Angesichts anhaltend negativer Leitzinsen solle die Schweizerische Nationalbank einen Teil ihrer Gewinne an die Pensionskassen abführen, so eine kürzlich erhobene Forderung. Dieser Vorschlag ist aus mehreren Gründen problematisch.[ 1 ]
Die Schweizerische
Nationalbank (SNB) steht aufgrund anhaltend negativer Leitzinsen in der Kritik.
Ein Vorwurf lautet, die SNB schenke den Auswirkungen der lockeren Geldpolitik
auf die Pensionskassen zu wenig Beachtung. Um die Pensionskassen zu entlasten,
so eine kürzlich erhobene Forderung,
solle die SNB einen Teil ihrer Gewinne an die Kassen abführen. Dieser Vorschlag ist aus mehreren Gründen
problematisch: Er basiert auf einer fehlenden Unterscheidung zwischen Nominal-
und Realzinsen, missachtet das Verursacherprinzip (obwohl er es umzusetzen

VoxEU, March 20, 2019, with Markus Brunnermeier. HTML.
Both proponents and opponents have suggested that CBDC would fundamentally change the macroeconomy, either for the better or the worse. We question this paradigm. We derive an equivalence result according to which the introduction of CBDC need not alter the allocation nor the price system. And we argue that key concerns put forward in discussions about CBDC are misplaced.
See also our VoxEU book chapter and my paper from last year.

MIT Technology Review reports about the results of an experiment (arxiv.org/abs/1902.05080: Experimental Rejection of Observer-Independence in the Quantum World) suggesting that objective reality … does not exist.
The experiment produces an unambiguous result. It turns out that both realities can coexist even though they produce irreconcilable outcomes, just as Wigner predicted.
That raises some fascinating questions that are forcing physicists to reconsider the nature of reality.
The idea that observers can ultimately reconcile their measurements of some kind of fundamental reality is based on several assumptions. The first is that universal facts actually exist and that observers can agree on them.
But there are other assumptions too. One is that observers have the freedom to make

NZZ, March 13, 2019. PDF.
Long-term real interest rates do not reflect monetary policy.
In the recent past, monetary policy has contributed to lower fixed-income interest rates but also to higher returns on other asset classes.
Complaining about low rates but not adjusting one’s portfolio makes little sense; there is no “financial repression.”
If politicians want to subsidize pension funds they should contribute funds from the government budget rather than asking the central bank to contribute.
Larger and earlier SNB dividend payouts to the government may not be in the government’s interest.

Accepted for publication in the International Journal of Central Banking. PDF.
This paper offers a macroeconomic perspective on the “Reserves for All” (RFA) proposal to let the general public hold electronic central bank money and transact with it. I propose an equivalence result according to which a marginal substitution of outside money (e.g., RFA) for inside money (e.g., deposits) does not affect macroeconomic outcomes. I identify key conditions for equivalence and argue that these conditions likely are violated, implying that RFA would change macroeconomic outcomes. I also relate the analysis to common arguments found in discussions on RFA and point to inconsistencies and open questions.

The Board of Governors of the Federal Reserve System is requesting comment on the proposal to lower the interest rate on excess balances of eligible institutions that hold a very large proportion of their assets in the form of reserves—i.e., on balances of ‘The Narrow Bank.’
The document states that
[t]he Board is concerned that [Pass-Through Investment Entities] PTIEs, by maintaining all or substantially all of their assets in the form of balances at Reserve Banks and having the ability to attract very large quantities of deposits at a near-IOER rate, have the potential to complicate the implementation of monetary policy.

Accepted for publication in the Journal of Monetary Economics, with Martin Gonzalez-Eiras. PDF. (Appendix: PDF.)
We propose a theory of tax centralization in politico-economic equilibrium. Taxation has dynamic general equilibrium implications which are internalized at the federal, but not at the regional level. The political support for taxation therefore differs across levels of government. Complementarities on the spending side decouple the equilibrium composition of spending and taxation and create a role for inter governmental grants. The model provides an explanation for the centralization of revenue, introduction of grants, and expansion of federal income taxation in the U.S. around the time of the New Deal. Quantitatively, it accounts for approximately 30% of the federal revenue

Der Bund. March 5, 2019. HTML.
Short newspaper interview about corrective taxes, tackling problems at the root, and equity vs. efficiency.

