Reading the Monetary Policy Statement is a dreary affair for many people. Policy making can be even more boring. But monetary policy decision-making naturally reveals the humorous side of life,” Reserve Bank of India Deputy Governor Michael Debabrata Patra said at a banking enclave in Mumbai.
Underlining the importance of humor in monetary policy, Michael Patra said policymakers need to have a sense of humor to remain sane while trying to deal with the stress of a “perceived threat” to the economy.
An ‘inflationist’ who is against inflation can go mad if he expects higher inflation but doesn’t have a sense of humour, said Michael Patra at the 9th SBI Banking & Economics Conclave in Mumbai yesterday. ‘
Years ago, American economist and New York Times columnist Paul Krugman wrote that Fed transcripts from 2006 show much laughter and “an incredible amount of complacency”.
In his speech ‘The Lighter Side of Making Monetary Policy’, the deputy governor stressed that the humor in monetary policy making reflects serious concerns about the economy rather than a lack of concern or a sense of complacency, as Paul Krugman suggests .
Stating that humor is an integral part of monetary policy making, he said that if humor is allowed in the conversation, monetary policy, its objectives and the decision-making process behind it can be understood a little better.
On the subject of economic forecasts, Michael Patra joked that monetary policy makers were made to look good to weather forecasters. “In fact, it is said that monetary policy makers have a sense of humor – which is why they put a decimal point on their forecasts,” he said.
In a speech interspersed with humour, the RBI deputy governor said the central banker “demonstrates the dreary monotony which he believes conveys a sense of monetary stability”.
“What if the leader of the central bank told hilarious jokes and played card games?” He posed the question to the audience and followed it up with a paper with the same title in the American Journal of Economics and Sociology.
Digging a little deeper into the history of monetary policy making, he said that monetary policy used to be an occult art, practiced by magicians, and shrouded in secrecy.
“In the days of the gold standard, central bankers were considered high priests of the temple of money. In its innermost sanctum, they were believed to perform alchemy, by which base metals such as lead were transformed into noble metals such as gold. Can be changed.”
Michael Patra also recalled what Mervyn King, governor of the Bank of England from 2003-2013, had written a while back. When Mervyn King joined the Bank of England in 1991, he sought advice from Paul Volcker, once considered a champion among central bankers. Paul Volker answered in one word: “Mystic”.
Michael Patra said, “That one word encapsulated much of the tradition and wisdom of central banking at the time.”
He emphasized that much of what goes into monetary policy decisions evolves from the discussions that policy makers have with each other, with the public, and from feedback.
“Monetary policy has been spoken of as an art, a science, and a craft. Yet, at its core, it is about informed human decision-making constrained by high uncertainty, which cannot be replaced by mechanistic models or rules.” is,” he said.
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