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BOOK REVIEW
Y. V. Reddy (2011). Global Crisis, Recession, and Uneven Recovery (New Delhi: Orient
Blackswan).
INTRODUCTION
This book is not Venu Reddy’s first foray in thinking through the tumultuous events
of 2008, but a continuation of his set of earlier talks as Governor of the Reserve bank
of India (Reddy, 2009).
This book also has a foreword by Andrew Sheng who has served as the Chairman of
the Hong Kong Securities and Futures Commission.
Andrew Sheng’s main point is that it is important to develop Asian perspectives of
the crisis in order to learn to think differently.
Sheng therefore lists six important cognitive attributes of the Asian approach to
problem solving and invites the reader to examine their implications for
macroeconomics.
The theoretical anxiety here is whether economics is a dependable foundation for
policy making. If yes, why were economists not able to anticipate the crisis?
Ben Bernanke has argued, for instance, that the failure was not at the level of
economics as such, but in how it was applied to policy analysis.
For Bernanke, it is important that the behavioural implications of economics should
be incorporated into policy making.
There are also important elements of culture in addition to those of behaviour that
must be factored into how economics is translated into actual policy interventions.

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Reddy takes upon himself the task of explaining the behavioural, cognitive, and
cultural dimensions of macroeconomic theory in the context of the financial crisis.
There are five parts in this book comprising 27 chapters.
The themes that are covered include an exposition and analysis of the crisis and
what came in its after-math; a situation analysis of the financial sector; the challenges
for public policy in making sense of these events and in trying to take corrective
action; a discussion of the global financial architecture; and an analysis of the
performance of the Indian economy along with an examination of its future
prospects.
META-DISCRETION IN MONETARY POLICY
This book is a good instance of the commitment made by Venu Reddy and the RBI to
open a channel of communications with not only immediate stakeholders, but with
the members of the financial community to explain the rationale for its policy actions.
That is why a number of central bankers have got involved in attempts to increase
levels of financial literacy. RBI’s interest in communications is also related to the
need to help those interested to understand the implications of living in an open
economy in the wake of globalization and liberalization.
In an open economy, it is easy to be affected by financial crises that originate in
another part of the world. That is why it has become increasingly important for the
RBI to monitor both the financial system in general and the international monetary
system in particular to anticipate the problems that might land up on its desk.
The growing inter-dependence between nations is also making it more difficult for
the monetary authorities to intervene because the increase in the number of variables
is making it difficult to adequately optimize policy within any given monetary regime.
There has therefore been a relentless quest for identifying a rules-based system to
make policy by central banks and eliminate discretion to the extent possible. Reddy’s

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take however is that the epistemological foundations of economics are not adequate
to move to a rules-based system given our present state of knowledge.
But, at the same time, he does not believe that a purely discretionary regime can be
immune to political pressures either. Therefore what is required is to know when to
follow rules and when to apply a discretionary approach. This is another version
then of what Bernanke calls ‘constrained discretion.’
Making policy at this level - where there is no simplistic recourse to either rules or
discretion - calls for what I want to term ‘meta-discretion,’ since in every given
instance the policy maker has to decide between rules and discretion. The experience
necessary to do this is picked up through a process of trial-and-error.
ETHIC OF CENTRAL BANK COMMUNICATIONS
When central bankers communicate, they are not only talking to stakeholders but
also to each other; they like intellectual discussions on the policy and practical
implications of monetary theory.
Those members of the public who need to be convinced that this is indeed the case
only have to visit the web site of any major central bank.
Almost all central banks have not only a formal communications policy but share
huge amounts of information on different aspects of not only monetary policy but
the performance of the economy in their monetary regime as a whole.
The web-site of the Bank for International Settlements for instance even aggregates
talks given by central bankers from different parts of the world.

