Friday, July 29, 2011

Another NKRA…

Decided on in the Wednesday cabinet meeting, we’ve got another National Key Result Area to go along with the six already in place:

PM announces NKRA to deal with rising cost of living

PUTRAJAYA: The cabinet decided Wednesday to add another National Key Result Area (NKRA) to the list of six to make it seven altogether.

Prime Minister Datuk Seri Najib Tun Razak said the new NKRA dealt with the rising cost of living...

...Najib said the government would leverage the expertise of Pemandu to assist the relevant ministries and agencies as well as the Cabinet Committee on Supply and Price headed by Deputy Prime Minister Tan Sri Muhyiddin Yassin.

Thursday, July 28, 2011

Weighing Gold

At The Economist’s Free Exchange blog, A.D. tries to figure out whether gold is in a bubble (excerpt):

Turning gold into dross

WHILE equity and bond markets have remained relatively sanguine regarding the impasse in negotiations on America's debt ceiling, gold nevertheless achieved another (nominal) high today, at $1,622. That’s one more milestone in an extraordinary run that began over a decade ago. As of Monday, gold’s 10-year annualised real return was 16.8%. By comparison, American stocks managed a return of just 14.8% during the 1990s, in a roaring bull market.

Looking For Questions

I can sooooo relate to the problem outlined in this post:

How to find a topic for an economics research essay

Calculus. Years of macro theory. Micro theory. Econometrics. Study the lecture notes, practice old exams, give the prof what he or she wants. It works.

Until the day the prof says "Come up with an original research topic."

Panic. "But no one's ever taught me how to be original."

Finding an original research topic is a bit like finding a friend or a lover or a soulmate. There's no magic formula that guarantees you will meet the one person who is right for you. But you can do things that will stack the odds in your favour…

I've been putting off starting on a doctoral thesis because I haven't found a topic I'm "in love" with. I could build on my Masters thesis on exchange rate valuation, but that would be boring – it’s like retracing your steps, and mining ground you’ve already dug up once before.

I don’t have any passion for micro, so that’s out of the picture. Neither am I really enamoured of some of the sexier topics of today, such as behavourial economics or financial economics. Ideally I’d want to do something relevant to policy, that is, something of some practical purpose rather than just another math exercise, as James Hamilton puts it here.

But I’m also operating under the constraint that I’ll need a local supervisor who’s actually familiar with whatever topic that I’d want to pick (I can only do a PhD part time), and a browse-through of the local professorial talent reveals a disappointingly narrow range of research interests. So for the last couple of years I’ve been in a holding pattern, picking at a range of potential topics but never really settling on one.

But I’d really want to get a start on things by the end of this year, so if you guys want to help me out a bit here, feel free to suggest potential PhD research topics in the comments. I promise to look at every one seriously.

And hey, even if I don’t use’em, they might make good topics for blog posts!

Wednesday, July 27, 2011

2Q 2011 Forex Update

The Ringgit has continued to rise against the USD, despite some hiccoughs along the way (index numbers; 2000=100):


What’s apparent is that the pace of appreciation has slowed to something closer to the pre-crisis rate of around 0.3% per month, rather than the torrid 0.7% pace in the recovery phase.

Monday, July 25, 2011

May 2011 Employment Report: Softly, Softly

May’s employment numbers, released last week, show job losses of about 200k in May:


Strange Days…

In an rather unusual move by central bank standards, BNM issued a statement on Friday marking the 6th anniversary of the lifting of the USD peg:

Managed float regime continues to support growth

Today marks the sixth year since the shift to the managed float regime for the ringgit exchange rate. In the six years, the global economic and financial landscape experienced exceptional developments - the worst global economic and financial crisis since the Second World War, and extreme volatility in two-way capital flows. The exchange rate regime has accorded the economy with greater flexibility in facing these challenges. As the global economy recovers, the ringgit has strengthened in line with Malaysia's stronger economic fundamentals. The gradual and orderly adjustments of the ringgit have facilitated the corresponding changes to take place in the real economy.

The Central Bank will continue to focus on facilitating orderly market conditions so that international financial transactions can be conducted in an efficient manner. Going forward, the managed float regime and the flexibility it accords will also continue to facilitate the transformation of the economy as we advance towards being a high-income nation.

Central banking is generally a thankless job – if you get things right, nobody notices you. If you get things wrong…

But the tone of the statement suggests an answering to critics, though I don’t know of anybody really hankering after the old days of the fixed rate USD peg. Also, to my recollection, there’s never been a statement to mark past anniversaries. So the fact that BNM saw fit to issue the statement in the first place is really strange.

Unless it’s tacit approval for the Ringgit’s move below RM3.00 to the USD last week. That would fit with the anti-inflation message the Governor was supposed to have sent last week.

Comments welcome, because I have no other idea what’s behind this.

Thursday, July 21, 2011

June 2011 CPI

Yesterday’s inflation report suggests at best a deceleration in inflationary pressures (log annual and monthly changes):


The (Non)Transmission of Monetary Policy (UPDATED)

While twiddling my thumbs last Saturday waiting for a function to start, I started reading this recent paper from the IMF on the monetary transmission mechanism. Just for the heck of it, I started applying the methodology used in the paper for Malaysia, and got some interesting results.

