tag:blogger.com,1999:blog-19649274.post4051681522752201879..comments2024-03-27T17:16:12.789+05:30Comments on The Leap Blog: Dubai's great crashAjay Shahhttp://www.blogger.com/profile/03835842741008200034noreply@blogger.comBlogger12125tag:blogger.com,1999:blog-19649274.post-69687247780579506112010-05-06T18:00:40.980+05:302010-05-06T18:00:40.980+05:30Dubai is also in the major downfall due to recessi...Dubai is also in the major downfall due to recession.online stock tradinghttp://www.selectyourbroker.com/Default.aspxnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-2978654271627784272010-05-06T17:59:36.446+05:302010-05-06T17:59:36.446+05:30i think recession is every where in Dubai also.i think recession is every where in Dubai also.investment solutionshttp://www.uniconindia.in/noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-74422192612014731682009-12-14T16:54:29.634+05:302009-12-14T16:54:29.634+05:30Hi Ajay,
I found your article pretty interesting,...Hi Ajay, <br />I found your article pretty interesting, however there are few aspects that I am unclear about. You have mentioned about exchange rate regimes. Can you explain in laymen terms how fixed exchange rate could have created this problem for Dubai and how floating rate could have been the deterrent for this problem.<br /><br />TIA<br /><br />- SandeepSandeepnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-29399961504852514152009-12-02T07:28:20.010+05:302009-12-02T07:28:20.010+05:30JB, These days we are all "Wicksellian" ...JB, These days we are all "Wicksellian" and don't like to focus so much on money supply. The focus is on interest rates as the measure of what monetary policy is doing, and the short-term interest rate as the instrument of monetary policy.<br /><br />However, the links between exchange rate pegging and money supply are more clear than the links between exchange rate pegging and the short-term interest rate. The steps run like this:<br /><br />* For emerging markets, capital inflows are procyclical (i.e. in good times, more money comes in, and vice versa)<br /><br />* Suppose the central bank tries to stabilise the exchange rate. Then in good times, it buys dollars, paying for these in rupees. So money supply goes up. Conversely, in bad times, capital leaves the country. If the central bank tries to stabilise the exchange rate, then in bad times, it sells reserves. This reduces money supply.<br /><br />For a clean presentation of this way of thinking as applied to Indian data, see: <a href="http://openlib.org/home/ila/PDFDOCS/Patnaik2004_implementation.pdf" rel="nofollow">this</a>.<br /><br />If you're optimistic about financial globalisation, then you would dispute the 1st proposition -- that capital flows to emerging markets are procyclical. In the narrow Indian experience, one does see evidence that more money comes into India in good times and vice versa.Ajay Shahhttps://www.blogger.com/profile/03835842741008200034noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-62611283188692791582009-12-02T01:40:45.247+05:302009-12-02T01:40:45.247+05:30I'm not an economist but I'm curious to kn...I'm not an economist but I'm curious to know if it makes sense to frame the exchange rate stabilization role in terms of money supply management - ie; is it correct to say that a free exchange rate would reduce money supply during good times and hence would reduce asset inflation/bubbles?JBnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-59159457536715495752009-12-01T16:49:10.626+05:302009-12-01T16:49:10.626+05:30Ajay:
I humbly submit that the hypothesis "E...Ajay:<br /><br />I humbly submit that the hypothesis "Exchange rate flexibility is a big source of business cycle stabilization" is academically inconclusive and highly debatable.<br /><br />But it was a nice conversation.<br /><br />Thanks and bye,<br />AshishAshishnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-85360412474141045792009-12-01T15:59:45.217+05:302009-12-01T15:59:45.217+05:30Ashish: I am focused on one point. Exchange rate f...Ashish: I am focused on one point. Exchange rate flexibility is a big source of business cycle stabilisation.Ajay Shahhttps://www.blogger.com/profile/03835842741008200034noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-76531412721266724062009-12-01T15:40:28.183+05:302009-12-01T15:40:28.183+05:30Ajay:
