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On Prof @jrvarma , I was not being entirely accurate here. I *am* aware of a number of his macro intuitions - in quite some detail - just don't know what it means for the MPC at present. A thread on some of his academic work + blog-posts that I find most thought-provoking. 1/ https://twitter.com/ritwik_priya/status/1313197355546611713
First and foremost, I owe a particular way of thinking about finance, banking and the economy to him. It's hard for me to articulate, but I'd say he's the closest India has to a Fischer Black. 2/
This is more an analytical and conceptual point, its policy or normative implications do not line up neatly with anything or anyone else. E.g. Corporate debt as the synthetic sum of three more 'basic' products - funding at the risk free rate + an IRS + a CDS. 3/
Under this view, a bank deposit is a complex swaption https://jrvarma.wordpress.com/2015/02/04/bank-deposits-without-those-exotic-swaptions/
And, banks are just CDOs. https://faculty.iima.ac.in/~jrvarma/blog/index.cgi/Y2006/Buttonwood-CDO.html https://faculty.iima.ac.in/~jrvarma/blog/index.cgi/Y2007/CDOs-and-banks.html https://jrvarma.wordpress.com/2018/03/18/do-we-need-banks/
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And, banks are just CDOs. https://faculty.iima.ac.in/~jrvarma/blog/index.cgi/Y2006/Buttonwood-CDO.html https://faculty.iima.ac.in/~jrvarma/blog/index.cgi/Y2007/CDOs-and-banks.html https://jrvarma.wordpress.com/2018/03/18/do-we-need-banks/
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I don't subscribe to this framework in entirety, particularly around bank deposits. But it's one of those things that expands your mind, for it to never regain its original shape. And allows you to see Nirav Modi's LoCs for what they were - uncovered sold CDS positions. 5/
On money and negative interest rates, he argued "as an aside" in a post on interest rate models in a zero/-ve rate world that the ZLB was not a proposition on rates per se but on the non-existence of contango/ backwardation in the unit of account. https://faculty.iima.ac.in/~jrvarma/blog/index.cgi/Y2013/rate-models-zirp.discuss 6/
And elsewhere has been supportive of -ve rates as a monetary degree of freedom in conditions that require them, making the case that finance can and will adjust if the need be.
https://faculty.iima.ac.in/~jrvarma/blog/index.cgi/Y2014-15/Why-is-the-IMF-afraid-of-negative-interest-rates.discuss
https://jrvarma.wordpress.com/2015/02/19/loss-aversion-and-negative-interest-rates/
https://jrvarma.wordpress.com/2015/10/04/negative-interest-rates-wreak-havoc-with-finance-textbooks/
https://www.iaras.org/iaras/filedownloads/ijems/2019/007-0030(2019).pdf
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https://faculty.iima.ac.in/~jrvarma/blog/index.cgi/Y2014-15/Why-is-the-IMF-afraid-of-negative-interest-rates.discuss
https://jrvarma.wordpress.com/2015/02/19/loss-aversion-and-negative-interest-rates/
https://jrvarma.wordpress.com/2015/10/04/negative-interest-rates-wreak-havoc-with-finance-textbooks/
https://www.iaras.org/iaras/filedownloads/ijems/2019/007-0030(2019).pdf
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He also has similarly mind-expanding frameworks on the BoP and International Finance - e.g how capital flight is often disguised in the trade account through which he spotted flight in March'13, 5 months before the INR crisis happened https://faculty.iima.ac.in/~jrvarma/blog/index.cgi/Y2013/India-capital-flight.html 8/
How portfolio flows can sometimes (often?) be counterintuitively more stabilising than FDI https://jrvarma.wordpress.com/2014/12/04/on-fickle-foreign-direct-investment-and-patient-foreign-portfolio-capital/ and how India's capital account and FX policy has sometimes resembled the sum of 2 giant hedge funds - one successful, other not so much https://jrvarma.wordpress.com/2008/10/21/india-and-its-two-giant-hedge-funds/
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But he's first and foremost a Finance academic, one whose outstanding quality is to be theoretically sound and on top of contemporary global and industry developments - comprehensively (I can't stress this enough) - at the same time. It is something exceptional. Examples: 10/
In 2008, he joked while teaching us (Agency) Mortgages in the Fixed Income Securities - Rates that maybe he should move it to the FIS-Credit course given what had happened. Org alignment of this business at various IBanks continues to reflect this tension he made lightly.11/
More substantially, he wrote a technical piece on 2-curve discounting of rate swaps, as early as 2010, before the LIBOR to OIS switch of derivative pricing had yet happened on trading floors in the major financial centres. https://faculty.iima.ac.in/~jrvarma/papers/Two-Curve-Models-JRVarma-19Aug2010.pdf 12/
He finished the paper by noting that thinking through the collateralised version of the swap, it may actually be a *3-factor* model, with the Repo Rate as numeraire, OIS as discount rate and LIBOR simply the cash-flow reference, presaging the SOFR discussion by a decade. 13/
Some of his most developed views are on financial , regulation and bankruptcies- combining a preference for free markets with a fraud-prevention, debtor-first and sovereign-backstop perspective.
