The Riksbank starts a pilot project with Accenture to develop a technical solution for a retail e-krona.
Users shall be able to hold e-kronor in a digital wallet, make payments, deposits and withdrawals via a mobile app. The user shall also be able to make payments via wearables, such as smart watches, and cards.
The pilot runs for a year, on a distributed ledger, according to the Riksbank’s press release. More detailed information is contained in this note.

Econs (a non-profit project of the communications department of the Russian central bank), February 13, 2020. HTML.
Russian version of my VoxEU column on digital money and CBDC. What are we actually talking about? What do we know? And what should policymakers do? I discuss the following points:
Finance has been digital forever – what’s new about ‘digital money’?
Does the nature of money change?
What is central bank digital currency?
What is the link between CBDC and the blockchain?
Would CBDC have macroeconomic effects?
Would CBDC foster bank disintermediation and bank runs?
Why consider CBDC at all?
What opportunities does CBDC offer?
Where do the risks lie?
Do the opportunities justify the risks?
Do central banks have a choice?

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. Uni Bern’s official course 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.

In Foreign Affairs, Paul Romer criticizes “pretend economists” who pretend that economics—and they themselves—can answer normative questions on scientific grounds. He argues that “pretend economists” open the field to corruption.
The alternative is to make honesty and humility prerequisites for membership in the community of economists. The easy part is to challenge the pretenders. The hard part is to say no when government officials look to economists for an answer to a normative question. Scientific authority never conveys moral authority. No economist has a privileged insight into questions of right and wrong, and none deserves a special say in fundamental decisions about how society should operate. Economists who argue otherwise and exert undue influence in public debates about

Macroeconomic Analysis available at Rakuten.

VoxEU, February 3, 2020. HTML.
What are we actually talking about? What do we know? And what should policymakers do? I discuss the following points:
Finance has been digital forever – what’s new about ‘digital money’?
Does the nature of money change?
What is central bank digital currency?
What is the link between CBDC and the blockchain?
Would CBDC have macroeconomic effects?
Would CBDC foster bank disintermediation and bank runs?
Why consider CBDC at all?
What opportunities does CBDC offer?
Where do the risks lie?
Do the opportunities justify the risks?
Do central banks have a choice?

An intriguing description of America’s intelligence community and the industry surrounding it; the slippery slopes; and Snowden’s motivation for following his conscience rather than the money. From the book, how we got here:
[After 9/11] [n]early a hundred thousand spies returned to work at the agencies with the knowledge that they’d failed at their primary job, which was protecting America. …
In retrospect, my country … could have used this rare moment of solidarity to reinforce democratic values and cultivate resilience in the now-connected global public. Instead, it went to war. The greatest regret of my life is my reflexive, unquestioning support for that decision. I was outraged, yes, but that was only the beginning of a process in which my heart completely defeated my rational

According to a BIS press release, several leading central banks collaborate with the BIS on matters relating to the introduction of CBDC:
The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Sveriges Riksbank and the Swiss National Bank, together with the Bank for International Settlements (BIS), have created a group to share experiences as they assess the potential cases for central bank digital currency (CBDC) in their home jurisdictions.
The group will assess CBDC use cases; economic, functional and technical design choices, including cross-border interoperability; and the sharing of knowledge on emerging technologies. It will closely coordinate with the relevant institutions and forums – in particular, the Financial

Accenture, the Digital Dollar Foundation, and FTI Consulting are pushing for a digital USD. They have formed the Digital Dollar Project
to advance exploration of a United States Central Bank Digital Currency (CBDC). The purpose of the Project is to encourage research and public discussion on the potential advantages of a digital dollar, convene private sector thought leaders and actors, and propose possible models to support the public sector. The Project will develop a framework for potential, practical steps that can be taken to establish a dollar CBDC.

According to a BIS press release, several leading central banks collaborate with the BIS on matters relating to the introduction of CBDC:
The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Sveriges Riksbank and the Swiss National Bank, together with the Bank for International Settlements (BIS), have created a group to share experiences as they assess the potential cases for central bank digital currency (CBDC) in their home jurisdictions.
The group will assess CBDC use cases; economic, functional and technical design choices, including cross-border interoperability; and the sharing of knowledge on emerging technologies. It will closely coordinate with the relevant institutions and forums – in particular, the Financial Stability Board and the

In a series of blog posts, John Cochrane criticizes the Saez-Zucman proposal for higher wealth taxes. In posts #1 to #4 he argues that economic arguments for wealth taxes are inconsistent or not convincing. In post #5 he concludes that Saez-Zucman truly are motivated by political objectives which are grounded in the view that wealth of the rich is ill-gotten or that the rich have a disproportionate, negative influence on politics.
Saez and Zucman want to confiscate billionaires’ wealth, because they think billionaires have too much political power, billionaires all got their money unjustly, and somehow though big government cronyism is the problem, bigger government is the answer.
Cochrane rejects this view.

