.Theoretically it appears quite good, but has to be still tested empirically. ( Atleast I am not aware of papers on this)

There have been further papers by Laurence Ball and John Taylor (the person who gave the famous Taylor formula that gives interest rates given the inflation conditions). These papers also suggest that Globalization has not changed inflation. Read this abstract from Ball paper:

" Many observers suggest that the "globalization" of the U.S. economy has changed the behavior of inflation. This essay examines this idea, focusing on several questions: (1) Has globalization reduced the long-run level of inflation? (2) Has it affected the structure of inflation dynamics, as captured by the Phillips curve? (3) Has it contributed substantial negative shocks to the inflation process? The answers to these questions are no, no, and no."

There is a caveat though. Most of the work so far I have cited is from US. Still looking at papers that give a more global outlook. Anyways, happy reading on inflation and globalisation.

Useful set of reports from RBI

Today is the RBI Annual Policy Review for the year 2007-08. For the uninitiated in this review RBI officials take a view on the economy and decide the interest rates you and me are going to pay in coming months. What RBI changes is its benchmark rates (the rate at which RBI lends to Banks) and the Banks alter their rates structure accordingly. If RBI raises rates other follow and vice-versa.

Before the policy, RBI comes out with a document called Macroeconomic & Monetary Developments. It is a superb analysis of the events so far. Basically these are quarterly reports on the Indian economy and covers the developments in the economy in previous quarter. This is better than most of the research reports on Indian Economy which one comes across. It is a must read for all the people interested in Indian economy.

The report is nicely divided into chapters like Real Economy, Financial Markets, External economy with simple text and rich graphs illustrating all about Indian economy. Apart from the lucid analysis, it offers very useful data which can be used by researchers for their analysis.

Read the summary here and the detailed chapters are here

I would post my comments on the same later.

Assorted Links (Monday 23/04/07)

1. A good list of favourites
2. Beachonomics
3. A good number of papers presented at Eastern Finance Association Program

Thanks to Greg Mankiw for 1 & 2 and Financial Rounds for 3.

Must read Blogs for Economics and Finance

Here is a list of blogs I try and read everyday to keep myself updated.

Economics

• www.econbrowser.com
• http://gregmankiw.blogspot.com
• http://www.economist.com/debate/freeexchange/

Europe Focus

• http://www.eurointelligence.com/

Finance

• http://financeprofessorblog.blogspot.com/
• http://financialrounds.blogspot.com/

India centric issues

http://www.ajayshahblog.blogspot.com/