The blog is located @ Undergraduate Economist
I thank all the readers and friends for their support and hope that my relocation would be welcomed.
Thank you blogspot!
You can read my feeds here:
Thursday, August 03, 2006
Official!
I have relocated my blog to wordpress. I will be blogging on economics at wordpress too. The HTML in blogspot made it difficult for me.
The blog is located @ Undergraduate Economist
I thank all the readers and friends for their support and hope that my relocation would be welcomed.
Thank you blogspot!
You can read my feeds here:
The blog is located @ Undergraduate Economist
I thank all the readers and friends for their support and hope that my relocation would be welcomed.
Thank you blogspot!
You can read my feeds here:
Dilemma
I just discovered Wordpress and i am contemplating about a shift to wordpress. It is more convenient. I am in doubt as to whether i should move all my posts in my current blog or to leave it here itself. Could someone suggest a solution?
Wednesday, August 02, 2006
Development: A suspicious Alternative
Recently, I came across an article by Jagdish Bhagwati, a renowned economist at Columbia University. After reading the article I was in a doubtful state of mind.
His main proposal to combat poverty in Africa was “If it is hard to think of aid being spent productively in Africa, why not spend elsewhere for Africa?”
He was of the view that Africa would not be able to absorb the aid efficiently. So it would be profitable and more pertinent to spend the aid for Africa in Developed countries itself, by conducting research for development of new vaccines and cures for crippling diseases afflicting African nations. I call this proposal strange. Because then Africa for ever after be dependent on these rich nations.
This would further widen the disparities in Income between developing and developed countries. It is a wise plot aimed at reducing aid to developing nations.
He goes further to state that he is against those like Jeffrey Sachs who insists that the aid ought to be spent in Africa itself.
It wouldn’t be difficult to predict the outcome. The rich nations would not have to hesitantly part with the aid, instead they would be able to invest in within their geographical territories itself.
His main proposal to combat poverty in Africa was “If it is hard to think of aid being spent productively in Africa, why not spend elsewhere for Africa?”
He was of the view that Africa would not be able to absorb the aid efficiently. So it would be profitable and more pertinent to spend the aid for Africa in Developed countries itself, by conducting research for development of new vaccines and cures for crippling diseases afflicting African nations. I call this proposal strange. Because then Africa for ever after be dependent on these rich nations.
This would further widen the disparities in Income between developing and developed countries. It is a wise plot aimed at reducing aid to developing nations.
He goes further to state that he is against those like Jeffrey Sachs who insists that the aid ought to be spent in Africa itself.
It wouldn’t be difficult to predict the outcome. The rich nations would not have to hesitantly part with the aid, instead they would be able to invest in within their geographical territories itself.
Monday, July 31, 2006
More Podcasts and audio
These are the free podcasts and videos available on the following economic and social issues.
1) Jeffrey Sachs- The end of poverty
2) Thomas L Friedman- The world is flat
3) Friedrich Hayek- Mises Institute Lectures
4) On Inflation
5) On Income inequality
6) Charan Singh- On foreign reserves
Will come up with more as I come across them.
1) Jeffrey Sachs- The end of poverty
2) Thomas L Friedman- The world is flat
3) Friedrich Hayek- Mises Institute Lectures
4) On Inflation
5) On Income inequality
6) Charan Singh- On foreign reserves
Will come up with more as I come across them.
Saturday, July 29, 2006
Podcasts in Economics
For those interested in hearing about Economics, some sites have collected podcasts from renowned economists. The links are given below.
1) Productive Strategies- List of Academic Lecture Podcasts
2) Radio Economics
3) Learn out aloud.com- Economics Free Audio & Video
4) Stanford - SIEPR
5) On Inequality- Victor Fuchs
These pages have some important links to podcasts featuring Jeffrey Sachs, Jadgish Bhagwati, Thomas L Friedman, Friedrich A. Hayek, Lee C. Bollinger, etc.
To know more about the wonderful subject of economics, view these links.
Post your comments on these link and how they helped you.
I will be posting the links to podcasts on specific issues soon.