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These web-sites can also be seen as the essential sites where the growing literature
on the communications policy of central banks can be studied by whoever is
interested in this topic.
Venu Reddy’s book then must be read and understood within the context of these
on-going policy discussions if we are to make sense of how central banks are able to
perform a myriad set of functions as a matter of routine.
Furthermore, as Venu Reddy takes the trouble to point out, it is important to
understand not only the relationship between monetary theory and monetary policy,
but also the relationship between fiscal policy and monetary policy, and the need to
co-ordinate these approaches to managing the economy.
Only then will it become possible to make sense of the recent crisis and explain to
stakeholders why the recovery has been ‘uneven.’
MULTI-DISCIPLINARY APPROACHES TO MONETARY POLICY
While Venu Reddy commends Asian economies (including India and China) for
their resilience, he tries to identify what the actual behavioural traits of resilience are
since merely identifying an economy to be resilient does not accomplish much.
It is much more important to understand how to make systemic interventions that
can affect the levels of resilience in an economy.
This will require multi-disciplinary approaches to monetary policy especially when
attempts are being made to stabilize entire economies in the aftermath of a crisis.

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Again, it is difficult to conceive of unconventional monetary policy without seeking
recourse to insights from a number of academic disciplines like economics,
psychology, and the social sciences.
Venu Reddy’s book is an attempt to do precisely this; he has made a concerted
attempt to talk to a range of both academic and non-academic audiences, but has
done so in a way that partakes of a genuine commitment to using communication
and knowledge sharing techniques to re-vitalize RBI and monetary policy in this
part of the world.
Reddy, needless to say, is working not only with passion but with a full
understanding of the intellectual sources of monetary policy like C. Rangarajan.
Venu Reddy not only explicitly acknowledges the importance of the path on which
Rangarajan laid out India’s monetary policy, but also addresses the reader with an
intellectual modesty that will leave his readers impressed.
CONSENSUS IN CENTRAL BANK COMMUNICATIONS
There is throughout this book – though these are all formal talks given to learned
societies – a feel of give-and-take between Venu Reddy and his listeners. Venu
Reddy’s ability to anticipate objections to any possible turn in his argument is a
characteristic feature of his style of writing.
This anticipation is then incorporated into his text along with Reddy’s response, the
opinions of central bankers who have already had their say on this topic, and the
pros and cons of almost any conceivable policy option that might interest a central
banker.
This level of thoroughness makes it much more likely that Venu Reddy will be heard
out by both academics and policymakers on any given topic.

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This book must be read not only by his fellow bankers at the RBI, but by anybody
who wants to understand what is at stake in the range of issues that confront central
bankers today.
What I find exciting as somebody who has taught communications in the IIT-IIM
system is that central bankers throughout the world are according an increasing
level of importance to having not only a formal communications policy, but in
actually practicing that policy when they address academia, media, policymakers,
and a varied range of stakeholders.
They are also willing to make their hard-won knowledge of monetary theory and
monetary policy available to whoever might be willing to learn. The web sites of
central banks have become large depositories of information and knowledge on an
endless number of topics in communications, economics, and policy making.
It is important to think through the implications of such forms of sharing on the part
of central banks because they are no more dependent on the mystique of secrecy in
policy making or in the determination of interest rates during the meetings of their
monetary policy committees.
This new found enthusiasm for accountability and transparency is creating a
revolution in central banking in many parts of the world. It will re-define - whether
we know it or not - more than just central banking. These monetary policy
precedents will open up the policy making establishment in not only this part of the
world, but in many other parts of the world for greater levels of participation by
whoever might be interested.
And, finally, in addition to helping us to understand how central bankers think,
Venu Reddy is making it possible for us to study the stylistics of central banking. In the
years to come, it will not suffice to merely make notes of what central bankers say,
but also observe how they go about saying it.
That is because the stability that we associate with central bankers and the financial
system is not just a theme in central banking, but a way of life.
Venu Reddy and Subba Rao

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Venu Reddy’s thoughts in this book then is an important input to that process of re-
defining central banking as not merely a technical exercise in the determination of
interest rates in a given monetary regime; but, above all, an attempt to ensure the
long-term stability of the financial system.
Only then will central banks be able to find their way through any number of
financial crises and stabilize those economies that are in need of stabilization.
In order to earn the moral responsibility to lead in such situations, however, central
bankers must constantly embody the ethic of stability in their personal and
professional lives. Venu Reddy’s career at the RBI then is a good instance of
somebody who was able to do precisely that.
Reading this book then might be the first – though not the last - step that is required
for a reader who would like to emulate an extraordinary central banker and public
servant like Yaga Venu Reddy.
REFERENCES
Reddy, Y. V. (2009). India and the Global financial Crisis: Managing Money and Finance
(New Delhi: Orient Blackswan).
SHIVA KUMAR SRINIVASAN