The ECB’s new monetary policy strategy.

In the FAZ, Christian Siedenbiedel reports that Deutsche Bank questions whether a digital Euro as envisioned by the ECB (i.e., with tight quantity restrictions) would be successful:
Die Argumentation geht so: Die EZB will den digitalen Euro einführen, um auf den verstärkten Währungswettbewerb zu antworten. … Um sich vor solchem Machtverlust sowohl durch Digitalgeld von anderen Notenbanken („Krypto-Dollars“) als auch durch privates Digitalgeld („Global Stable Coins“) zu schützen, treibe die EZB den Digitaleuro voran. Also aus längerfristigen politischen Motiven. Dabei sei unklar, ob der digitale Euro sich international am Markt durchsetzen könne und ob die Menschen in der Eurozone dafür überhaupt Bedarf hätten. “Das Design des digitalen Euros, soweit bisher bekannt, lässt erwarten,

In the NBER working paper “Dissecting Green Returns,” Lubos Pastor, Robert Stambaugh, and Lucian Taylor argue that excess returns on green assets during recent years are unlikely to predict expected excess returns. At least that’s what theory suggests:

… green assets have lower expected returns than brown, due to investors’ tastes for green assets, yet green assets can have higher realized returns while agents’ tastes shift unexpectedly in the green direction. … green tastes can shift in two ways. First, investors’ preference for green assets can increase, directly driving up green asset prices. Second, consumers’ demands for green products can strengthen—for example, due to environmental regulations—driving up green firms’ profits and thus their stock prices.

In the data

… green

Goodreads rating 4.04.
Seine Wunde blühte, sein Leid strahlte, sein Ich war in die Einheit geflossen. …
Weisheit ist nicht mitteilbar. Weisheit, welche ein Weiser mitzuteilen versucht, klingt immer wie Narrheit. …
Mir aber liegt einzig daran, die Welt lieben zu können, sie nicht zu verachten, sie und mich nicht zu hassen …

In a new working paper the Swiss Bankers Association identifies challenges for banks. Nevertheless it argues that
[a]ny conclusion that the status quo is the least risky option seems premature and shortsighted.
…
The introduction of digital currencies and design questions regarding payment methods and infrastructure represent strategic business as well as political challenges on which public authorities and business must take a productive position. An informed discussion on the design and implementation of digital currencies is essential. It is time for the general public to consider these issues and drive the opinion-forming process.

Finanz und Wirtschaft, June 5, 2021. PDF.
The debt brake addresses some political economy frictions, but not others.
Focusing too narrowly on explicit government debt it provides incentives to accumulate implicit debt, sell assets, or engage in creative accounting.
The political pressure to raise SNB profit disbursements is a symptom of these incentives.

In a CEPR discussion paper, Andreas Fuster, Tan Schelling, and Pascal Towbin analyze how banks respond to changes in the threshold level above which reserves held at the central bank are charged negative interest:
… exploiting an unexpected decision by the Swiss National Bank in September 2019 to change the threshold calculation without taking any other policy actions. This change led to a large increase in overall exemptions, but with variation across banks. Using a difference-in-differences approach, we find that banks that experience a larger increase in their exemption threshold tend to raise their SNB sight deposit holdings, funded through more interbank borrowing and more customer deposits. The interbank market is important for the funding choice: banks with low collateral

Goodreads rating 4.22.
Your fear of death is but the trembling of the shepherd when he stands before the king whose hand is to be laid upon him in honour.
…
Surely there is no greater gift to a man than that which turns all his aims into parching lips and all life into a fountain. And in this lies my honour and my reward,—That whenever I come to the fountain to drink I find the living water itself thirsty; And it drinks me while I drink it.
…
If these be vague words, then seek not to clear them. Vague and nebulous is the beginning of all things, but not their end, And I fain would have you remember me as a beginning.

In an NBER working paper, Jose Maria Barrero, Nicholas Bloom, and Steven J. Davis argue, based on a survey of 30 000 Americans, that
… 20 percent of full workdays will be supplied from home after the pandemic ends, compared with just 5 percent before. … better-than-expected WFH experiences, new investments in physical and human capital that enable WFH, greatly diminished stigma associated with WFH, lingering concerns about crowds and contagion risks, and a pandemic-driven surge in technological innovations that support WFH.
They predict:
First, employees will enjoy large benefits from greater remote work, especially those with higher earnings. Second, the shift to WFH will directly reduce spending in major city centers by at least 5-10 percent relative to the pre-pandemic situation.