1) Productive Strategies- List of Academic Lecture Podcasts
2) Radio Economics
3) Learn out aloud.com- Economics Free Audio & Video
4) Stanford - SIEPR
5) On Inequality- Victor Fuchs
These pages have some important links to podcasts featuring Jeffrey Sachs, Jadgish Bhagwati, Thomas L Friedman, Friedrich A. Hayek, Lee C. Bollinger, etc.
To know more about the wonderful subject of economics, view these links.
Post your comments on these link and how they helped you.
I will be posting the links to podcasts on specific issues soon.
Friday, July 28, 2006
India: Management of Foreign Exchange
[This is related to a JNUEE essay question of 2005.]
[Reference: Charan Singh 2005]
Trends
India followed a restrictive external sector policy until 1991, mainly designed to conserve limited FER for essential imports (petroleum goods and food grains), restrict capital mobility, and discourage entry of multinationals. The external sector strategy since 1991, though gradual in approach, has shifted from import substitution to export promotion, with sufficiency of FER as an important element. As a result of measures initiated to liberalize capital inflows, India’s FER (mainly foreign currency assets) have increased from US$6 billion at end-March 1991 to US$140 billion at end-March 2005. India ranks fifth in the world in holdings of FER in 2004.
The current account was opened in August 1994, and the capital account is cautiously, though gradually, being liberalized.
Objectives
1) To preserve the long term value of reserves in terms of purchasing power over goods and services.
2) To minimise risk and volatility in returns.(ensuring safety and liquidity)
3) To provide confidence to domestic and foreign investors in markets.
What Are the Sources of Rising Foreign Exchange Reserves?
The main sources of rising FER in India are inflows of foreign investment (more portfolio than direct) and banking capital, including deposits by non-resident Indians. Foreign portfolio investment is considered less stable than foreign direct investment but here in India most of our FER is made up of foreign portfolio investment.
How Are the Foreign Exchange Reserves Managed in India?
The Reserve Bank of India (RBI), in consultation with the Government of India, currently manages FER. The essential framework for investment is conservative and is provided by the RBI Act, 1934, which requires that investments be made in foreign government securities (with maturity not exceeding 10 years), and that deposits be placed with other central banks, international commercial banks, and the Bank for International Settlement following a multicurrency and multi-market approach. The direct financial return on holdings of foreign currency assets is low, given the low interest rates prevailing in the international markets.
Singapore model
Singapore has earned a return of 9.5 per cent a year, in US dollar terms compared to a mere 3.1 per cent India has earned.
More Details
For more details visit The Hindu Business line: Following the Singapore model.
For those interested in knowing more about Indian FER and for those preparing for JNU entrance exam, go through this paper by Charan Singh.
[Reference: Charan Singh 2005]
Trends
India followed a restrictive external sector policy until 1991, mainly designed to conserve limited FER for essential imports (petroleum goods and food grains), restrict capital mobility, and discourage entry of multinationals. The external sector strategy since 1991, though gradual in approach, has shifted from import substitution to export promotion, with sufficiency of FER as an important element. As a result of measures initiated to liberalize capital inflows, India’s FER (mainly foreign currency assets) have increased from US$6 billion at end-March 1991 to US$140 billion at end-March 2005. India ranks fifth in the world in holdings of FER in 2004.
The current account was opened in August 1994, and the capital account is cautiously, though gradually, being liberalized.
Objectives
1) To preserve the long term value of reserves in terms of purchasing power over goods and services.
2) To minimise risk and volatility in returns.(ensuring safety and liquidity)
3) To provide confidence to domestic and foreign investors in markets.
What Are the Sources of Rising Foreign Exchange Reserves?
The main sources of rising FER in India are inflows of foreign investment (more portfolio than direct) and banking capital, including deposits by non-resident Indians. Foreign portfolio investment is considered less stable than foreign direct investment but here in India most of our FER is made up of foreign portfolio investment.
How Are the Foreign Exchange Reserves Managed in India?
