Sketch for a Counter-Sky


On central bank independence and the rise of shadow money

Debates over the political impacts of Central Bank Independence (CBI) reached their peak in the late 90s and early 2000s, due to rising inequality and the volatility of financial markets. Initiated with the 1977 Federal Reserve Act and Paul Volcker’s subsequent term as chairman of the Fed, CBI was, and remains, a means of isolating the more “mechanical” field of monetary policy from the fleeting interests of politicians. In order to preserve stability and credibility, independent central banks have made inflation targeting the center point of their agenda. Critics of CBI have argued that the distinction between economic science and political incentives are not as clear as they might seem; low levels of inflation may benefit creditors and investors, but they harm those whose income entirely depends on rising wages. While monetary policy has distributional and political consequences, its decision makers are insulated from public accountability.

Expanding the literature on the politics of CBI, BENJAMIN BRAUN and DANIELA GABOR examine its financial consequences. In a recently published paper, they argue that the anti-inflationary policies of central banks have catalyzed dependence on shadow money and shadow banking, key components of a broader trend towards financialization:

“In the late 1990s, the US Federal Reserve was confronted with a peculiar predicament. While the world was celebrating central bank independence as a mark of ‘scientific’ economic governance after the populist era of monetizing government bonds, the US Federal Reserve worried about projections that the US government would pay down all its debt by 2012. A world without US government debt, they worried, was a world filled with monetary dangers. Market participants would not have a safe, liquid asset to turn to in times of distress.

Rather than seeking to limit shadow money supply, the Fed actively encouraged its expansion, seeking market solutions to political problems. It lobbied Congress to ensure that holders of shadow money backed by private (securitized) collateral had the same legal rights to collateral as those holding shadow money issued against US government debt. The Fed also changed its lending practices, allowing banks to issue shadow money backed by private collateral to borrow from the Fed. These concrete steps contrast starkly with the picture of central banks watching passively from the margins, as financial institutions find new ways to monetize credit and circumvent rules.”

Link to the article.

  • More contemporary iterations of the debate over CBI can be found in the comparison between a 2018 HKS working paper, which distinguishes between “political oversight” and “operational independence,” and a 2014 Levy Institute working paper which argues there is no practical meaning of operational independence at all. Link and link.
  • A primer on shadow banking, from Stijn Claessens and Lev Ratnovski at Vox EU. Link.
  • A new article by Andreas Kerna, Bernhard Reinsbergc, and Matthias Rau-Göhring finds that the IMF’s targeted lending practices actively encouraged the proliferation of independent central banks in low income economies. Link.
  • On CBI, inflationary targets, and the 2010 Eurocrisis, by Mark Copelovitch, Jeffry Frieden, and Stefanie Walter. Link.

New Researchers: MOBILE AGRARIAN

The generational effects of land transfers

Assistant Professor of Economics at Universidad de los Andes JUAN SEBASTIÁN GALÁN examines the 1968 Colombian agrarian reform, looking at the effects of land transfers on recipients and their children. Complicating similar research, by e.g. Abhijit Banerjee, which suggests that land transfers lock recipients into rural subsistence living, Galán finds that children of land recipients experienced higher intergenerational mobility.

From the paper:

“In contrast to a widely held view that land traps rural families in the countryside, these findings appear mediated by a relief of credit constraints that allowed recipients to migrate to urban centers and invest in the education of their children, who subsequently used these skills to find new opportunities in the modern economy.”

Link to the full paper, link to a World Bank blog post on the findings.