I’m not going to go the whole hog just yet replicating , as the data requirements are pretty extensive and I’ll need to do a lot more reading of the available literature before doing a full assessment, but the initial step (as taken in the paper) is a simple calculation of elasticities. Specifically, how much impact does a change in the policy rate affect the range of interest rates offered by the banking sector and the interbank/money market? In the terminology, what is the extent of the pass through of policy rates into other interest rates such as deposits and loans?

Wednesday, July 20, 2011

Small Isn’t Beautiful

I have mixed feelings commenting on this issue, but I feel it must be said. From yesterday’s Star (excerpt):

Caring for the livelihood of smallholders

SMALLHOLDERS have always been the backbone of the country's agriculture sector.

Their role, however, is often underestimated despite the big contribution of about 94% of Malaysia's total rubber production, 75% of cocoa and about 40% of palm oil output annually.

Smallholders therefore need to be given the security of having a consistent income and incentives to ensure that they would be able to efficiently produce higher-yielding crops to enable local agriculture products remain competitive locally and abroad…

…Having said that, many have voiced their concern over the turn of events lately, which are expected to have a direct impact on the livelihood of smallholders…

Tuesday, July 19, 2011

BNM “Unpredictable”

From a Business Times report  yesterday (published in full):

Bank Negara Malaysia 'most unpredictable'
By Rupa Damodaran

Kuala Lumpur: Ever wondered which is the most predictable central bank in Asia as far as monetary policy rate decisions are concerned?

It is Bank Indonesia (BI), said Credit Suisse economist Robert Prior-Wandesforde in a report. And the least predictable central bank? Bank Negara Malaysia.

Credit Suisse compared the decisions of the seven central banks from Indonesia, the Philippines, Thailand, Taiwan, Malaysia, South Korea and India, based on their monetary policies from 2006.

Monday, July 18, 2011

At The Feet Of A Master

I had a good time this weekend, professionally speaking that is. Why? Muhammad Yunus was in town to deliver a lecture. If you don’t know who he is, Prof Yunus is an economist who has devoted his life to helping the poor, pioneered microcredit in the 1970s, a firm advocate of women’s rights (no small thing in the highly patriarchal society of his homeland of Bangladesh), and the winner of the Nobel Peace Prize in 2006. While he has no big presence academically, the pragmatic approach he took in dealing with poverty and its related issues sets a benchmark for effective poverty eradication policies, and not just ones that read well in the press.

The occasion was his appointment as “Nobel Laureate in Residence” at Universiti Kebangsaan Malaysia in Bangi, for which there was a big do last Friday, with the Minister of Higher Education in attendance. There was also a follow-up dialogue at UKM’s Faculty of Economics and Management the next day with a much smaller group. I’m already familiar with his work (and his books), so I learned nothing really new at either session. But the impact of hearing the same thoughts straight from this highly articulate man, with his very obvious passion and devotion to his calling, has a far greater impact than the written word.

Friday, July 15, 2011

Measuring The Effectiveness Of Forex Intervention

One of the basic tools used by emerging market central banks to manage high capital inflows is intervention in the foreign exchange markets. While foreign capital inflows are generally welcomed, they cause problems through overly expanding the domestic money supply (and credit), putting upward pressure on the exchange rate, and – the biggest problem – can be the trigger for a liquidity crisis should they reverse.

A new working paper from the IMF seeks to discover just under what conditions forex intervention can be effective, or if it’s any use at all (abstract):

Foreign Exchange Intervention: A Shield Against Appreciation Winds?
Adler, Gustavo ; Tovar Mora, Camilo E

This paper examines foreign exchange intervention practices and their effectiveness using a new qualitative and quantitative database for a panel of 15 economies covering 2004 - 10, with special focus on Latin America. Qualitatively, it examines institutional aspects such as declared motives, instruments employed, the use of rules versus discretion, and the degree of transparency. Quantitatively, it assesses the effectiveness of sterilized interventions in influencing the exchange rate using a two-stage IV-panel data approach to overcome endogeneity bias. Results suggest that interventions slow the pace of appreciation, but the effects decrease rapidly with the degree of capital account openness. At the same time, interventions are more effective in the context of already ‘overvalued’ exchange rates.

Tuesday, July 12, 2011

May 2011 Industrial Production: Not Out Of The Woods

Yesterday’s IPI report from underscored the slowdown that occurred in 2Q 2011, despite an upward revision in the data for April (log annual and monthly changes; seasonally adjusted):


Friday, July 8, 2011

BNM Maintains OPR: The World Is Ending!

Ok, not really. But I’m honestly puzzled by this action, especially taking into account the language used in the statement issued by the Monetary Policy Committee (excerpt; emphasis added):

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.00 percent…

…Going forward, global growth will remain highly uneven across regions, with increased downside risks. For the region, growth is expected to be sustained by robust domestic demand, increased investment activity and intra-regional trade….