Ifo Schnelldienst 4/2021, April 14, 2021. PDF.

Was Schuldengrenzen aus politökonomischer Sicht besonders attraktiv erscheinen lässt – ihre vermeintliche Einfachheit und Klarheit – birgt also auch Risiken. Es führt dazu, dass Politiker und ihre Wähler die Solidität der Staatsfinanzen über Gebühr an expliziten Bruttoschulden messen. Was aber zählt, wenn es um unerwünschte Umverteilung zulasten künftiger Generationen geht, ist staatliches Nettovermögen in einer umfassenden Gesamtschau.

Ifo Schnelldienst 4/2021, April 14, 2021. PDF.

Was Schuldengrenzen aus politökonomischer Sicht besonders attraktiv erscheinen lässt – ihre vermeintliche Einfachheit und Klarheit – birgt also auch Risiken. Es führt dazu, dass Politiker und ihre Wähler die Solidität der Staatsfinanzen über Gebühr an expliziten Bruttoschulden messen. Was aber zählt, wenn es um unerwünschte Umverteilung zulasten künftiger Generationen geht, ist staatliches Nettovermögen in einer umfassenden Gesamtschau.

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Weekly SNB Sight Deposits and Speculative Positions: SNB selling euros and dollars
2021-04-12

Update April 12 2021: SNB selling euros and dollars. Sight

On VoxEU, Paul Krugman reviews Mundell’s work in international finance and his impact on supply side economics.

Economic Journal, February 2021, with Harris Dellas. PDF.
We study the optimal debt and investment decisions of a sovereign with private information. The separating equilibrium is characterised by a cap on the current account. A sovereign repays debt amount due that exceeds default costs in order to signal creditworthiness and smooth consumption. Accepting funding conditional on investment/reforms relaxes borrowing constraints, even when investment does not create collateral, but it depresses current consumption. The model contains the signalling elements emphasised by creditors in the Greek austerity programmes and is consistent with the reduction in the loans issued by Greece and their interest rate following the 2015 election.

MA course at the University of Bern.
The classes follow selected chapters in the textbook Macroeconomic Analysis (MIT Press, 2019) and build on the material covered in the macro II course which follows the same text. Table of contents of the book. Page with more information about the book and exercises. Uni Bern’s official course page. Zoom link is posted on ILIAS page.
Main contents:
Concepts.
RA model with government spending and taxes.
Government debt in RA model.
Government debt and social security in OLG model.
Neutrality results.
Consolidated government budget constraint.
Fiscal effects on inflation. Game of chicken.
FTPL. Active and passive policies.
Tax smoothing.
Time consistent policy.
Sovereign debt.

VoxEU, February 5, 2021. HTML.
Based on CEPR DP 15457, I assess possible implications of the introduction of retail CBDC for bank profits. The model implies annual implicit subsidies to U.S. banks of up to 0.8 percent of GDP during the period 1999-2017.

Negative Zinsen machen Staatsschulden nicht
«kostenlos». Den Emittenten wird kein «Geld geschenkt». Selbst wenn der
Zinssatz unterhalb der Wachstumsrate liegt, bedeutet dies nicht, dass
nachhaltige und insbesondere optimale Schuldenquoten ins Grenzenlose steigen.
Nominal- und
Realzinsen sind tief und in vielen Ländern sogar negativ. Deshalb ist vielfach zu
lesen, Staatsschulden seien «kostenlos» oder «nahezu kostenlos». Stimmt das?
Bruttozinsen
Auf den ersten Blick stimmt
es nicht, denn der Käufer einer Bundesobligation muss für deren Erwerb etwas
bezahlen. Alles andere wäre erstaunlich. Schliesslich dient das Geschäft
zwischen Schuldner und Gläubiger dazu, Kaufkraft in der Zukunft und der
Gegenwart zu tauschen. Der Preis, zu dem dieser Tausch stattfindet, ist der
Bruttozins,

The Federal Department of Finance and the SNB have agreed on a new scheme for the distribution of SNB profits. Agreement for the period 2020-2025, Explanations. Some comments in German (also available as PDF):
Profitieren Bund und Kantone finanziell von den höheren SNB-Ausschüttungen?
Höhere Gewinnausschüttungen in der Gegenwart bedingen tiefere in der Zukunft.
In erster Näherung bleibt das Nettovermögen von Bund und Kantonen unverändert, denn es berücksichtigt auch den Wert der zukünftigen Ansprüche gegenüber der SNB.
Siehe z.B. „Die Volkswirtschaft“ 8-9 2020, HTML.
Warum dann die positiven Reaktionen bei Vertretern von Bund und Kantonen?
Politiker/Wähler orientieren sich an den ausgewiesenen Schulden des Staates. Höhere Ausschüttungen ermöglichen eine tiefere Schuldenaufnahme. Daher

