The quest for monetary and financial stability: a review of professor Dilip M. Nachane, critique of the new consensus macroeconomics and implications for India

ABSTRACT

We review Professor Nachane’s book on New Consensus Macroeconomics. The Review argues that such a consensus is possible not at theoretical level, but at policy level, clarifies the link of Keynes’s General Theory to his Treatise, introduced in the book, brings out contributions of Wicksell, Clower, and Schumpeter, missed out in the book, and evaluates the discussion of issues in central banking/financial sector reforms. The book emphasizes monetary/financial stability. We recommend applying a proposal for regulatory veto to securitized bundles of loans issued by different lenders. These represent business or gambling bets rather than theoretically possible aggregation of risks.

KEYWORDS:

• New consensus macroeconomics
• global financial crisis
• Keynes
• Schumpeter
• securitization
• regulatory veto

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. ‘The current reforms miss out on an important insight: the benefits of information acquisition and processing are increasing in time, which suggests there is benefit of delaying regulation, while the costs arising from judgment - proofness are also increasing in time-which suggests there is benefit in accelerating regulation. Regulatory action is optimal where the tradeoff between these is at its maximum, suggesting the best approach is to improve the operation of the regulatory veto rather than to focus on either ex ante or ex post controls.’

2. The reviewer of the journal has suggested a picturesque way of describing this, ‘Innovations are often not fully understood when they first appear, so in addition to a veto there may be an argument for a regulatory sandbox to allow limited experimentation.’

Additional information

Notes on contributors

Vikas Chitre

Vikas Chitre is a Former Professor and Director of Gokhale Institute of Politics and Economics, Pune, and former Honorary Director and President of Indian School of Political Economy, Pune. He is also currently an Honorary Fellow of Indian School of Political Economy and the Editor of the Journal of Indian School of Political Economy. A Ph. D. in economics of University of Rochester, Dr. Chitre taught at University of Toronto, Canada, and University of Adelaide, Australia, and worked as a (part-time) academic consultant to the Department of Research, Federal Reserve Bank of Philadelphia during 1970-71 and prepared a paper, “A Theory of Bank Asset Management and Monetary Control” for the Bank. He was the President of The Indian Econometric Society, at the Annual Conference of the Indian Econometric Society, held at Jadavpur University, Kolkata, on 20-22 January, 2005 and he was the Convener of University Grants Commission’s national Panel for Economics, during 1991-1993. He was a Member of a Technical Advisory Committee appointed by the Reserve Bank of India to recommend measures for strengthening the Government Securities Market and Member, Technical Advisory Committee on Short Term Liquidity Model, constituted by the Reserve Bank of India. He also worked as a Member of the National Selection Committee for the Ford Foundation Post-Doctoral Fellowship Programme for several years. Dr. Chitre has authored the following monographs: Growth Cycles in the Indian Economy, 1951-1975; Quarterly Prediction of the Reserve Money Multiplier and Money Stock in India; and Inflation, Interest Rates and Index-linked Bonds (jointly) and published research papers in several international and national journals like Journal of Political Economy, Journal of Economic Theory, International Economic Review, Indian Economic Review, Journal of Quantitative Economics, Artha Vijnana, Journal of Indian School of Political Economy, Economic and Political Weekly, etc.