Growth Design and Monetary Policy

My book chapter entitled "Growth Design and Monetary Policy after the Crisis" is now available for general access online from the website of the publisher. This is a non-technical, non-econometric analytical piece which I prepared for general audience without a PhD in technical economics. The chapter was accepted and published at a reference book entitled "Financial Aspects of the Recent Trends in the Global Economy". The main conclusion of the chapter is that industrial diversification is an extremely important factor of crisis resistance, recovery, and overall long-term growth sustainability. The book publisher is an Eastern-European publishing house ASERS. The book seems to have gathered some positive reviews from several professors around the world. The chapter is a product of many months of work so I am quite happy that I have done it. It is also nice to see that the research portfolio diversifies with  journal articles, non-academic pieces, policy papers, and now to book chapters. Let's keep it rolling! Expecting lots of more news this year (still patiently).

The chapter, which is number 3 in the book, can be accessed from the publisher link above but I think you will have to purchase it. Contact me if you want a PDF copy. The abstract is included below.

Despite the indisputable fact that the 2008 Global Financial Crisis, the continuous debt overhang, and the everlasting Eurozone problem, constituted the most substantial economic downturn since the Great Depression, this slowdown has not necessarily been equally destructive for all parts of the world. This paper proposes a case study of four relatively small and open economies which differ in their respective growth design. In each of the four economies growth has been historically heavily financed either by natural resources, influx of foreign investments, external debt, or exportation. Azerbaijan has been chosen to represent the “resource-driven”, Singapore – “investment-driven”, Hungary – “debt-driven”, and Switzerland – “export-driven” model of economic development. A supposedly very broad narrative converges naturally into just a few main talking points. Narrowly designed economic models leave nations dangerously dependent on their respective key factors of growth. Under systemic negative shocks, the factor of dependence impedes policy making and contributes to multiple structural problems that prevent sustainable recovery. Industrial diversification appears to be the chief differentiating factor for success and at least one of the key solutions to systemic financial crises. Monetary policy often becomes restricted by the path imposed by the choice of the growth design; protection of the growth regime becomes a priority for monetary policy makers, either directly or indirectly. Exchange rate management evolves into a key instrument of monetary policy-making in small open economies under large negative external economic shocks.

Econometrics: Lecture 6

Students of Econometrics,

We are having the quiz next week, so I am uploading the slides from today earlier than usual, as promised. Download links here, in the common place. Review the slides, read through the relevant sections of the book, if you need to. Remember that the quiz will be more practice-oriented rather than pure theory. However, some understanding of basic definitions, theorems, and principles is also necessary, of course. The difficulty will be the same as in Quiz 1. Good luck and prepare well.

Econometrics: Lecture 5

Students of Econometrics,

Slides from the last week's lecture on asymptotics can be downloaded here, as usual.

Remember that after tomorrow's class, in 1 week we will have a quiz. More details tomorrow.

From Caucasus With (Non-) Mobility

My capital mobility paper has been published at the Economic Systems journal, official outlet of the Institute for East and Southeast European Studies. The journal article link is here. Below is the abstract from "Capital Mobility in the Caucasus":

This paper examines the degree of capital mobility in the countries of the Caucasus. I estimate a simple model developed in the seminal paper by Feldstein and Horioka (1980). I construct a panel of 6 countries of the Caucasus – Armenia, Azerbaijan, Georgia, Kazakhstan, Russia, and Turkey – and employ a panel cointegration approach. To that end, I make use of the Dynamic OLS (DOLS), Fully Modified OLS (FMOLS), and Pooled Mean Group (PMG) techniques for heterogeneous panels. Preliminary cross-dependency tests reject the presence of cross-sectional dependence. Panel unit root and cointegration tests confirm that investment and saving are non-stationary and cointegrated. The estimated long-run saving retention ratios using DOLS, FMOLS, and PMG are 0.90, 0.73, and 0.83, respectively. These results suggest that capital mobility in the Caucasus is very low. I put these findings in an international context and confirm that the Caucasus is considerably financially restrained compared to other regions. I also look at the country ratings of the Index of Economic Freedom (IEF) and find that my results work well in predicting the IEF rank. Finally, I discuss some implications for the region's policy-relevant issues such as financial integration, human capital mobility, cross-border trading, fiscal and monetary policy, solvency management, responsive consumption smoothing, and recession resistance.

Econometrics: Lecture 4

Students of Econometrics,

After two weeks of scrupulous work, we have finished the very important inference analysis within the multiple regression framework. Slides are available here, as usual.

Next Friday we will be doing exercises, in order to get you more familiar with the practical sides of the subject.

Optimal Rent-Seeking in Resource-Rich States

My first theoretical paper, entitled "Optimal Resource Rent" is now available from the William Davidson Institute of the University of Michigan. Their anonymous referee offered some cool advices, although I was expecting a more rigorous feedback. The paper is dealing with rent-seeking in resource-rich economies, develops a simple theoretical model and applies it to Norway. This is the first attempt, to the best of my knowledge, to consider the "optimality" condition of resource renting. So, I will need as many comments on it as possible, in order to make it better. Abstract is below:

"This paper develops the first systematic attempt to model and empirically estimate the concept of optimal resource renting. Optimal rent is found to be positively affected by increases in the recession buffer and resource endowment, and negatively affected by the opportunity cost of hoarding. The model is then tested empirically on Norway, an oil-rich state, and actual renting is found to be systematically diverging from the optimal rent series. At least a third of the variation in actual renting is always left unexplained by the economic variables of the model, and should be attributed to the institutional and political factors that lie beyond the scope of our analysis."