With Markus Brunnermeier. March 2019. PDF. In Antonio Fatás, editor, The Economics of Fintech and Digital Currencies, VoxEU book, London.
We address five key concerns that are frequently put forward:
1. Aren’t digital currencies just a hype, now that crypto ‘currencies’ like Bitcoin have proved too volatile and expensive to serve as reliable stores of value or mediums of exchange? This confuses things. A central bank digital currency (CBDC) is like cash, only digital; Alipay, Apple Pay, WeChat Pay, and so on are like deposits, only handier; and crypto currencies are not in any way linked to typical currencies, but they live on the blockchain.
2. Doesn’t a CBDC or ‘Reserves for All’ choke investment by cutting into bank deposits? No, because new central bank liabilities (namely, a CBDC)

On his blog, Stephen Williamson discusses the Fed’s plan to maintain a much larger balance sheet in the future than before the crisis. He is not convinced that this plan is a good one.
But what’s the harm in a large Fed balance sheet? The larger the balance sheet, the lower is the quantity of Treasury securities in financial markets, and the higher is reserves. Treasuries are highly liquid, widely-traded securities that play a key role in overnight repo markets. Reserves are highly liquid – for the institutions that hold them – but they are held only by a subset of financial institutions. Thus, a large Fed balance sheet could harm the operation of financial markets. … it would be reflected in a scarcity of collateral in overnight financial markets – in market interest rates. Before

Arnold Kling (2016), Specialization and Trade, A Re-Introduction to Economics, Washington, DC, Cato Institute.
Kling’s central theme in this short book of nine main chapters is that specialization, trade, and the coordination of individual plans by means of the price system and the profit motive play fundamental roles in modern economies. Most mainstream economists would agree with this assessment. Their models of trade, growth, and innovation certainly include the four elements, with varying emphasis.
But Kling criticizes the methodological approach adopted by post-world-war-II economics, which he associates with “MIT economics.” An MIT PhD himself, he argues that economics, and specifically macroeconomics, should adopt less of a mechanistic and more of an evolutionary perspective to

The slides (PDF) of a recent presentation of mine at a round table on the future of finance.

In the FT, Robert Armstrong reports about the new “JPM coin” launched by JP Morgan.
“JPM Coins” will be transferable over a blockchain between the accounts of the bank’s corporate clients, who will purchase and redeem them for dollars at a fixed 1:1 ratio, making them “stablecoins” in the crypto-jargon.
The technology will facilitate near-instantaneous settlement of these money transfers and will, according to the bank, mitigate counterparty risk.
According to my reading, the coins are essentially bank deposit that live on a blockchain which is managed by JP Morgan and accessible by the bank’s clients. I doubt that a coin will be redeemable for US dollars issued by the Federal Reserve (as opposed to deposits issued by JP Morgan).

MA course at the University of Bern.
The classes follow these notes and build on the material covered in the macro II course. Uni Bern’s official course page. The course TA is Lukas Völlmy.
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.

On his blog, JP Koning argues that very short conversion periods rendered it unattractive for Swedes to hold cash. He also suggests that it were the banks that pushed for the short periods.
While digital payments share some of the blame for the obsolescence of paper kronor, the Riksbank is also responsible. The Riksbank betrayed the Swedish cash-using public this decade by embarking on an aggressive note switch.  Had it chosen a more customer friendly approach, Swedes would be holding a much larger stock of banknotes than they are now. As long as other countries don’t enact the same policies as Sweden, they needn’t worry about precipitous declines in cash demand.
Recently, the trend decline of kronor cash holdings has reverted. Across the board, the use case for cash seems to change

On his blog, JP Koning reports that
[b]oth the Christmas bump and the sawtooth pattern arising from monthly payrolls are less noticeable than previous years. But these patterns remain more apparent for Canadian dollars than U.S. dollars. Not because Canadians like cash more than Americans. We don’t, and are probably further along the path towards digital payments then they are. Rather, the percentage of U.S. dollars held overseas is much larger than Canadian dollars, so domestic usage of U.S. cash for transactions purposes gets blurred by all its other uses.

On Spiegel online, Christoph Schult reports about “Instrument in Support of Trade Exchanges” (Instex), the new special purpose vehicle founded by France, Germany, and the UK with the task to facilitate legitimate trade with Iran. Instex is not meant to bust US sanctions, but to circumvent the banking sector which the the three countries perceive as “overcomplying.”
Eigentlich dürfen europäische Unternehmen alle Waren, die nicht den Sanktionen unterliegen, weiter in den Iran exportieren. Problem ist allerdings, dass fast alle Banken in Europa ablehnen, den Zahlungsverkehr für solche Geschäfte abzuwickeln. Die Geldinstitute haben Angst, sie könnten in den USA bestraft werden. “Overcompliance” von Sanktionen nennen das EU-Diplomaten – Übererfüllung.
Instex ist eine Art Tauschbörse, in der

In a press release the Swiss National Bank explains that it

grants access to … [fintechs] that make a significant contribution to the fulfilment
of the SNB’s statutory tasks, and whose admission does not pose any major risks. Entities with fintech licences whose business model makes them significant participants in the area of Swiss franc payment transactions will therefore be granted access to the SIC system and to sight deposit accounts.
The Swiss Financial Market Supervisory Authority is in charge of granting fintech licences.