Finanz und Wirtschaft, January 4, 2020. PDF.
Finance has been digital for decades. And both technology and preferences are only changing gradually. So, what triggers the abrupt changes in business models that we currently observe?
The interaction between industry on the one hand and legislators and regulators on the other has changed. New entrants exploit synergies across areas that have so far been regulated by independent authorities, or not at all. While entrants think and act outside the box, regulators and legislators have not yet been able to catch up.
Digital finance poses new challenges, including for financial stability, national security, and consumer protection (digital literacy).

One of the American Economic Association sessions in this year’s ASSA Meetings focused on “Modern Monetary Theory” (MMT) and (maybe somewhat unfairly in the same session) on last year’s presidential address by Olivier Blanchard, which suggested that persistently low interest rates on public debt render government budget constraints non-binding.
Greg Mankiw concluded in his paper that “MMT contains some kernels of truth, but its most novel policy prescriptions do not follow cogently from its premises,” in line with my own assessment.
Papers by Richard Evans, Michael Boskin, Jasmina Hasanhodzic, as well as by Johannes Brumm, Laurence Kotlikoff, and Felix Kubler argued that Blanchard’s conclusions are not robust, for various reasons.

Redrawing the Map of Global Capital Flows: The Role of Cross-Border Financing and Tax Havens, by Antonio Coppola, Matteo Maggiori, Jesse Schreger, and Brent Neiman:
We start with the dataset of global mutual fund and exchange traded fund (ETF) holdings provided by Morningstar and assembled in Matteo Maggiori, Brent Neiman and Jesse Schreger (2019a, henceforth MNS). For each position in the data, we link the security’s immediate issuer to its ultimate parent. The resulting data can then be used to create a mapping that transforms cross-border positions from a residency to nationality basis and that sheds light on how global firms finance themselves. …
First, in the case of bonds, positions are almost always reallocated away from Bermuda, the Cayman Islands, and other tax havens. Under

The Central Bank of the Bahamas introduces CBDC, according to a press release (December 2019).

The intended outcome of Project Sand Dollar is that all residents in The Bahamas would have use of a central bank digital currency, on a modernized technology platform, with an experience and convenience—legally and otherwise—that resembles cash. It is expected that this will allow for reduced service delivery costs, increased transactional efficiency, and an improved overall level of financial inclusion. The anonymity feature of cash is not being replicated, although the Sand Dollar infrastructure would incorporate strict attention to confidentiality and data protection.

On Marginal Revolution, Alex Tabarrok reported (in December 2019) that
[m]en and women are different. A seemingly obvious fact to most of humanity but a long-time subject of controversy within psychology. New large-scale results using better empirical methods are resolving the debate, however, in favor of the person in the street. The basic story is that at the broadest level (OCEAN) differences are relatively small but that is because there are large offsetting differences between men and women at lower levels of aggregation. Scott Barry Kaufman, writing at Scientific American, has a very good review of the evidence:

On Bank Underground, David Bholat and Karla Martinez Gutierrez described (in October 2019) the ownership structures of central banks across the world. From their post:
Figure 4: Institutional detail on central banks not fully owned by governments

Figure III in Paul Schmelzing (2019), Eight Centuries of Global Real Interest Rates, R-G, and the ‘Suprasecular’ Decline, 1311–2018. SSRN.

List of third parties (other than PayPal customers) with whom personal information may be shared, according to Paypal, October 2019.

In an NBER working paper, Gino Gancia, Giacomo Ponzetto, and Jaume Ventura propose a theory of declining public support for economic unions: Broad gains from trade in differentiated goods make way for distributive conflict due to specific factors:

… this is partly due to the growth of trade between countries that are increasingly dissimilar. … political support for international unions can grow with their breadth and depth as long as member countries are sufficiently similar. However, differences in economic size and factor endowments can trigger disagreement over the value of unions between and within countries. The model is consistent with some salient features of the process of European integration and statistical evidence from survey data.