Each week we highlight great work from a graduate student, postdoc, or early-career professor. Have you read any excellent research recently that you’d like to see shared here? Send it our way:


  • As a first step in building a platform for UBI researchers, JFI is asking academics and practitioners who have worked on or are interested in working on cash transfer studies to complete a survey about the types of content and research tools they would find most helpful for their work. If this is you, please click through and complete the questionnaire. Link.
  • Stay up to date on our web publication, the Phenomenal World, with our new newsletter. You’ll get an email about every two weeks informing you about new original content covering research across the social sciences. Link to the sign up page.
  • In a new paper, Morgan Kelly suggests that the “historical persistence” literature may be riddled with statistical noise. Link.
  • In the early stages of deindustrialization, advocates of the knowledge economy expected residents of former industrial strongholds to move in response to wage incentives on the coast. But geographic migration within the US has instead been experiencing a steady decline. A new study from the Federal Reserve Bank of New York explores why. Link to the study, and link to coverage by Richard Florida.
  • At CEPR, Mark Weisbrot reviews the disastrous state of Puerto Rico’s post-hurricane recovery finances: “The recent restructuring of part of Puerto Rico’s debt―bonds backed by sales tax revenue―will not leave the economy with a sustainable debt unless the other creditors give up vastly more.” Link.
  • “I never was one of these kinds of scholars that picks a subject matter and decides I’m going to work on that ’til death. I was interested in puzzles about things that happened in the real world.” An interview with Theda Skocpol. Link.
  • “Starve all the lawyers.” A paper by Åsbjørn Melkevik on just price theories. Link.
  • “Some observers go so far as to claim that the price signals of today’s data-saturated markets, where venture capitalists, sovereign-wealth funds and deep-pocketed tech platforms subsidize services to the point where no one really knows what they cost, resemble those of the Soviet system in the years before its final breakdown. Hence the moniker ‘Gosplan 2.0.'” The calculation debate revisited, by Evgeny Morozov. Link.
  • “Finland is the only EU country where homelessness is falling. Its secret? Giving people homes as soon as they need them—unconditionally.” Link.
  • “Given the aggressive promotion of robot adoption and production via industrial policies, it seems that the Chinese government does not fear the consequences of this disruptive technology. Similarly, in our interviews with employers and employees, we do not find that they are nervous about job replacement. In light of these perhaps surprising findings, we offer a few possible explanations for why China embraces robots, from the perspectives of the government, the employers, and the workers.” Excellent new paper by Hong Cheng, Ruixue Jia, Dandan Li, and Hongbin Li. Link.
  • Representative Rashida Tlaib’s proposed EITC bill “expands on a bill from Sen. Kamala D. Harris (D-Calif.), which would also direct trillions in tax credits to low-income Americans but offers no or smaller benefits for the poorest people in the United States. By contrast, Tlaib’s plan offers the full $3,000 or $6,000 credit to those with no income—a significant break from orthodoxy among more centrist Democrats, who have traditionally argued giving federal cash to the unemployed will discourage them from finding jobs.” Link to Jeff Stein’s coverage in the Washington Post, link to People’s Policy Project praise of the proposal.
  • Naila Kabeer: why randomized controlled trials need to include human agency. Link. ht Sidhya
  • A new report co-authored by George Monbiot et al for Labour UK advocates for a radical restructuring of land ownership. Among the recommendations: “unlocking information” about land value distribution, reigniting communal ownership, and founding public development corporations. Link to the report, link to an op-ed in the Guardian.
  • “Contradictions were celebrated by Marx, Hegel and Heraclitus. These authors not only intended that contradictions actually exist, but claimed that they are the essence of everything. However, their ideas were not presented in a formal way. One wonders whether this would be possible. Fifty years ago, on the one hand, Soviet thinkers used to consider the new logic as a grave mistake of the bourgeoisie, incapable of taking into account the fundamentally ‘dialectical’ nature of reality; on the other hand, someone like Popper did not hesitate in claiming, in the name of logic, that dialectic was nothing but a misconceived enterprise, given that, from his viewpoint, one could not represent dialectics, according to logic. The devising of paraconsistent logic would end the ideological debate, showing that, to some extent, neither of the sides was entirely correct, as usually happens in this kind of debate.” Paraconsistent logic in a historical perspective, by Newton C.A. da Costa. Link.

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