The Reserve Bank of India (RBI), in consultation with the Government of India, currently manages FER. The essential framework for investment is conservative and is provided by the RBI Act, 1934, which requires that investments be made in foreign government securities (with maturity not exceeding 10 years), and that deposits be placed with other central banks, international commercial banks, and the Bank for International Settlement following a multicurrency and multi-market approach. The direct financial return on holdings of foreign currency assets is low, given the low interest rates prevailing in the international markets.
Singapore model
Singapore has earned a return of 9.5 per cent a year, in US dollar terms compared to a mere 3.1 per cent India has earned.
More Details
For more details visit The Hindu Business line: Following the Singapore model.
For those interested in knowing more about Indian FER and for those preparing for JNU entrance exam, go through this paper by Charan Singh.
Thursday, July 27, 2006
Monetary aggregates
Money
Economists have proposed a functional definition of money, i.e. any object that is generally acceptable in facilitating the exchange of goods and services.
It took me a lot of time to come up with the meanings of the monetary aggregates in the Indian context. This post gives an idea about the composition of various monetary aggregates. These aggregates are commonly used in journals relating to economics, so these definitions will help in comprehending the data better.
What are M1 and M3?
M1 and M3 are standard measures of money supply. Other standard measures are M0 and M4. Each monetary aggregate is ranked according to the degree of liquidity it provides. Monetary aggregates measure the amount of money circulating in an economy.
M0 includes only currency in the hands of the public, banks’ statutory reserve deposits held at the central bank and banks’ cash reserves. In India it is usually referred to as reserve money. It is controlled by the central bank of the country. (Link:RBI)
Narrow money (M1) is the sum of currency in circulation and demand deposits at monetary institutions.
Monetary aggregate (M2) is defined as M1 plus post office savings, bank deposits and residents' deposits in foreign currency at deposit money banks.
M3 is defined as M2 plus other time deposits with banks. The components of M3 vary between countries. It is also called broad money.
M4 or L is referred to as very broad money. It comprises M3 plus treasury bills, negotiable bonds and pension funds.
Narrow money measures cover highly liquid forms of money (money as a means of exchange) while broad money includes the less liquid forms (money as a store of value).
Economists have proposed a functional definition of money, i.e. any object that is generally acceptable in facilitating the exchange of goods and services.
It took me a lot of time to come up with the meanings of the monetary aggregates in the Indian context. This post gives an idea about the composition of various monetary aggregates. These aggregates are commonly used in journals relating to economics, so these definitions will help in comprehending the data better.
What are M1 and M3?
M1 and M3 are standard measures of money supply. Other standard measures are M0 and M4. Each monetary aggregate is ranked according to the degree of liquidity it provides. Monetary aggregates measure the amount of money circulating in an economy.
M0 includes only currency in the hands of the public, banks’ statutory reserve deposits held at the central bank and banks’ cash reserves. In India it is usually referred to as reserve money. It is controlled by the central bank of the country. (Link:RBI)
Narrow money (M1) is the sum of currency in circulation and demand deposits at monetary institutions.
Monetary aggregate (M2) is defined as M1 plus post office savings, bank deposits and residents' deposits in foreign currency at deposit money banks.
M3 is defined as M2 plus other time deposits with banks. The components of M3 vary between countries. It is also called broad money.
M4 or L is referred to as very broad money. It comprises M3 plus treasury bills, negotiable bonds and pension funds.
Narrow money measures cover highly liquid forms of money (money as a means of exchange) while broad money includes the less liquid forms (money as a store of value).
Wednesday, July 26, 2006
Trade Related Intellectual Property Rights a.k.a TRIPS
TRIPS is the commonly used acronym for Trade Related Intellectual Property Rights. When ever a meeting of the World Trade Organisation (WTO) commences, TRIPS come under the scrutiny of columnists and journalists. Why is that? What is this thing that so often stirs up a hornets nest? These are questions which every individual might ask.
According to the WTO, “Intellectual property rights are the rights given to persons over the creations of their minds. They usually give the creator an exclusive right over the use of his/her creation for a certain period of time.”
The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) was first negotiated in WTO’s 1986-94 Uruguay Round.
