Tuesday, August 10, 2010

Links of Interest (08/09/2010)

Prem Khanal argues that deposit is interest elastic in Nepal and proposes an interest floor at 7 percent.

“However, many economic commentators had refused to buy the theory and had argued the growing mismatch between inflows and outflows of resources from banking system, which fuelled a record liquidity shortage, was due to prolonged negative interest rate. The slowly unfolding scenarios reflected in terms of encouraging increment in banking deposits have proved that the orthodox theories were wrong. Granted, the lingering political uncertainty was weakening depositors’ confidence on banks that caused deposits to disappear from banking system. But my questions is: Has there been any significant development to justify that the country was moving toward political stability within the last one month when banking system experienced a record Rs 25 billion rise in deposits? No. The level of political stability in fact has worsened lately compared to last year.

[…] Everyone should be aware, especially dogmatic bankers, that it is not the right time to rejoice the rise in deposits. As the economy has already learnt a bitter lesson of sustained negative interest rates, the most serious challenge for monetary authorities is to keep it positive so as to prevent reemergence of the same ills that shook the very foundation of the economy. As the banks amass more deposits, it is time for the monetary authorities to take some measures to check the possibilities of another downward trajectory of interest rates. I propose that the central bank should direct commercial banks to keep minimum interest rate on one-year deposit rate equal to bank rate, which is currently fixed at 7 percent.”

Phase out spending but phase in social protection, writes Guillermo Calvo

Nepalese government mulls export incentives

Uncertainty and information asymmetries are barriers to entry for exporters

The evolution of agricultural trade flows

Dilli Raj Khanal explains why import substitution makes sense and no-sense at the same time. A good article but I think he misses the point by a small margin. Here, here, and here are my take on that one.

[My internet is still so slow. I cannot post a lot of blog post. Importantly, I am missing out on so many new papers and blogs. I feel I am handicapped. It is painful.]