Experimentation and its Contents: Exploring a Path Less Taken: Notes from Viral V Acharya

Written by Maeve Daniels

Viral V. Acharya is a Deputy Governor at the Reserve Bank of India (RBI) in charge of Monetary Policy, Financial Markets Operations and Regulation, and Research and Statistics.  Prior to joining the RBI, he was the C V Starr Professor of Economics at the Department of Finance at New York University Stern School of Business. He has co-edited the books Restoring Financial Stability: How to Repair a Failed System, John Wiley & Sons, March 2009, Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance, John Wiley & Sons, November 2010, and Dodd-Frank: One Year On, NYU-Stern and CEPR (released on voxeu.org), July 2011.  He is also the co-author of the book Guaranteed to Fail: Fannie Mae, Freddie Mac and the Debacle of Mortgage Finance, Princeton University Press, March 2011 and Harper Collins (India), June 2011.

Today’s markets are increasingly characterized by disruption, prompting an increased focus upon flexibility and experimentation from the perspective of job-seekers and policy wonks alike. The Gould Standard had the opportunity to sit down (read: conduct a transcontinental Skype session) with Professor Viral V Acharya, a man whose career has demonstrated nothing short of dynamism. With research interests in banking, asset pricing, and financial systems and crises, Professor Acharya has penned books on the Crisis of 2008 and financial sector reforms and taught classes on credit, sovereign and financial market risks. He now adds a new title to his C.V.: Deputy Governor of the Reserve Bank of India.

What motivated your interest in economics and finance and led you to pursue a career in this field rather than another?

“I don’t have a very flamboyant answer to that, since I would say it was part accident, part wanting to do something else. I was finishing my Bachelor of Technology in Computer Science—I had been trying to have a go at computational aspects of computer science: combinatorics, algorithms, etc., which is all very abstract mathematics. It was then that I stumbled upon an undergraduate elective course in International Finance by one of the faculty at IIT Bombay — her name is Pushpa Trivedi. Thinking about how money flows between different economies, how exchange rates are determined, how the global financial system all hangs together, what role does trade play in finance and what role does finance play in trade, etc., seemed quite interesting. I also happened around that time to meet a family friend, Dr. Apoorva Koticha, who had just finished his Ph.D. in Finance at NYU Stern School of Business under the guidance of Professor Marti Subrahmanyam. I exchanged emails with him, and he said that finance can be very analytical, but also exciting when applied. So that, combined with the course I took, made me think that if I had to change track to something else, let me have a go at finance or economics.

Did you always know that research was the natural path you wanted to pursue, versus practicing?

“Actually, when I started out my Ph.D. work at Stern, I was quite unsure. I worked three of my Ph.D. summers at J.P. Morgan in three different groups: in fixed income strategy, equity derivatives research, and then credit risk modeling. While there in 1997 and 1998 summers, I saw the full onslaught of the South East Asian crisis, the Russian default and the near collapse of the Long Term Capital Management. These episodes underscored to me the importance of banks, financial stability, and understanding how banks and markets interact to determine availability of credit and liquidity to the economy. While academic models are crucial for having the right conceptual framework to look at the world, it is essential to know how markets, institutions and regulation work in practice, often in an intricate and intertwined manner, so that one has the right balance between theory and applied research.

I then embarked on modeling systemic risk and why it may reach inefficient levels. Since then, over the past 17 years, I feel I have gained a deeper and richer understanding of all that in a large body of research, partly shaped by the global financial crisis in 2007-08 and partly by the European sovereign debt crisis in 2011-12. I am still learning, though, how measures taken since then are unfolding.”

Is it this passion that led you to work on the Stern Initiative on the Study of Indian Capital Markets, as well as the India Initiative of the Center of Global Economy and Business?

“For sure. But it is also my passion for India, having grown here and feeling so much an Indian at heart. Also I was not seeing much high-quality academic research on the Indian economy, even though now it’s a large economy. By-and-large, emerging markets don’t get as much attention, in my opinion, in finance and economics research, as their share of global growth and trade deserves. I thought that some institutional set-ups might help promote such research. At the NYU Stern Solomon Center, we set up the Initiative with the National Stock Exchange of India to study the Indian Capital Markets; then two years back we set up an initiative between the Salomon Center and Moody’s ICRA to study Indian fixed-income markets; last year, we started an India Luncheon seminar series and an annual India conference under aegis of the NYU Stern Center for Global Economy and Business. My hope is that over time, we create a network of researchers across different universities who, through research, understand and therefore help the world understand, India and other emerging markets in ways that perhaps we have not understood it before.”

On a lighter note, what does a typical ‘Day in the Life’ look like for you, and how is it an adjustment from your Stern lifestyle?

  • 6:00 AM: Wake up
  • 6:30 AM: Skype with wife and son in New York
  • 7:00 AM: Breakfast with parents
  • 7:45: Travel from Mumbai to the Reserve Bank of India
  • 8:30: Reflection and catching up on reading
  • 11:00: Financial Markets call
  • 1:30: Lunch; Catching up on currency and government bond movements
  • 6:00: Review of green and blue papers**
  • 7:30: Tennis matches with ex-students.
  • 10:45: Dinner
  • Saturdays: Wake up late, catch up with my friends, enjoy walks in Mumbai, visit mother-in-law.
  • Sunday: Travel, speech-writing, or memo-drafting.

Having worn many hats across many institutions/organizations, what advice might you offer to students, particularly undergraduates stepping into the job market?

   “The main advice I would give is to pursue your dreams. Follow your passion, look for what is really right for you, rather than what other people are doing or what the current fad is in the markets. It’s important, of course, to earn a basic level of livelihood — basic subsistence — but at the end, if you are good at what you do, and you do it with passion and convey that energy, it is bound to be rather infectious and the world will reward you for it in one way or the other.”

The Wall Street Journal introduced you to the world as the “Indian Central Bank’s Musical Deputy Governor,” noting your many lyrical accomplishments. Do you continue to compose, and how else do you enjoy spending your free time?

“There is no immediate plan to write lyrics or to record music. But when one is enjoying every moment of what one is doing, work is no longer work but becomes poetry. Right now, I am feeling that way about my stint at the RBI!



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