The reasons behind the need for TRIPS, given by the WTO is that “The extent of protection and enforcement of these rights varied widely around the world; and as intellectual property became more important in trade, these differences became a source of tension in international economic relations. New internationally-agreed trade rules for intellectual property rights were seen as a way to introduce more order and predictability, and for disputes to be settled more systematically.”
TRIPS has introduced the following standards of protection.
1) Copyright
2) Trademarks
3) Geographical indications
4) Industrial designs
5) Patents
6) Integrated circuits layout designs
7) Undisclosed information and trade secrets
(For more details on these measures visit the WTO web site)
(An example of an Indian Geographical indication is Basmati Rice, Darjeeling Tea, Kanchipuram Silk Saree, etc.)
These measures have been advocated so as to reward and promote creativity and innovations. How far they have rewarded creativity is debatable. These measures provide them rights over their own inventions.
My concerns
One major reason for me to be concerned is because these TRIPS agreement took place during the early Globalisation years (1986-94). This was a period of liberalisation, privatisation and market integration with the global economy for many developing nations like India, China, Argentina, etc. India became a member of WTO on January 1, 1995.This was a period where the ‘Creativity Economy’ was booming. Getting hold of patents, copyrights etc is a time consuming and tedious task, especially in the developing countries as the flow of processes and services were not very advanced and smooth. The developed nations exploited this opportunity. They protected themselves by gathering a lot of patents and copyrights, which made manufacturing and allied activities difficult for the developing countries. The rich nations enjoyed a comparative advantage over the poor ones and also widened the inequalities, in their quest to become economic and political superpowers.
Has TRIPS benefited the common man? Have they significantly improved the growth of the Indian economy?
According to the WTO, “Intellectual property rights are the rights given to persons over the creations of their minds. They usually give the creator an exclusive right over the use of his/her creation for a certain period of time.”
The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) was first negotiated in WTO’s 1986-94 Uruguay Round.
The reasons behind the need for TRIPS, given by the WTO is that “The extent of protection and enforcement of these rights varied widely around the world; and as intellectual property became more important in trade, these differences became a source of tension in international economic relations. New internationally-agreed trade rules for intellectual property rights were seen as a way to introduce more order and predictability, and for disputes to be settled more systematically.”
TRIPS has introduced the following standards of protection.
1) Copyright
2) Trademarks
3) Geographical indications
4) Industrial designs
5) Patents
6) Integrated circuits layout designs
7) Undisclosed information and trade secrets
(For more details on these measures visit the WTO web site)
(An example of an Indian Geographical indication is Basmati Rice, Darjeeling Tea, Kanchipuram Silk Saree, etc.)
These measures have been advocated so as to reward and promote creativity and innovations. How far they have rewarded creativity is debatable. These measures provide them rights over their own inventions.
My concerns
One major reason for me to be concerned is because these TRIPS agreement took place during the early Globalisation years (1986-94). This was a period of liberalisation, privatisation and market integration with the global economy for many developing nations like India, China, Argentina, etc. India became a member of WTO on January 1, 1995.This was a period where the ‘Creativity Economy’ was booming. Getting hold of patents, copyrights etc is a time consuming and tedious task, especially in the developing countries as the flow of processes and services were not very advanced and smooth. The developed nations exploited this opportunity. They protected themselves by gathering a lot of patents and copyrights, which made manufacturing and allied activities difficult for the developing countries. The rich nations enjoyed a comparative advantage over the poor ones and also widened the inequalities, in their quest to become economic and political superpowers.
Has TRIPS benefited the common man? Have they significantly improved the growth of the Indian economy?
Tuesday, July 25, 2006
Indian Monetary economics
RBI Governor presented the First Quarter Review of Annual Statement on Monetary Policy for the Year 2006-07 today.
The following important changes have been made. I have included only those which I found relevant. You can read the others at their website.
1) Reverse Repo Rate and Repo Rate, each raised by 25 basis points to 6.00 per cent and 7.00 per cent, respectively.
2) Bank Rate and Cash Reserve Ratio kept unchanged.
3) GDP growth projection for 2006-07 retained at 7.5-8.0 per cent.