Please, if you have any comment (on the theoretical or the empirical part), make sure you take a moment to voice it! Comment on this post or drop me an email to jamilovrustam@gmail.com. All contributions will be gratefully acknowledged, of course.

Slaughter of the Wait

That awkward moment when you randomly check on one of your research article submissions and see that the required anonymous peer review is completed. This only leaves a final decision by the journal editor. Should I mention that patience is against its ceiling?

My life ever since this discovery:

6:00 a.m.: F5, F5, F5.

9:00 a.m.: F5, F5, F5.

3:00 p.m.: F5, F5, F5.

6:00 p.m.: F5, F5, F5.

Giants On Their Shoulders

I have always felt that academic service to the economic profession is very often overshadowed by the more lucrative (and remunerative) research and consulting. What I mean by "academic service" is refereeing. The way economic, and I would imagine any, research process works is that authors of original theoretical or empirical articles submit their works to established journals to be published and therefore archived forever. Before any article can be published, it must be accepted by the editorial board of the journal. The editors are usually just other academic economists, holders of university and institutional positions around the world. Since editors typically receive hundreds of submissions every year, it becomes virtually impossible to thoroughly review each and every paper. Instead, the editors seek out the so-called "referees" whose job it will be to review and report on a particular submission's originality and technical correctness. Referees are once again just our fellow professional economists.

The trick here is that the whole submission process is almost alwalws "double-blind", i.e. both the submitter and the referee do not know each other; this eliminates any occassion of conflict of interest and ensures that the process is completely anonymous. So, the referees are free to write basically anything in their article reports, since the authors will never find out who they are! This often leads to some tough feelings if your paper is rejected by a particularly rough reviewer; but it is all part of the game. A noteworthy point here is that refereeing is usually unpaid. In other words, I would get no material benefit in doing a thorough, complete, and insightful referee report instead of just writing 2 sentences that this paper is disastrous and the author is a moron in self-denial.

However, for every 5 really bad reviewers one will always find a very good one. And here I have finally arrived at the point of this post - refereeing is probably the most underestimated effort that every respectable economist spends his/her precious time on. It is the tribute to the profession, a hand of help to colleagues, and a contribution to the flow of knowledge. Sometimes a referee offers better ideas than the original author's line of thought itself! For this reason, researches (and it happened to me on several occasions) often note somewhere in the text that this or that idea was suggested by an anonymous referee. So, who are the best of the best in terms of journal refereeing? Tough to tell, since there are tens of very good economic journals, so I would guess that every journal with its own editorial process would require referees of different mentality and/or approach to academic editing. But I think that the generally accepted belief in the profession is that the Quarterly Journal of Economics is the sacred grail of all journals; an article accepted at the QJE is regarded as a milestone achievement, worthy of a textbook written about it and a Bloomberg podcast devoted to it. Therefore, the best referees for the best journal would probably be considered as the best there are in the whole field. Here is the link-tribute to the 2012 QJE Excellence in Refereeing Award. Many papers who are now considered to be a standard in the economic field have benefited from these names. Authors of the QJE-level publications are the giants of our profession, but they are standing on the shoulders of academic servicemen.

Econometrics: Lecture 3

Students of Econometrics,

The holidays are ending, and this could only mean one thing: the dispersity of your life activities is shrinking and you are reverting back to your mean, i.e. analysis of regressions, distributions, and normalizations (aka introductory econometrics).

Here is the set of slides from Lecture 3.

Take note that next class we will be having our first Quiz. Come prepared: review the slides, and try to remember the in-class exercies we worked on during our last meeting. On the usual teaching website here you can also find the file Practice 1 with the Excel file from last week. Good luck and see you on Friday.

Into the Caucasian Black Box

My paper with Balazs Egert has recently been published as a working paper at the prestigious CESifo (Center for Economic Studies and the Leibniz Institute for Economic Research at the University of Munich) and also the William Davidson Institute of the University of Michigan. We have been working on this project for 6 months, from data collection to polishing the results and drafting the manuscriptl, so I am quite happy we are finally done. The paper is still under review at an academic journal, so I will keep you posted on that front.

Meanwhile, the paper, entitled "Interest Rate Pass-Through and Monetary Policy Asymmetry: A Journey into the Caucasian Black Box", can now be accessed freely from the CESifo and the WDI websites. To the best of my knowledge, this is the first time an Azerbaijani economist authored a paper at either CESifo or WDI (inform me if I am wrong), which is of course quite a pleasant occasion for all of us. This is also quite a rare occasion that CESifo publishes a working paper by someone without a masters degree in economics (me) and who is 22. Suffice it to say, I had to work really really hard for this. OK, so that is done, and it is time to move on to other engagements.