Goodreads rating 3.76. An inquiry into language and personal experience.
Bieri analyzes notions of free will, their basis or vacuousness, and their consequences. A powerful dissection of language and experience.
Wille ist bedingt durch Historie.
Ein unbedingt freier Wille wäre nicht der Wille der Person; er wäre unberechenbar und zufällig — nicht das, nach dem sich Verfechter eines unbedingt freien Willens sehnen. Freier und unfreier Wille sind bedingt.
Bedingt freier Wille hat nichts mit Zwang oder Ohnmacht zu tun, denn die Beweggründe liegen nicht aussen; die Person entscheidet.
Bedingt freier Wille rechtfertigt daher auch nicht Fatalismus. Nicht Vorherbestimmtheit ist ein Übel, sondern allenfalls das, was vorherbestimmt ist.
Verantwortung, Strafe und Moral? “In moralischen Dingen

Panel with Elga Bartsch, Agnès Bénassy-Quéré, Giancarlo Corsetti, Olivier Garnier, and Charles Wyplosz. Moderated by Tobias Broer.
Elga Bartsch, Agnès Bénassy-Quéré, Giancarlo Corsetti, Xavier Debrun: Geneva Report 23 | It’s All in the Mix: How Monetary and Fiscal policies Can Work or Fail Together.
Event at PSE.
My comments on the report.

NZZ, February 1, 2021. PDF. (Title changed by NZZ.)
Do negative interest rates render government debt costless? No. What about r

Goodreads rating 4.55. Surprising, sympathetic.

On bankunderground, Michael Kumhof, Phurichai Rungcharoenkitkul, and Andrej Sokol question that foreign savings is an important driver of US current account deficits:
Consider how US imports can be paid for in the real world: first, by transferring existing domestic or foreign bank balances to foreigners, which involves no new financing. Second, by borrowing from domestic banks and transferring the resulting bank balances to foreign households, which involves domestic but not foreign financing. And finally, by borrowing from foreign banks and transferring the resulting bank balances to foreign households. Only the last option involves foreign financing, but in practice it is the least likely option for most domestic residents.
Gross balance sheet positions are critical to discern

VoxEU, January 11, 2021, with Martin Gonzalez-Eiras. HTML.
Based on the CEPR discussion paper, we draw conclusions for the pandemic endgame. We explain why Israel will likely impose a harsher lockdown than other countries, especially poor ones. And why we should expect “inverse lockdowns”—measures to stimulate social interaction.

Some modest new year’s resolutions inspired by the commencement speech of US Navy Admiral William H. McRave.

Goodreads rating 4.39. Concise, to the point, insightful.

Goodreads rating 4.11. Tranquility.

Goodreads rating 4.17. Stronger on relativity than on quantum mechanics and thermodynamics.

Olivier Blanchard, Public Debt and Low Interest Rates, AER 2019, 109(4).
Robert Barro, r Minus g, NBER wp 28002, October 2020.
Dmitriy Sergeyev and Neil Mehrotra, Debt Sustainability in a Low Interest World, CEPR dp 15282, September 2020.
Stan Olijslagers, Nander de Vette, and Sweder van Wijnbergen, Debt Sustainability when r−g

Writing about CBDC, John Cochrane makes it clear that he is in favor. He links to my work and writes
Dirk Niepelt has written a lot about CBDC theory, including reserves for all in 2015, a recent Vox-EU summary and papers,  here with Markus Brunnermeier a JME paper “CBDC coupled with central bank pass-through funding need not imply a credit crunch nor undermine financial stability,” a follow up including “The model implies annual implicit subsidies to U.S. banks of up to 0.8 percent of GDP during the period 1999-2017.”  Here  “reserves for all” “does not affect macroeconomic outcomes,”

On Fazit, Gerald Braunberger reviews the concept of “liquidity trap.”
Keynes never used the term but Robertson did.
Hicks introduced the common notion (represented, e.g., by a flat LM curve).
Krugman talks about a different trap. So does Blanchard and he (incorrectly) attributes it to Keynes. So does Sinn.