Variable-rate Mortgages, Liquidity Funding, and the Euro

The Financial Regulator, Matthew Elderfield, received a clamour of popular support recently when he publicly objected to the Irish domestic banks planned decision not to decrease variable mortgage rates in response to the ECB cut in interest rates. The political establishment was warmly enthusiastic for Elderfield’s intervention. The government used its shareholding and political muscle to ensure that the banks’ decisions were reversed. The government also offered to provide the financial regulator with legislative power to determine banks’ mortgage rates. Wiser heads within the Central Bank prevailed, and the government was told by the Central Bank “thanks, but no thanks” for the offer of new legal power to set retail mortgage rates. Continue reading “Variable-rate Mortgages, Liquidity Funding, and the Euro”

Walk-out from Greg Mankiw’s Class

As part of ongoing protests in the US, a group of Harvard students staged a walk-out from Greg Mankiw’s introductory Economics class. Mankiw links to their letter, the Harvard Crimson article on the matter and a letter of defence here. In total, according to Mankiw, about 5-10 per cent of the students walked-out, and a group of other students then walked in as counter-protesters. It is an interesting question as to how students who object to the way Economics is taught deal with this issue, and how universities respond to them.

Kilkenomics 2011

I’ve agreed to participate in some sessions at this year’s Kilkenomics which will take place between Wednesday November 2 and Sunday November 6.  While obviously leaving myself open to (perhaps fair!) jokes about the differences between economists and comedians, I’m looking forward to it. I’d recommend people to take a look at the line-up. There are lots of interesting sessions on important issues and many excellent speakers, including Jeff Sachs from Columbia.

Ireland’s economists in the world

I’ve taught myself the black art of web-scraping.

There are many rankings of economists and economics departments. IDEAS/RePEc uses a reasonable method and is kept up to date. It also provides rankings by and of countries. Ireland is now ranked 33rd in the world. Ireland’s economists are thus about as good as its soccer players (ranked 31st).

It wasn’t always thus. IDEAS/RePEc has published country rankings since 2005. Ireland’s position has steadily improved over time, as can be seen from this graph. As a number of economists are planning to emigrate, that trend may reverse.

Economists and the Media

Richard Tol has raised some interesting issues about the interaction between economists and the media. One point he makes is how much of the supposed expert commentary in the media is from people who have limited expertise. That’s not too controversial and I think is true of media throughout the world.

As I read it, however, Richard is also making another point related specifically to academics. This point is that only those who are experts in a particular area, as signified by their contributions to academic publications, should discuss this area with the media.

On balance, I don’t see much merit in this argument.

I’d make the following points:

First, while it is true that an economist with more frontier research contributions is (other things being equal) more likely to be smart and on top of their subject area, it is also true that the majority of economic policy issues that are discussed in the media do not relate these frontier debates.

For example, based on my publications in leading journals, I could bore for Ireland on the merits of the New Keynesian Phillips curve or the link between consumption spending and asset prices. However, the media aren’t too interested. Instead, they often ask me to discuss issues that a very good command of undergraduate or master’s level economics would allow a person to explain. In most cases, it does not take a frontier-economics level of expertise to answer the questions about bank balance sheets or fiscal policy that the media are often interested in.

This point probably holds particularly well for my specialised research area of macroeconomics but I think it holds pretty broadly across various subfields. For example, I think it’s now pretty well known that Richard Tol has published a large number of academic papers in the area of environmental economics. However, when economists, including Richard, appear in the Irish media to discuss environmental policy issues, in the vast majority of cases they are making points about taxes to curb externalities or pricing to match costs of services with costs of provision – points that I recall from second year undergraduate microeconomics.

To summarise, a smart economist without any frontier research publications in a particular area is perfectly capable of making useful points about a whole range of issues.

Second, when arguing that an academic should decline invitations to discuss anything other than issues they have published papers on, it’s worth keeping in mind the alternative the public will get to hear if the academic says no. Whatever Richard thinks about Irish academics, there is a large number of financial journalists and stockbrocker economists whose job is to say yes when asked to appear on these shows (in the case of the latter, they often appear to promote a particular interest group’s point of view).

