ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Food Price as a Nominal Standard

Food Price as a Nominal Standard Ashima Goyal Foodgrain Price Stabilisation in Developing Countries: Issues and Experiences in Asia by N Islam and S Thomas, International Food Policy Research Institute; Washington, D C, pp 136 + viii.

Waves in Fashion: Macro-Economics and Development

and Development Ashima Goyal Macro-Economic Challenges and Development Issues, (Essays to Commemorate the Birth Centenary of C N Vakil) edited by Dilip M Nachane and M J Manohar Rao; Himalaya Publishing House, Mumbai, 1997; pp 457, Rs 750.

Arbitrage An Explanation for South-East Asian Crisis and Indian Immunity

Crisis and Indian Immunity Ashima Goyal Shridhar Dash In many south-east Asian countries, the short-term bank lending interest rate significantly exceeded the US rate through the 1990s. This interest differential exceeded the change in nominal exchange rates over the period. Country risk was low because growth was high. Governments committed to stimulate exports would not allow an appreciation of the exchange rate, and the large foreign inflows ruled out an immediate depreciation. Therefore private corporations and banks had a large incentive to borrow abroad in the short- term without hedging. But because medium-run expectations of depreciation had to be positive, to satisfy arbitrage, and equilibrate domestic to foreign returns, the economies were susceptible to shocks. This together with financial market weaknesses explains the rapid collapse after mild external shocks. In monetary theories of exchange rate determination, the currency depreciates under excessive money growth. We demonstrate conditions under which an expected depreciation of the exchange rate can occur under low monetary growth. Tight money policy and a high revenue deficit kept our interest rates far above foreign and triggered an industrial recession in 1996-97, and a depreciation of the exchange rate. But during the onset of the southeast Asian crisis monetary policy had been relaxed. This helped India escape the crisis. Other implications of our analysis for Indian economic trends are explored.

Arbitrage An Explanation for South-East Asian Crisis and Indian Immunity

Crisis and Indian Immunity Ashima Goyal Shridhar Dash In many south-east Asian countries, the short-term bank lending interest rate significantly exceeded the US rate through the 1990s. This interest differential exceeded the change in nominal exchange rates over the period. Country risk was low because growth was high. Governments committed to stimulate exports would not allow an appreciation of the exchange rate, and the large foreign inflows ruled out an immediate depreciation. Therefore private corporations and banks had a large incentive to borrow abroad in the short- term without hedging. But because medium-run expectations of depreciation had to be positive, to satisfy arbitrage, and equilibrate domestic to foreign returns, the economies were susceptible to shocks. This together with financial market weaknesses explains the rapid collapse after mild external shocks. In monetary theories of exchange rate determination, the currency depreciates under excessive money growth. We demonstrate conditions under which an expected depreciation of the exchange rate can occur under low monetary growth. Tight money policy and a high revenue deficit kept our interest rates far above foreign and triggered an industrial recession in 1996-97, and a depreciation of the exchange rate. But during the onset of the southeast Asian crisis monetary policy had been relaxed. This helped India escape the crisis. Other implications of our analysis for Indian economic trends are explored.

Adjustment Past, Present and Future

Ashima Goyal Adjustment in Oil-Importing Developing Countries: A Comparative Economic Analysis by Pradeep K Mitra; Cambridge University Press, Cambridge; pp 321 + xiv.

Savings A Clarificatory Note

Savings: A Clarificatory Note Ashima Goyal THERE is an ongoing debate in Economic and Political Weekly on the measurement of savings in India. We claborate on some issues that are relevant to this discussion, and point out a conceptual error in the treatment of foreign inflows in the national accounts statistics, After enumerating the reasons why household physical savings may well be underestimated, we use some simple macro- economic identities to clarify the effect of foreign inflows on savings in Section II. In Section III we see the ways in which these macro-economic concepts and identities can clarify measurement practice. Section IV uses the pattern in acquisition of gold in the 1990s to suggest that contrary to widespread belief, gold is purchased more for investment rather than for consumption, in India.

Industrial Pricing and Growth Fluctuations-Some Tests

Some Tests Ashima Goyal This paper examines the relationship between the mark-up and activity, for disaggregated industrial sectors in India. Mark-up pricing is shown to be consistent with profit maximisation, and the theoretical hypothesis about pricing behaviour is tested empirically.

Savings When Data Is Doubted Can Theory Help

Savings: When Data Is Doubted Can Theory Help? Ashima Goyal Simulations with a dynamic general equilibrium model indicate that there is some underestimation of savings in the 1990s, but at the same time there has been a fall in savings propensities. There are many ways in which foreign inflows impinge on savings. If they raise the rate of growth then savings do tend to be higher in periods of rapid growth. But in order to prevent an unsustainable accumulation of debt, it is essential to maintain high incentives for savings and investment, and provide new instruments for both. In the presence of the latter, mobility between income groups augurs well for a future rise in the Indian aggregate savings ratio.

Equality versus Incentives

Market Socialism: The Current Debate edited by Pranab K Bardhan and John E Roemer; Oxford University Press, 1993; pp 324, Rs 495. THE reviewer has a difficult time with today's innumerable conference volumes composed "so much, so much of odds and ends". Even so, this particular volume is well structured and has papers of a uniformly high calibre. It is possible to tell a coherent story by taking up the central theme and drawing upon relevant arguments from the papers in the volume. Most of the chapters follow adiscursive rather than mathematical mode. Even so, they provide a pleasurable conceptual thicket to wander in.

Macroeconomics in India

Macroeconomics edited by Prabhat Patnaik; Oxford University Press, Delhi, TO make research on Indian themes accessible to the student is a laudable objective. It carries with it a heavy responsibility of being balanced, comprehensive and readable. In that respect there are both negative and positive aspects to the timing of the book under review. The reforms have focused attention on macroeconomics. A clear understanding of the way in which they interact with the structure of the economy is essential for their success. The book offers a platform to develop this understanding. Unfortunately, given the sharp differences between schools of macroeconomics, the conjuncture makes it all the more difficult to desist from polemics. Most of the authors represented in the volume do manage to resist the temptation. Occasional lapses arc perhaps inevitable.

Putting Structure on Structural Adjustment

Ashima Goyal The paper attempts to build a framework to appraise the structural adjustment programme (SAP). It is argued that while such a framework should work with macro-economic categories of aggregate demand and supply, it should incorporate structural features of the Indian economy, focus on the decisions of the firm over the medium run, and be capable of analysing the affects on growth, of macro-economic policies. Conclusibns follow that inflation is best managed by a set of policies that stimulate demand as well as supply. The possibility of multiple equilibria implies that a set of policies that act in concord to push the economy on a high growth path can lead to a situation where every group benefits. As the price of food is the nominal standard for the Indian economy, policies that effect the former are particularly important.

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