4) Real GDP growth during January-March 2006 is placed at 9.3 per cent as against 8.6 per cent in the corresponding quarter a year ago.
5) Inflation, measured by variations in the wholesale price index (WPI) on a year-on-year basis, rose from 4.1 per cent at end-March 2006 to 4.7 per cent as on July 8, 2006.
6) While petroleum, oil and lubricants (POL) import growth rose sharply to 39.0 per cent from 31.0 per cent reflecting the steep rise in international crude oil prices.
7) India’s foreign exchange reserves increased by US $ 11.0 billion over their end-March, 2006 level to US $ 162.7 billion as on July 14, 2006.
8) A large number of central banks have raised their official interest rates, inter alia: the US Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of Canada, the Reserve Bank of Australia, the People’s Bank of China, the Bank of Korea and the Banco Central de Chile.
Monetary terms simplified
Reverse Repo rate (6%) is the rate at which the RBI borrows from the Commercial Banks.
Repo rates (7%0 are the rates at which the RBI lends to Commercial banks.
My views
As far as the statement is seen, it puts forward a very good picture of the Indian Monetary System, which is true. The RBI has been efficient in this regard.
GDP growth in Real terms at 9.3 % is unbelievable. Cheers to the Government! Let the GoI wake up to the cry of the masses. In a study which recently came in Economic and Political Weekly, the percentage of people below the poverty line was about 56%. How can an individual consciously pat the Government for the present growth in GDP?
Inflation, like I mentioned in one of my earlier posts, has made life difficult for the poor and marginal households. The middle class has adjusted, though there had been some outbursts during the initial hike in Petrol and Diesel prices.
POL imports have shown an increase just as the Government promised. How much these imports have helped the common man is yet to be known. They have enabled the Government to somewhat stabilise the price hikes, at least the newspapers have reported likewise.
India, in the eyes of the global world is striding forward with its belly bulging with its precious foreign reserves. What has been done with this foreign exchange? I used to wonder why the GoI is not using this Foreign exchange for the development of infrastructure in our country. It has been invested in low yielding foreign bonds abroad. What a pity!
Those who are just concerned about the Monetary Policies cannot understand what needs to be done to have a more equal society. I am not an advocate for a perfectly equal society, which is impractical and impossible. I want to see equal opportunities given to all. I want to see the empowerment of the masses, the common people!
The following important changes have been made. I have included only those which I found relevant. You can read the others at their website.
1) Reverse Repo Rate and Repo Rate, each raised by 25 basis points to 6.00 per cent and 7.00 per cent, respectively.
2) Bank Rate and Cash Reserve Ratio kept unchanged.
3) GDP growth projection for 2006-07 retained at 7.5-8.0 per cent.
4) Real GDP growth during January-March 2006 is placed at 9.3 per cent as against 8.6 per cent in the corresponding quarter a year ago.
5) Inflation, measured by variations in the wholesale price index (WPI) on a year-on-year basis, rose from 4.1 per cent at end-March 2006 to 4.7 per cent as on July 8, 2006.
6) While petroleum, oil and lubricants (POL) import growth rose sharply to 39.0 per cent from 31.0 per cent reflecting the steep rise in international crude oil prices.
7) India’s foreign exchange reserves increased by US $ 11.0 billion over their end-March, 2006 level to US $ 162.7 billion as on July 14, 2006.
8) A large number of central banks have raised their official interest rates, inter alia: the US Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of Canada, the Reserve Bank of Australia, the People’s Bank of China, the Bank of Korea and the Banco Central de Chile.
Monetary terms simplified
Reverse Repo rate (6%) is the rate at which the RBI borrows from the Commercial Banks.
Repo rates (7%0 are the rates at which the RBI lends to Commercial banks.
My views
As far as the statement is seen, it puts forward a very good picture of the Indian Monetary System, which is true. The RBI has been efficient in this regard.
GDP growth in Real terms at 9.3 % is unbelievable. Cheers to the Government! Let the GoI wake up to the cry of the masses. In a study which recently came in Economic and Political Weekly, the percentage of people below the poverty line was about 56%. How can an individual consciously pat the Government for the present growth in GDP?