In many cases, an academic that agrees to discuss an issue on which they have not published a paper is doing so because they have an opinion on the issue based on their expertise and because they are fairly sure that the alternative is that the public get to hear something from a journalist with very little background at all in economics or someone promoting a vested interest.

Third, Richard reckons that “The typical listener to the radio or watcher of the TV assumes that because someone is a professor and speaking on the topic, (s)he must be an expert.” Well, maybe that’s true in Holland but it sure isn’t true here. If you think everyone in Ireland thinks I’m an expert on issues I prognosticate on, I recommend reading the comments on this blog. Appearing with the title “Professor” is nice but if you can’t make cogent logical arguments, then the public won’t necessarily buy what you are saying.

Finally, I’d note that there is very little financial compensation for appearing on Irish TV and radio shows (fees are somewhere between very low, e.g. €50, and zero) and, from conversations with colleagues, I believe the majority of reasonably well known economists say no most of the time when asked to appear on these shows. I believe that those Irish academics who appear on TV and radio to discuss economic policy issues are largely doing so because they believe they have a useful contribution to make and that their state-paid salary places an obligation on them to make a useful contribution to debates about public policy.

Public Policy and Behavioral Economics

For those interested in behavioural economics, and its relevance to public policy, the recently released book by Congdon, Kling and Mullainathan, published by the Brookings Institute press, is essential reading. Entitled “Policy and Choice: Public Finance through the lens of behavioral economics”, the full book is free to download as a pdf file from the website. This is the best summary of the application of behavioral economics to public policy questions that I have read. There are chapters on asymmetric information, externalities, poverty and taxation, as well as summary and overview chapters. Ireland is in the process of fairly dramatically redesigning our health and pension systems and the insights from this book are extremely important to consider in this process. The first three chapters, in particular, are concise and clear descriptions of the main directions in this literature.

Next Generation Ireland

Am a bit late to this, but better late than never. Ronan Lyons, who has indirectly contributed a lot of material to this blog, and Ed Burke are co-editors of a new book called Next Generation Ireland. The book includes contributions from Ronan Lyons and Ed Burke themselves who give an introductory essay. Ronan also provides a chapter on improving the public sector and a co-authored chapter with Stephen Kinsella on improving fiscal policy in terms of both levels and composition. Eoin O’Malley takes on the issue of political and governmental reform. Michael Courtney has a chapter on identity, migration and citizenship. Michael King offers a chapter on improving competitiveness. Joseph Curtin has a chapter on environmental issues. Aoibhin de Burca has a chapter on North-South and Ireland-UK relations. Neil Sands and Nicola White provide an essay on the global extent of Irish identity and the importance of thinking along these dimensions. Co-editor Ed Burke’s final chapter is on Irish foreign policy.

Please feel free to use this post to debate aspects of the book if you have read it. Might also be worth debating what qualities the next generation of people who influence policy and business in Ireland should possess.

Brookings Papers are now freely available for all

The Brookings Papers on Economic Activity are now freely available on the web. This is a really terrific resource which I hope will be of interest to lots of our readers. For example, you can read what some of the top economists in the world were saying at the time about the Latin American debt crisis of the 1980s, the EMS crisis of 1992/3, and the East Asian crisis of the late 1990s, to name just three examples.

Welfare and incentives

Some of my students today complained – softly – about the workings of the Back to Education Allowance.    Like many such schemes globally it allows for some mechanism to maintain welfare payments whilst returning to full time education at both second and third level.   Laudable enough, although  I haven’t seen this evaluated in terms of impact but then again what is new for Irish policy.

Continue reading “Welfare and incentives”

History of economic thought: back from the brink?

Bright undergraduates tend to enjoy courses in the history of economic thought — I know I did — but the field is in an even more parlous state than economic history when it comes to the hiring decisions of economics departments. After all, why spend time studying the mistaken theories of the past, when you can study the superior theories that have replaced them?

