Monday, November 3, 2008

Desai Deal with Keynes

Meghnad Desai writes in FE “Keynes wanted above all to avoid deflationary policies after the War. So, he proposed a system in which countries with balance of trade surplus would lend freely to those with deficits………… he IMF lost its raison d’etre. But it continued to police developing countries which kept on getting into trade deficits and unstable currencies. It bullied borrowers into macro policies which dismantled public sector activities and caused much misery. Developed countries stopped listening to the IMF once exchange rates became flexible and capital movements unrestricted”.

What the new IMF will do for poorer countries if they don’t have economic freedom to do what they wanted to do for their growth. Of course, the world will have one more murky.

But B. S. Raghavan is asking something else and he praise IMF! “I was happy to notice that the IMF had initiated such a study to measure clarity in communication in the case of the European Central Bank for the period 1999-2007. It has resulted in an interesting paper, titled, Writing Clearly: ECB's Monetary Policy Communications, according to which the ECB's written communications are clear in about 95 per cent of instances, which is comparable to, or even better than, other central banks for which a similar analysis is available. This finding is based on an extensive analysis of ECB's inflation forecasts, inflation targets and verbal descriptions of inflation factors, risk assessments, and the like in monthly bulletins and press statement.

 The study further notes that the ECB's monthly bulletin contains useful additional information that enhances the clarity of the contents compared to ECB's press releases. Specifically, the bulletins contain useful detailed information on individual inflation factors and also on the overall forecast risk. What about a similar study here starting with the RBI?

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