Related posts: Swiss stock exchange could lose EU access in January
Will the SNB ever make profits again?
Swiss

Guidelines published by the Swiss Financial Market Supervisory Authority. From the explanations:
The FinTech licence allows institutions to accept public deposits of up to CHF 100 million, provided that these are not invested and no interest is paid on them. A further requirement is that an institution with a FinTech licence must have its registered office and conduct its business activities in Switzerland.

In a press release the Swiss National Bank explains that it

grants access to … [fintechs] that make a significant contribution to the fulfilment
of the SNB’s statutory tasks, and whose admission does not pose any major risks. Entities with fintech licences whose business model makes them significant participants in the area of Swiss franc payment transactions will therefore be granted access to the SIC system and to sight deposit accounts.
The Swiss Financial Market Supervisory Authority is in charge of granting fintech licences.

Mimeo, January 2019, with Markus Brunnermeier. PDF.
We propose a generic model of money and liquidity. We provide sufficient conditions under which a swap of private (inside) against public (outside) money leaves the equilibrium allocation and price system unchanged. We apply the results to Central Bank Digital Currency, the “Chicago Plan,” and the Indian de-monetization experiment.

The Economist characterizes the work of who it views as the eight best economists of the decade. Most of their work is empirical. The eight are:
Isaiah Andrews, Melissa Dell, Nathaniel Hendren, and Stefanie Stantcheva of Harvard
Parag Pathak and Heidi Williams of MIT
Emi Nakamura of UC Berkeley
Amir Sufi of Chicago Booth

Finews.asia, December 27, 2018. HTML.
Independence has increasingly come under pressure and this pressure will remain. What has been tried and tested for years is now questioned again.
Increasing demands on central banks reflect the failure of other state organs.

At an AEI event in Washington, James McAndrews discussed narrow banking and the Federal Reserve’s opposition to McAndrews’ “The Narrow Bank USA Inc.”
His slides emphasize the fact that a narrow bank can help achieve goals that Federal Reserve representatives themselves promoted in the past.

December 2018. PDF. In: Ernest Gnan and Donato Masciandaro, editors, Do We Need Central Bank Digital Currency? Economics, Technology and Institutions, SUERF, The European Money and Finance Forum, Vienna, 2018.
A short version of the CEPR working paper.

The ECB launches its Target Instant Payment Settlement (TIPS) system, which facilitates instant money transfers between banks and allows end users connected to those banks to make instant retail payments across the Euro zone.
Report in the FAZ. Last year’s report by Mehreen Khan in the FT.
From the ECB’s website:
TIPS was developed as an extension of TARGET2 and settles payments in central bank money. TIPS currently only settles payment transfers in euro. However, in case of demand other currencies could be supported as well. …
… a number of national solutions have been developed, or are under development, across the EU. A challenge for the Eurosystem is to ensure that these national solutions do not (re)introduce fragmentation … TIPS aims to minimise this risk by offering a service

Finanz und Wirtschaft, November 24, 2018. PDF. Ökonomenstimme, November 26, 2018. HTML.
European firms dealing with Iran face U.S. “secondary sanctions.”
European counter measures (including a blocking statute) prove toothless.
Even central banks in the European Union surrender to U.S. pressure, as does SWIFT.
Ignorance is bliss: For a sovereign, the best protection against foreign states pressuring to monitor domestic citizens and businesses may be to know as little as possible.

Im Konflikt mit dem Iran setzt die USA auf ‘sekundäre Massnahmen’, die sich gegen nicht-amerikanische natürliche und juristische Personen mit iranischen Kontakten richten. Seitens der EU zeichnet sich bisher kein effektiver Ansatz ab, wie europäische Unternehmen trotzdem weiterhin frei mit dem Iran handeln könnten. Eine Möglichkeit wäre eine staatliche Strategie des Nicht-Wissens.
Europäische Firmen
leiden unter der Verquickung amerikanischer Aussen- und Wirtschaftspolitik.
Dies wird in den letzten Wochen insbesondere vor dem Hintergrund der Ereignisse
im mittleren Osten deutlich. Siemens traf es im Oktober. Die Administration Trump
signalisierte, dass sie es nicht tolerieren werde, wenn der Irak beim Aufbau
seiner Energieversorgung hauptsächlich mit dem deutschen Konzern

On German TV, stand-up comedian Dieter Nuhr exposes the contradictions of calls for justice and equality that characterize much of the German public debate. His hour-long performance could well serve as a lecture in economics and ethics.

At a conference in Singapore, IMF Managing Director Christine Lagarde has argued that
[w]hile the case for digital currency is not universal, we should investigate it further, seriously, carefully and creatively.
In her speech she emphasizes potential benefits related to financial inclusion; security and consumer protection; and privacy. (Privacy would be limited however.) She sees risks as well, including to innovation. But she de-emphasizes the notion of increased run risk which commentators often stress.
What about the risk of bank runs? It exists. But consider that people run when they believe that cash withdraws are honored on a first-come-first-serve basis—the early bird gets the worm. Digital currency, instead, because it can be distributed much more easily than cash, could