Inflation, like I mentioned in one of my earlier posts, has made life difficult for the poor and marginal households. The middle class has adjusted, though there had been some outbursts during the initial hike in Petrol and Diesel prices.
POL imports have shown an increase just as the Government promised. How much these imports have helped the common man is yet to be known. They have enabled the Government to somewhat stabilise the price hikes, at least the newspapers have reported likewise.
India, in the eyes of the global world is striding forward with its belly bulging with its precious foreign reserves. What has been done with this foreign exchange? I used to wonder why the GoI is not using this Foreign exchange for the development of infrastructure in our country. It has been invested in low yielding foreign bonds abroad. What a pity!
Those who are just concerned about the Monetary Policies cannot understand what needs to be done to have a more equal society. I am not an advocate for a perfectly equal society, which is impractical and impossible. I want to see equal opportunities given to all. I want to see the empowerment of the masses, the common people!
Monday, July 24, 2006
JNU Entrance Exam: Essays
This post is meant for all those who could not get the previous question papers of JNU and for those who want to know what kind of essay questions are asked usually for the test. The examiners look for critical answers. Without some knowledge in the following mentioned areas, it would be difficult to give an opinionated answer.(You are required to answer only one essay: Marks alotted for an essay is 20)
2005
1) The need for a universal employment guarantee scheme in rural India
2) Business process outsourcing
3) Why India’s foreign exchange reserves are increasing
4) Utility possibility curves
5) The new patents regime in India
6) Competitive markets and optimality
2004
1) Why are prices for comparable good lower in poorer countries?
2) Discuss the relation between the Great Depression and Keynes’ theory
3) How does the Government of India define the poverty line? Do you agree with it? Discuss.
4) Discuss the rationale of the strategy of import substituting industrialisation in India during the 1950s and 1960s.
5) Discuss the concept of exploitation in Marx.
2003
1) The idea of Sustainable Development
2) The public distribution system in India
3) Causes of Unemployment in India
4) The impact of trade in Agriculture on Indian Agriculture
5) Parliamentary Democracy
2002(These are not the exact questions)
1) A note on Poverty ratio, Poverty indicators and poverty alleviations programmes.
2) Second 5 year plan.
3) Green revolution
2001(Most of them are not exact questions)
1) Food grain stocks.
2) ‘A Pareto optimal state may be perfectly disgusting.’ Comment
3) Opposition to big dams
4) Combination of scholarship/loans better than subsidised educational system
5) Is reduction in fiscal deficit necessary for high growth?
6) Need to redistribute land to the tiller in India.
7) Full employment is incompatible with the functioning of a capitalist economy.
8) Why is log-normal distribution the preferred distribution function for personal incomes?
9) What is meant by “Crowding out of private investment”?
All the best to those who are preparing for the entrance next year! Please provide your view points on these topics, after quoting the question, so that interested students can get information on these topics. Please post your comments. They are important to all!
2005
1) The need for a universal employment guarantee scheme in rural India
2) Business process outsourcing
3) Why India’s foreign exchange reserves are increasing
4) Utility possibility curves
5) The new patents regime in India
6) Competitive markets and optimality
2004
1) Why are prices for comparable good lower in poorer countries?
2) Discuss the relation between the Great Depression and Keynes’ theory
3) How does the Government of India define the poverty line? Do you agree with it? Discuss.
4) Discuss the rationale of the strategy of import substituting industrialisation in India during the 1950s and 1960s.
5) Discuss the concept of exploitation in Marx.
2003
1) The idea of Sustainable Development
2) The public distribution system in India
3) Causes of Unemployment in India
4) The impact of trade in Agriculture on Indian Agriculture
5) Parliamentary Democracy
2002(These are not the exact questions)
1) A note on Poverty ratio, Poverty indicators and poverty alleviations programmes.
2) Second 5 year plan.
3) Green revolution
2001(Most of them are not exact questions)
1) Food grain stocks.
2) ‘A Pareto optimal state may be perfectly disgusting.’ Comment
3) Opposition to big dams
4) Combination of scholarship/loans better than subsidised educational system
5) Is reduction in fiscal deficit necessary for high growth?
