Tuesday, August 10, 2010

Monetary economics is hard

On 5 August, the RBI Governor did a speech in Hyderabad. I was disappointed in reading this speech; it suggests little learning of monetary economics amongst RBI staff after the 1960s. See this response by Ila Patnaik.

A few recent papers look at these things very differently: John Taylor (June 2010), Takatoshi Ito (July 2010) and Asli Demirgüç-Kunt and Luis Servén (February 2010). We continue to be in a situation where RBI's thinking on monetary policy is quaint and out of touch with world class knowledge of economics.

5 comments:

  1. The RBI link reads: BS_Speeches

    :-)

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  2. Ila Patnaik really hit the nail on the head with her comments.

    The funny thing is that I was thinking that this would be one situation where the RBI not being indpendent would be a good thing. Why isn't the Congress putting more pressure on the RBI to reign in inflation?

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  3. hi,

    After reading Ila's article in IE i really thought what would be your view on his speech, thanks finally you have posted!

    In fact I was wondering why RBI always react to the pressure groups including political and industry lobby instead of only look at the real world market trends.

    also reader may like to read the article from below link.

    http://www.imf.org/external/pubs/ft/wp/2010/wp10183.pdf

    This paper clearly shows how much time it takes for particular policy change to react in the market.

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  4. I like it when Ila says "Careful, Mr. Governor"!!

    It's usual tactic of creating a straw-man - strict inflation target - and then shoot it down!

    Apparently Sri Subbarao, from his balancing act, believes high inflation leads to financial stability and quality growth.

    And, of course, India is a complex country so it can only managed on-the-fly by the whims of wise men rather than sane science and better understood tools. The wheel has to be recreated in complex India before it can be used.

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