On GFC prosecutions and Lehman
https://faculty.iima.ac.in/~jrvarma/blog/index.cgi/Y2013/rakoff-prosecution.html
https://faculty.iima.ac.in/~jrvarma/blog/index.cgi/Y2016-17/why-they-let-Lehman-fail.html
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On GFC prosecutions and Lehman
https://faculty.iima.ac.in/~jrvarma/blog/index.cgi/Y2013/rakoff-prosecution.html
https://faculty.iima.ac.in/~jrvarma/blog/index.cgi/Y2016-17/why-they-let-Lehman-fail.html
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Critique on the recent works from Adam Levitin and Katharina Pistor
https://jrvarma.wordpress.com/2019/08/30/no-easy-fixes-for-limited-liability/
https://jrvarma.wordpress.com/2013/07/25/legal-theory-of-finance/
https://faculty.iima.ac.in/~jrvarma/blog/index.cgi/Y2019-20/legal-theory-of-finance-redux.html
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https://jrvarma.wordpress.com/2019/08/30/no-easy-fixes-for-limited-liability/
https://jrvarma.wordpress.com/2013/07/25/legal-theory-of-finance/
https://faculty.iima.ac.in/~jrvarma/blog/index.cgi/Y2019-20/legal-theory-of-finance-redux.html
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And on what India's policy response to some of the more topical financial challenges of the last couple of years should or could be.
https://faculty.iima.ac.in/~jrvarma/blog/index.cgi/Y2020-21/bankruptcy-during-crises.html
https://faculty.iima.ac.in/~jrvarma/blog/index.cgi/Y2020-21/mf-bond-liquidity.html
https://faculty.iima.ac.in/~jrvarma/blog/index.cgi/Y2020-21/IBC-new-chapter.html
https://faculty.iima.ac.in/~jrvarma/blog/index.cgi/Y2020-21/pre-emptive-recap.html
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https://faculty.iima.ac.in/~jrvarma/blog/index.cgi/Y2020-21/bankruptcy-during-crises.html
https://faculty.iima.ac.in/~jrvarma/blog/index.cgi/Y2020-21/mf-bond-liquidity.html
https://faculty.iima.ac.in/~jrvarma/blog/index.cgi/Y2020-21/IBC-new-chapter.html
https://faculty.iima.ac.in/~jrvarma/blog/index.cgi/Y2020-21/pre-emptive-recap.html
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His full research list is here. https://faculty.iima.ac.in/~jrvarma/recent.php
You may notice that he has written a fair bit on blockchain and cryptocurrencies more recently. And, true to his extensive abilities, writes regularly on *computing* itself, not just on its applications to Finance. 17/
You may notice that he has written a fair bit on blockchain and cryptocurrencies more recently. And, true to his extensive abilities, writes regularly on *computing* itself, not just on its applications to Finance. 17/
Lastly, he is no stranger to the world of actual policy - he was a SEBI Member as far back as 1997 and has been on a majority of GoI appointed committees of import to financial matters, including the FSLRC. https://faculty.iima.ac.in/~jrvarma/committees.php
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If the world of Indian financial policy was organised differently, and he wanted, he may easily have been a strong contender for RBI Dy Gov, SEBI chair or even RBI Guv. And that too a decade ago. Regardless, welcome addition to the MPC. Congratulations, sir. @jrvarma
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