(OK, perhaps that argument doesn’t seem quite so compelling now as it did a few years ago.)

So I was interested to see David Warsh’s report from the AEA meetings which quoted James Heckman, no less, as making the argument for history of thought courses in Economics PhD programmes. It follows the launching of a blog which promises to “engage current financial news and policy debates from the standpoint of the classics of monetary theory.”

And Brad makes the pitch in characteristically understated fashion here.

Irish Version of Gavyn Davies’ Graph

Tony Leddin and I have included a version of this type of graph in successive editions of our textbook The Macroeconomy of Ireland.
Here are two slides showing the data for Ireland from 1970 to 2009.

(It proved easier to post a link to Flickr than to go through to rigmarole of uploading via this site!)

Happy Christmas!

Establishment of the Review Group on State Assets

As has been widely reported the Minister for Finance has established a Review Group on State Assets that is chaired by Colm McCarthy.

The terms of reference are:

  • To consider the potential for asset disposals in the public sector, including commercial state bodies, in view of the indebtedness of the State.
  • To draw up a list of possible asset disposals.
  • To assess how the use and disposition of such assets can best help restore growth and contribute to national investment priorities.
  • To review where appropriate, relevant investment and financing plans, commercial practices and regulatory requirements affecting the use of such assets in the national interest.
  • While most comments in the media have interpreted the focus on asset disposals to refer only to privatisation, it is perfectly possible that the various state companies hold assets that might not be essential for the efficient running of these businesses and thus could be disposed of without privatisation.

    In relation to privatisation it will be important not only to consider the short-run gain in funds through the sale of assets, but the longer-run impact on the competitiveness of the economy. Long-run considerations should include the loss of control of national strategic assets that would result from a sale. This might be addressed by keeping the key infrastructures such as networks in public ownership.

    In some cases it might also be useful to consider a long-term lease as an alternative to an outright sale of assets, which will also yield revenue up-front but avoids the ‘selling off of family silver’. Joint ownership is another option.

    Looking through the list of assets to be reviewed it is hard to ignore the differences in ownership patterns with many other countries. Electricity generation, ports and airports are private in many countries.

    The ESRI forecast record

    The ESRI macro-economic forecast record has attracted some attention this week.

    The Indo is unfair to Frances Ruane. The ESRI has long tried and failed to fill the gap in its expertise in finance. In 2006 and 2007, it was nigh impossible to hire an economist. Part of the problem was/is that the data on the financial sector were/are so murky.

    The Irish Times is fair in its critique.

    For the record, the ESRI did predict the end of the housing boom (as did most others because it was fairly obvious) but we did not foresee that this would coincide with a major international crisis in finance (again, we were not alone).

    As Science Evolves, How Can Science Policy?

    Benjamin Jones of Northwestern University has written an interesting article on how the changes in the nature of scientific research pose challenges for science policy.  You can read it here.


    Getting science policy right is a core objective of government that bears on scientific advance, economic growth, health, and longevity. Yet the process of science is changing. As science advances and knowledge accumulates, ensuing generations of innovators spend longer in training and become more narrowly expert, shifting key innovations (i) later in the life cycle and (ii) from solo researchers toward teams. This paper summarizes the evidence that science has evolved – and continues to evolve – on both dimensions. The paper then considers science policy. The ongoing shift away from younger scholars and toward teamwork raises serious policy challenges. Central issues involve (a) maintaining incentives for entry into scientific careers as the training phase extends, (b) ensuring effective evaluation of ideas (including decisions on patent rights and research grants) as evaluator expertise narrows, and (c) providing appropriate effort incentives as scientists increasingly work in teams. Institutions such as government grant agencies, the patent office, the science education system, and the Nobel Prize come under a unified focus in this paper. In all cases, the question is how these institutions can change. As science evolves, science policy may become increasingly misaligned with science itself – unless science policy evolves in tandem.