Let us discuss the first principles for a mo...Ajay:<br />Let us discuss the first principles for a moment.<br /><br />It must be accepted that the most of the finance, especially concepts based on the efficient markets, are not theoretically incontrovertible because it does not derive from the general equilibrium proofs of the existence, stability or optimality since such proofs generally apply in the context of competitive market economies without the modern financial markets. The economic case for free capital mobility relies on a strong macro version of the efficient market hypothesis.<br /><br />In the absence of these general proofs most of the arguments depend on our theoretical/philosophical underpinnings. There are undeniably several benefits due to liberalization process but we should not every time slip into a euphoric frame of mind and jump to conclude all forms of official interventions/regulations in the financial markets as financial repression.Ashishnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-90008734581515585622009-12-01T11:16:20.275+05:302009-12-01T11:16:20.275+05:30Ashish:
The basic intuition -- that flexible exch...Ashish:<br /><br />The basic intuition -- that flexible exchange rates are a shock absorber -- is not widely understood in India, and is certainly not known amongst the people who write speeches at RBI.<br /><br />E.g. a few weeks ago, a senior RBI person (name supressed so as to not embarass the guilty party) said that the right thing to do is to buy reserves in good times and sell reserves in bad times. This is wrong! :-) A little macroeconomic intuition will go a long way.<br /><br />The fact that we've just been through a great global financial crisis has not changed the 1st principles.Ajay Shahhttps://www.blogger.com/profile/03835842741008200034noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-26483041016981109852009-12-01T10:45:05.779+05:302009-12-01T10:45:05.779+05:30I believe reference to RBI in the third paragraph ...I believe reference to RBI in the third paragraph was not too much in context, more so reference to "RBI speech writers".<br />It looks like you people (including Ila Patnaik and Surjit Bhalla) with same philosophical mind set (accepting there is no vested interests) are searching one pretext or another to campaign against RBI. One would have thought these recurring financial crises had some sobering effects on the typical free market rants.Ashishnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-49860731923574594592009-11-30T13:44:13.595+05:302009-11-30T13:44:13.595+05:30I think Dubai is like East Asia in :
* Too much ...I think Dubai is like East Asia in :<br /><br /> * Too much leverage<br /> * Encouraged by a fixed exchange rate<br /> * Loss of the automatic stabilisation that happens when the exchange rate moves. So the thing is more brittle.<br /><br />It is unlike East Asia in that:<br /><br /> * The UAE is a `hard peg' - like Argentina. They are a currency board. They are not mere central banks trying to do market manipulation of the currency market. E.g. nobody is thinking theUAE peg will now break, while in the Asian Crisis there was a lot of fear about the exchange rate doing a big devaluation (which in turn encouraged people to leave, which in turn increased the chances of the exchange rate breaking).<br /><br />* I think East Asia had better fundamentals; their basic business model worked. Dubai more explicitly used the tools of media-led hype-building (with resources invested into this by the government) than East Asia ever did.<br /><br />Dubai was more like the dubious end of Indian entrepreneurship: bribing media, pulling off a glowing image makeover, rushing to cashin with an<br />IPO. East Asia was mainly a classic currency crisis of an unsustainable pegged exchange rate.Ajay Shahhttps://www.blogger.com/profile/03835842741008200034noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-43072612932594413952009-11-30T12:59:29.242+05:302009-11-30T12:59:29.242+05:30i cannot but help comparing this with the south ea...i cannot but help comparing this with the south east Asian crisis of 97 ... i think the premise is the same ... exchange rate and convertibility ... the underlying is the same .. real estate ... maybe the difference is that UAE was expecting to get some money from oil that didnt come .. in addition to external demand ... probably the exchange rate was fixed so as to sustain oil exports ... would really appreciate your views on thisSumeetnoreply@blogger.com