6) Need to redistribute land to the tiller in India.
7) Full employment is incompatible with the functioning of a capitalist economy.
8) Why is log-normal distribution the preferred distribution function for personal incomes?
9) What is meant by “Crowding out of private investment”?
All the best to those who are preparing for the entrance next year! Please provide your view points on these topics, after quoting the question, so that interested students can get information on these topics. Please post your comments. They are important to all!
Sunday, July 23, 2006
Irrational exuberance
I had come across the term ‘irrational exuberance’ many a times in newspapers and magazines in recent times. Today I decided to look up what it means.
The Oxford dictionary defines “irrational” as ‘without reason’ and “exuberance” as ‘full of high spirits or growing profusely.’
Origin of the term
The term "irrational exuberance" derives from some words that Alan Greenspan, former chairman of the Federal Reserve Board in Washington, used in a black-tie dinner speech entitled "The Challenge of Central Banking in a Democratic Society" before the American Enterprise Institute at the Washington Hilton Hotel December 5, 1996.
Fourteen pages into this long speech, which was televised live on C-SPAN, he posed a rhetorical question: "But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?" He added that "We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs and price stability."
Immediately after he said this, the stock market in Tokyo, which was open as he gave this speech, fell sharply, and closed down 3%. Hong Kong fell 3%. Then markets in Frankfurt and London fell 4%. The stock market in the US fell 2% at the open of trade. The strong reaction of the markets to Greenspan's seemingly harmless question was widely noted, and made the term irrational exuberance famous.
In the limelight
In the year 2000, Robert J. Shiller authored a book titled “Irrational exuberance”. It was about the society’s obsession with the stock market and how it fuelled volatility in the financial markets. He said the people were infatuated with the stock markets and had forgotten about the potential of real assets, such as income from our livelihoods and homes.
In recent times, the newspapers and magazines have repeatedly been using this term when writing about the stock markets, especially regarding its volatility. I have seen it in The Hindu Business Line and Frontline in recent years.
Is it significant?
I feel it’s the apt word for the recent volatility in the stock markets. It tells us the reason for the increased presence of volatility in the markets and it’s not because of important changes in the economy or the company that the share prices fluctuate. Market news and sentiments of the people affect the market too. Neither should a market with strong fundamentals nor investors who have fundamentals resort to irrational behaviour.
The Oxford dictionary defines “irrational” as ‘without reason’ and “exuberance” as ‘full of high spirits or growing profusely.’
Origin of the term
The term "irrational exuberance" derives from some words that Alan Greenspan, former chairman of the Federal Reserve Board in Washington, used in a black-tie dinner speech entitled "The Challenge of Central Banking in a Democratic Society" before the American Enterprise Institute at the Washington Hilton Hotel December 5, 1996.
Fourteen pages into this long speech, which was televised live on C-SPAN, he posed a rhetorical question: "But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?" He added that "We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs and price stability."
Immediately after he said this, the stock market in Tokyo, which was open as he gave this speech, fell sharply, and closed down 3%. Hong Kong fell 3%. Then markets in Frankfurt and London fell 4%. The stock market in the US fell 2% at the open of trade. The strong reaction of the markets to Greenspan's seemingly harmless question was widely noted, and made the term irrational exuberance famous.
In the limelight
In the year 2000, Robert J. Shiller authored a book titled “Irrational exuberance”. It was about the society’s obsession with the stock market and how it fuelled volatility in the financial markets. He said the people were infatuated with the stock markets and had forgotten about the potential of real assets, such as income from our livelihoods and homes.
In recent times, the newspapers and magazines have repeatedly been using this term when writing about the stock markets, especially regarding its volatility. I have seen it in The Hindu Business Line and Frontline in recent years.
Is it significant?
I feel it’s the apt word for the recent volatility in the stock markets. It tells us the reason for the increased presence of volatility in the markets and it’s not because of important changes in the economy or the company that the share prices fluctuate. Market news and sentiments of the people affect the market too. Neither should a market with strong fundamentals nor investors who have fundamentals resort to irrational behaviour.
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