    INFINITI 2010 Conference at TCD: International Credit and Finance Markets: After the Storm?

    The largest finance conference in Ireland returns for its eight year; The INFINITI Conference on International Finance will be held at TCD from 14th-15th June.

    In addition to the keynote and special sessions, there are over 166 papers being presented. Full details including registration are available here.

    Highlights of the conference include

    • Opening address by Professor Patrick Honohan, Governor of the Central Bank of Ireland (Monday 14 June)
    • Roundtable on Property and Real Estate Investment, Monday 14 June, afternoon with lead speaker Professor Simon Stevenson, Director of Center for Real Estate Studies, City University Business School, London, and panel members Derek Brawn, Constantin Gurdgiev, and Peter Matthews.
    • Roundtable on Investment in a Post Crisis World, Tuesday 15 June, Afternoon. Sponsored by the CFA Institute Ireland, this roundtable features: “An Update on Latest Trends in Fund Offerings” by David Hammond, CFA, Bridge Consulting,  “Major Challenges in Allocations to Irish and Emerging Markets’ Equities, Liquidity Risk and Product Innovation: The Perspective of a Pension Fund Trust” by Stephanie Condra, CFA,  Invesco Pension Consultants,   “An Update on Current Issues in the EU Government Bond Market” by Catherine McLaughlin, CFA, Irish Life and “Role of the CFA Institute and CFA Ireland in the Changing World” by Oliver McClure, CFA
    • Roundtable on The Structure of the Emerging Bond Market, organized by the OECD Development Centre in collaboration with the Pontifical Catholic University of Argentina Graduate Business School. It will bring together three recent papers on the micro-structure and pricing of emerging bond markets.

    166 research papers on a vast array of international financial topics. Highlights include Continue reading “INFINITI 2010 Conference at TCD: International Credit and Finance Markets: After the Storm?”

    Behavioural Economics, Policy and Business

    On the 28th May, the Geary Institute will hold a major event on “Behavioural Economics, Policy and Business” in Dublin City Centre.

    The currently confirmed panelists include Liam Delaney and Colm Harmon of the UCD Geary Institute, Peter Lunn of the ESRI and author of the well-known behavioural economics book Basic Instincts, and Gerard O’Neill, Director of Amarach Research. The event begins at 2pm and ends at 4pm, and will be followed by coffee. The venue is the Institute of Bankers building on North Wall Quay.

    The session will begin with a short introduction to the field of behavioural economics. This short introduction will provide a working definition of behavioural economics; a short history of the field; an overview of the major global centres and projects in the area; a description of the most widely cited applications of behavioural economics ideas to real-world problems; and a brief overview of potential applications in the Irish business and policy context.

    A wide ranging panel discussion will follow, addressing such questions as:

    – What aspects of behavioural economics should particularly interest business people? For example, how is behavioural economics relevant to product development, advertising and marketing? What are the potential regulatory changes emerging from this literature?

    – Why should policymakers care about behavioural economics? What is the relevance of behavioural economics to such questions as how we should design taxation and regulation? Is there any role for government to protect citizens from themselves in areas such as financial services?

    – What has this new literature to say about economic renewal in Ireland including its relevance to major strategic initiatives such as the Smart Economy and the Strategy for Science Technology and Innovation?

    We welcome suggestions for other questions to pose during the panel discussion. There will also be ample opportunity for audience participation.

    In order to help us plan the event and print registration details, we would be very grateful if people could RSVP to at their earliest possible convenience if they intend attending the event.

    The New Development Economics

    The current issue of the New Yorker has a profile of Esther Duflo.  In the article, the views of Angus Deaton on the limitations of randomised controlled trials are assessed as wondering if “someone put sand in Angus’s toothpaste”.  Readers will find the offending substance here. 

    You will undoubtedly  make your own assessment of the following direct quote from Duflo in the New Yorker piece:  “I want a baby goat” she mused.  “I’ll take good care of it”.