A common argument against retail central bank digital currency (CBDC) is that CBDC would undermine financial stability by allowing the general public to swiftly move funds from banks to a government account. But in several countries such swift transfers are possible already today—in the US through Treasury Direct.
(The argument also has conceptual flaws, see the paper On the Equivalence of Public and Private Money with Markus Brunnermeier.)

For over a year the federal funds rate has increased relative to the rate the Fed pays on excess reserves. In mid September 2019, the federal funds rate increased abruptly, triggering the Fed to inject fresh funds. In parallel, the repo market rates spiked dramatically.
On the Cato Institute’s blog, George Selgin argues that structurally elevated demand collided with reduced supply. He mentions explicit and implicit regulation; Treasury General Account (TGA) balances; the NY Fed’s foreign repo pool (Japanese banks); and the administration’s $1 trillion deficit which required primary dealers to underwrite newly-issued government debt.
The bottom line is that regulators have managed to raise the biggest banks liquidity needs enough to compel them to sit on most of the banking system’s

“This is an excellent textbook for macroeconomics at the master’s or beginning PhD level. The topics and the material used to cover them are well chosen; the treatment gives a solid and unified background for positive and normative analysis. It strikes a good balance between being conceptually clear and logically consistent, and at the same time quite accessible.”
—Fernando Alvarez, Saieh Family Professor of Economics, University of Chicago
Forthcoming, MIT Press.
MIT Press book page. My book page.

In the FT, Benjamin Parkin reports about the transformation of India’s payments landscape.
Behind the boom is an innovation launched by the Indian government in 2016: the unglamorous sounding Unified Payments Interface, or UPI, which allows immediate mobile payments directly between bank accounts.
Conceived as a public utility, the service is transforming India’s cash-dependent economy into fertile soil for mobile-money apps. … Both the volume and value of transactions had more than doubled in a year.

A paper by Peter Arcidiacono, Josh Kinsler, and Tyler Ransom offers some glimpses.
The lawsuit Students For Fair Admissions v. Harvard University provided an unprecedented look at how an elite school makes admissions decisions. Using publicly released reports, we examine the preferences Harvard gives for recruited athletes, legacies, those on the dean’s interest list, and children of faculty and staff (ALDCs). Among white admits, over 43% are ALDC. Among admits who are African American, Asian American, and Hispanic, the share is less than 16% each. Our model of admissions shows that roughly three quarters of white ALDC admits would have been rejected if they had been treated as white non-ALDCs. Removing preferences for athletes and legacies would significantly alter the racial

In an NBER working paper, Laurence Ball and Sandeep Mazumder question the puzzles of first, missing disinflation and subsequently, missing inflation in the Euro area. From the abstract:
… we measure core inflation with the weighted median of industry inflation rates, which is less volatile than the common measure of inflation excluding food and energy prices. We find that fluctuations in core inflation since the creation of the euro are well explained by three factors: expected inflation (as measured by surveys of forecasters); the output gap (as measured by the OECD); and the pass-through of movements in headline inflation. Our specification resolves the puzzle of a “missing disinflation” after the Great Recession, and it diminishes the puzzle of a “missing inflation” during the

In an VoxEU column, Vladimir Asriyan, Luca Fornaro, Alberto Martin, and Jaume Ventura lay out their perspective on bubbly money as a complementary store of value and the role of monetary policy in supporting optimal levels of investment.

“Finally, a book that fills the longstanding, and growing, gap between existing undergraduate and graduate macroeconomics textbooks. The winning approach of the author is to rigorously develop the core insights in each topic studied, avoiding superfluous diversions. The emphasis on government policy and political economy is especially useful in interpreting current global macroeconomic events.”
—Gianluca Violante, Professor of Economics, Princeton University
(To be continued.)
Forthcoming, MIT Press.
MIT Press book page. My book page.

The Korean newspaper Workers cites the VoxEU column in which I argued that “Libra paves the way for CBDC.”

“Niepelt’s textbook provides a concise, but rigorous introduction to the key concepts, tools, and models that constitute modern macroeconomic theory. His pedagogical approach, introducing the key building blocks of the theory one at a time, and focusing on what is essential at each stage, should make the learning experience a pleasant one. I expect it to become a staple reference in first-year graduate courses.”
—Jordi Galí, CREI, Universitat Pompeu Fabra and Barcelona GSE
(To be continued.)
Forthcoming, MIT Press.
MIT Press book page. My book page.