In the world characterized by uncertainty, central banks with their magic-wand monetary policies have increased their clout. But what if even the central banks themselves cry foul and say there is not anymore bazooka left with them to move the economy?

Don’t worry; simply consult an astrologer who looks at stars to tell you what their movements can hold for the future of the economy? Sounds ridiculous? It may, upfront. But it’s not new either, if we look at the historical evolution of modern day astrology and economics.

To do this, let me invoke Bertrand Russell who portrayed the astrologer in a newspaper column in 1932. In his description, the astrologer is an aged sage with a long white beard, speaking in a slow and trance-like manner, and felt by the public to be possessed of mystical lore. More importantly, in his most glorious days, the astrologer stood to the King “in the same relation as the Governor of the Bank of England now stands to the Prime Minister“.

Economic forecasting, central banking and astrology share interesting commonalities. Astrology needs expertise in mathematics / astronomy for making connection between stars and so does economic forecasting by central banks which relies on mathematical models for connection between variables. No wonder, John Kenneth Galbraith, the most celebrated economist, once quipped that the “only function of economic forecasting is to make look astrology respectable“.

The role of astrology does not stop with the domain of economics. With its attractive forecasting capabilities, it even entered mainstream finance in the 20th century. And it is not without rhyme or reason. As James Pierpont Morgan famously stated, “Millionaires don’t use astrology, billionaires do”. And the list does not end here – a Chief Technical Analyst at HSBC and a treasurer of the European Bank for Reconstruction and Development – all have voiced their views on the prevalence of astrology in financial forecasting.

Financial astrology, as the name suggests is a field in itself in the modern day. This has even caught the attention of researchers at Goldman Sachs who published a paper in 1999 focusing on the correlation between eclipses and the state of the financial markets.

Turning to stars may not be new or a last resort for central bankers when they run out of bazooka. It’s their favourite pastime even in the midst of the crisis time as well. In 2010, the schedule of the Jackson Hole Conference hosted by Federal Reserve Bank of Kansas City and attended to by central bankers from more than 35 countries, included apart from papers presented by central bankers and economists, a stargazing session with a local astronomy club.

Back home in India, RBI Governor Dr Y V Reddy made a witting remark in his speech on a festive day of Ugadi in March 2007 that he is “not able to predict for the next year, the future of monetary policy in the open economies in general or opening economies like India” since he is “yet to hear “Panchang Sravanam (aka astrological prediction for the ensuing year)” for the Telugu New Year”.

So don’t worry the next time when a central banker says that they run out of bazooka, as long as you believe that stars are in your favor.

Written by Dr Srinivas Yanamandra

This post was originally published here. Reproduced with the permission of the author.

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