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India introduced credit scoring technology in 2007. We study adoption by the two main types of banks operating there, new private banks (NPBs) and state-owned public sector banks (PSBs). NPBs start checking the credit scores of most borrowers before lending, soon after the technology is introduced. PSBs do so equally quickly for new borrowers but very slowly for prior clients, although lending without checking scores is reliably associated with more delinquencies. We show that an important factor explaining the difference in adoption is the stickiness of past bank structures and associated managerial practices. Past practices hold back better practices today.
We analyze a unique episode in the history of monetary economics, the 2016 Indian ``demonetization.'' This policy made 86\% of cash in circulation illegal tender overnight, with new notes gradually introduced over the next several months. We present a model of demonetization where agents hold cash both to satisfy a cash-in-advance constraint and for tax evasion purposes. We test the predictions of the model in the cross-section of Indian districts using several novel data sets including: the geographic distribution of demonetized and new notes for causal inference; nightlight activity and employment surveys to measure economic activity including in the informal sector; debit/credit cards and e-wallet transactions data; and banking data on deposit and credit growth. Districts experiencing more severe demonetization had relative reductions in economic activity, faster adoption of alternative payment technologies, and lower bank credit growth. The cross-sectional responses cumulate to a contraction in aggregate employment and nightlights-based output due to the the cash shortage of at least 2 p.p. and of bank credit of 2 p.p. in 2016Q4 relative to their counterfactual paths, effects which dissipate over the next few months. Our analysis rejects money non-neutrality using a large scale natural experiment, something that is yet rare in the vast literature on the effects of monetary policy.
Do employment and educational characteristics of central bank governors affect financial regulation? To answer this question, we construct a new and unique dataset based on curriculum vitae of all central bank governors around the world in 1970-2011, and merge this with data on financial regulation and other variables. The proportion of governors that had past experience in finance increases from 10 percent in 1980 to 30 percent in 2010. Past experience in finance matters, and the effect is large: Over the average duration in office (5.6 years), a central bank governor with financial sector experience deregulates three times more than a governor without financial sector experience. Experience in finance after tenure as governor is not important. Similar results hold for past experience at the International Monetary Fund; in contrast, past experience at the Bank of International Settlements and the United Nations have the opposite effect, slowing the pace of deregulation. Our findings are consistent with the view that past work experiences of central bankers shape their beliefs and preferences, which, in turn, are consequential for policy outcomes.
In order to avoid the destructive 'beggar-thy-neighbour' strategies that emerged during the Great Depression, the post-war Bretton Woods regime attempted to prevent countries from depreciating their currencies to gain an unfair and sustained competitive advantage. It required fixed, but occasionally adjustable, exchange rates and restricted cross-border capital flows. In the post-Bretton Woods world of largely flexible exchange rates, elaborate rules on when a country could move its exchange
In this imaginary dialogue, a populist and an economist discuss the role of economic shocks to explain populism. A simple correlation between economic shocks and populism is weak. However, economic shocks can explain well the phenomenon of populism in countries with low pre-existent level of trust. This is confirmed both at the macro cross-country level and also by micro evidence obtained from surveys. Finally, this finding is consistent with the “ideational approach” in political science, which emphasizes how the populist narrative opposes the “corrupt elite” to the “virtuous people.”
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