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

Articles By K Subramanian

Forward Guidance in Retreat

One among the many ingredients of the verbal soup dished out by United States Federal Reserve to help the economy regain its health in the years after the 2008 crisis was FG (forward guidance), linked closely to QE (quantitative easing). But the Fed soon found itself in an expectation trap and emergent economies found themselves trapped by it. This article explains FG's short and tumultuous life and why it may be headed towards a well-deserved end.

Hot Air from Jackson Hole

The 2013 Jackson Hole symposium lacked the star power of earlier years with US Federal Reserve Chairman Ben Bernanke and European Central Bank President Mario Draghi keeping away. From the viewpoint of developing economies, the most relevant paper was presented by Helene Rey of the London Business School. She not only raised critical issues generally glossed over by neoclassical and monetarist economists, but also cautioned against the hegemonic role of the Fed.

Rupee's Travails

There is a tendency in official circles to link the rupee’s current problems to the crisis in Greece and the eurozone. India will no doubt feel a contagion effect but the deeper problem is that the economy and the rupee are beginning to pay the price for the excessive dependence on capital infl ows, especially from foreign institutional investors and external commercial borrowings. It will not do to blame the Greek crisis for the rupee’s problems.

Efficient Market Hypothesis: The Model That Failed

The assumption of the efficient market hypothesis is that the price of a financial asset reflects all available information that is relevant to its value. The players are rational and all information is available in the public domain. But the recent global financial crisis has brought out the failure of the EMH and there is valid theoretical criticism of the hypothesis. How did the EMH flourish and self-destruct?

Treason of the Clergy?

For years, the International Monetary Fund has advocated capital account convertibility in order to attract capital inflows and achieve growth in developing countries. The Fund's economists have long worked to include CAC in their reform-cum-adjustment programmes. The IMF research report released recently has led to the view that the organisation has reversed its position on CAC. However, a closer look at the fine print reveals the caveats, conditions and contexts within which it has embedded the suggested capital controls.