Going forward, growth is expected to improve, underpinned by continued strength in private consumption and private investment. This growth prospect however, could be affected by the heightened external risks…

…Supply factors continue to be the key determinant affecting consumer prices with global commodity and energy prices projected to remain elevated. There are also some signs that domestic demand factors could exert upward pressure on prices in the second half of the year.

The MPC’s assessment is that the risks to inflation are on the upside. While the outlook for growth remains positive, there are heightened uncertainties arising from global developments that have created higher downside risks to growth. The MPC will assess carefully the evolving economic conditions and to the extent that the growth momentum is sustained, further normalisation of monetary conditions will be considered to safeguard price stability.

Wednesday, July 6, 2011

BNM Watch: May Was A Strange Month

As I said yesterday, the data for May isn’t behaving nicely. Here’s a closer look at what’s going on.

Recall that BNM began its latest round of tightening in early May. Yet there was little sign that open market operations were required to reduce liquidity in the interbank market and raise the overnight rate to the OPR target (RM millions):


May 2011 External Trade

As forecast, trade in May turned out lower than April’s (log annual and monthly changes; seasonally adjusted):


Tuesday, July 5, 2011

May 2011 Monetary Conditions

May was an odd month. Looking at the money and interest rate data, it’s hard to get a clear sense for what’s going on, because of the anomalies in the data. Take money supply growth (log annual and monthly changes;m seasonally adjusted):


Even as BNM began another tightening campaign, which appears to have impacted M1, broader money supply growth defied gravity and continued to accelerate. Monthly changes in M2 sustained at a pretty high growth level of close to 2%.

GTP & ETP Update

I spent this morning at the Kuala Lumpur Convention Center listening to Idris Jala talking about progress on the ETP. Beyond admiring his salesmanship skills, there was actually some real substance to the presentation.


Based on what I’ve seen so far, there’s been some pretty impressive progress made even if you see the ETP as a fundamentally flawed exercise. There are obvious gaps and shortcomings in the scope of the ETP, but that would be true of any development plan. What’s clear though is that taken on its own merits, Pemandu has managed to overcome one of the greatest obstacles any strategic plan has to face – implementation and monitoring. On both counts, what’s been done over the last 8 months or so is an incredible achievement.

Monday, July 4, 2011

Graft And The Central Bank

This weekend’s news about the arrest and charging of an ex-assistant governor of BNM is sad news for Malaysia’s institutional development (excerpt):

Ex-BNM assistant governor charged

KUALA LUMPUR: Former Bank Negara assistant governor Datuk Mohamad Daud Dol Moin, 58, has claimed trial at a Sessions Court here to two counts of accepting bribes amounting to RM100,000 from a businessman to help procure a contract from the central bank.

The contract was to print RM5 polymer bank notes by Note Printing Australia Ltd.

Dressed in a dark suit, he calmly pleaded not guilty when the charges were read out to him at about 11am yesterday.

He was accused of receiving two bribes of RM50,000 from Abdul Kayum Syed Ahmad at Dome Restaurant, Bangsar Shopping Centre, on Dec 1, 2004, and Feb 16, 2005.

If convicted under Section 11(a) of the Malaysian Anti-Corruption Commission Act, he can be jailed up to 20 years and fined five times the bribe amount, for each charge.

As I recall, the last time someone that high up in the central bank was charged with abusing his position was the case of former Assistant Governor Datuk Abdul Murad Khalid back in the late 1990s, which turned into a political circus involving Anwar Ibrahim.

Be that as it may, this case is more straightforward and for that very reason more discouraging. We are after all talking about alleged corruption pure and simple. That it involves subsidiaries of the Reserve Bank of Australia, as well as two other regional central banks is beside the point.

About the only saving grace here is that the MACC hasn’t hesitated in charging a senior official, though given that BNM is populated by technocrats rather than politicians and the international dimensions of the case, it isn’t much of one.

A black mark for BNM, and a setback for the credibility of its internal controls.

Is Inflation Really The Problem?

Great article in The Star yesterday which echoes my own thoughts on the Malaysian experience of inflation (excerpt):

Inflation: Myths and perceptions

The general view on the street is that Malaysia suffers from rising inflation. Do the statistics back the claim?

RECENT headlines in the Malaysian media have highlighted the issue of the unholy alliance of rising inflation, stagnant wages and subsidies rationalisation.

It is an “unholy” alliance simply because subsidies rationalisation and imported inflation result in rapidly rising price levels. Coupled with the problem of slow rising wages, it implies that our buying power as consumers is decreasing.

Certain quarters would have us believe that Malaysia is a ship headed for an iceberg and a Titanic-style tragedy could happen any time now. To add salt to the wound, they argue that those at the helm, like the captain on the Titanic, are sleeping and that like the passengers on the Titanic, we will not survive this tragedy. But is this gospel truth or an urban myth?…

The only thing that’s missing from this article is the heterogeneity in the inflation experience between higher and lower income households, but that’s nit-picking. The main point is valid – it’s not really higher inflation per se that’s really affecting Malaysians, but rather slow wage growth that has not kept pace with either inflation or productivity.

Go read it, it’s worth your time.