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Dirk Niepelt

Dirk Niepelt

Dirk Niepelt is Director of the Study Center Gerzensee and Professor at the University of Bern. A research fellow at the Centre for Economic Policy Research (CEPR, London), CESifo (Munich) research network member and member of the macroeconomic committee of the Verein für Socialpolitik, he served on the board of the Swiss Society of Economics and Statistics and was an invited professor at the University of Lausanne as well as a visiting professor at the Institute for International Economic Studies (IIES) at Stockholm University.

Articles by Dirk Niepelt

Puerto Rico’s Debt Restructuring

10 days ago

On Econofact, Daniel Bergstresser provides background information on Puerto Rico’s debt crisis. From his text:
Unlike U.S. municipalities, a U.S. territory cannot resort to Chapter 9 of the Bankruptcy act.
The island’s economy benefited from corporate tax exemptions (until 2006) and from tax exemptions on interest paid by municipal bonds issued by Puerto Rico and its agencies (“triple tax exemption”).
Total bond indebtedness (face value) amounts to over $70 billion, about 70 percent of the island’s GDP. The island owes an additional $50 billion in unfunded pension obligations to its state employees and retirees. Different government-sponsored entities issued the debt, apparently representing different claims on the Commonwealth’s revenue streams.
Puerto Rican issuers were downgraded from investment grade status in 2014. In March 2015, governor Padilla announced that the island’s debt was unpayable.
Resolution has been delayed by disagreement about the borrowers’ capacity to repay.
Puerto Rico defaulted on its general obligation debt in June of 2016 and President Obama signed the “Puerto Rico Oversight, Management, and Economic Stability Act” (PROMESA) law. This created an oversight board with the authority to oversee the island’s budget and facilitate restructuring talks. The law also created a bankruptcy-like “Title III” mechanism.

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Fintech Regulation in Switzerland: Open Questions

14 days ago

In the NZZ, Jürg Müller reports about the developing regulatory framework for fintechs in Switzerland. A proposal by the federal finance department drew—reasonable—criticism by various lobbies and industry associations, including the CFA Society Switzerland.

Die CFA Society Switzerland will das systemrelevante Bankensystem von anderen Finanzdienstleistern trennen. Dafür sei eine präzisere Bankendefinition nötig, als sie heute vorgenommen werde. Nur Banken sollen demnach dem Bankengesetz unterstehen. Finanzdienstleister, die kein traditionelles Bankengeschäft betreiben und keine Liquiditätsrisiken eingehen, sollen einem anderen Regulierungsmodell unterstehen. Dabei sollen je nach Tätigkeit unterschiedliche funktionale Lizenzen zum Zuge kommen – dieser letzte Punkt wird von vielen Vernehmlassungsteilnehmern ebenfalls eingefordert.
Schliesslich identifiziert die CFA Society Switzerland auch zentrale Fintech-Themen, die in der Vernehmlassung aussen vor gelassen wurden. Eine dieser Lücken sei der direkte Zugang zur Schweizerischen Nationalbank (SNB). Aus heutiger Sicht sei nicht ersichtlich, weshalb nur Banken elektronisches Zentralbankgeld halten dürften. Auf Anfrage wollte die SNB zu dieser Forderung keine Stellung nehmen. Andere Zentralbanken wie die Bank of England zeigen sich solchen Ideen gegenüber derweil aufgeschlossen.

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Zimbabwe’s Monetary Policy

16 days ago

On his blog, JP Koning provides an account of recent monetary policy in Zimbabwe:
The country dollarized in 2008.
The central bank offered USD deposit accounts for banks, specifically for inter bank payments. But these accounts were not fully backed by USDs, or the central bank rationed access to USDs for other reasons (early 2016).
Banks got squeezed, bank customers started a run, and the government imposed withdrawal limits. Retailers started to charge higher prices for “plastic money” (USD denominated bank deposits) than for USD cash.
In November 2016, the central bank introduced another parallel currency, “bond notes.” The government promised that bond notes would be fully backed and redeemable in USD cash (via the African Export Import Bank) but it defaulted on that promise too. Redeeming bond notes now is as difficult as cashing in deposits.
Bond notes and deposits trade at a discount vis-a-vis USD cash. But the government forbids retailers to charge different prices.
Gresham’s law works its way.

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Predictors of Default

17 days ago

On Science of Us, Seth Stephens-Davidowitz reports about predictors of loan repayment choices.

… language that potential borrowers use is a strong predictor of their probability of paying back. And it is an important indicator even if you control for other relevant information lenders were able to obtain about those potential borrowers, including credit ratings and income. …
Here are the phrases used in loan applications by people most likely to pay them back: debt-free, lower interest rate, after-tax, minimum payment, graduate.
And here are the phrases used by those least likely to pay back their loans: God, promise, will pay, thank you, hospital.

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How to Undermine Central Bank Independence

20 days ago

The Economist reported about the history of central banks and their independence. One snippet:
Typically, Richard Nixon took the bullying furthest, leaking a false story that Arthur Burns, Martin’s successor, was demanding a 50% pay rise. Attacked by the press, Burns retreated from his desire to raise interest rates.

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Digital Swiss Francs

22 days ago

The Swiss National Bank held its annual general meeting of shareholders (web TV). In response to one of the questions posed by shareholders Thomas Jordan suggested (2:58–2:59) that possibly a digital Swiss Franc might be introduced sometime in the future.

Tags: Digital currency,Electronic money,Featured,M0 base money,newsletter,Notes,Swiss National Bank,Switzerland

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Social Insurance in Switzerland

27 days ago

Information from the Swiss Federal Social Insurance Office on the social insurance system in Switzerland:
Brief Overview: HTML. Longer overview: PDF.
Social Insurance Accounts with links to data, in German (Schweizerische Sozialversicherungsstatistik): PDF.
Pocket statistics, in English: PDF. In German: PDF.

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Digital Swiss Francs

28 days ago

The Swiss National Bank held its annual general meeting of shareholders (web TV). In response to one of the questions posed by shareholders Thomas Jordan suggested (2:58–2:59) that possibly a digital Swiss Franc might be introduced sometime in the future.

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DSGE Models for Monetary Policy Analysis

28 days ago

In a VoxEU eBook, Refet Gürkaynak and Cédric Tille collect the views of central bank and academic economists on DSGE models. In the introduction to the eBook, Gürkaynak and Tille summarize these views as follows:
… there is agreement on the place of DSGE models in policy analysis. All see these models as part of the policymaker tool kit, while understanding their limitations and perceiving a similar road ahead.

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Money and Credit in Germany

April 25, 2017

In its April 2017 Quarterly Report, the Deutsche Bundesbank discusses the role of banks in the creation of money. Findings from a wavelet analysis indicate that in Germany, money and credit move in parallel in the long run.
In an appendix, the report mentions possible welfare costs of curbing maturity transformation, with reference to Diamond and Dybvig’s work. This is not convincing. Unlike in the typical (microeconomic) banking model, aggregate central bank provided money need not be scarce, so there is no a priori social need for the private sector to create money.

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Does Greece Need Official Debt Relief?

April 23, 2017

In a Peterson Institute working paper, Jeromin Zettelmeyer, Eike Kreplin, and Ugo Panizza conclude that the answer to that question depends on your assumptions.
The authors compare several scenarios, including
scenarios A–C, the baseline scenario of the European institutions and two more pessimistic variants;
scenario I which underlies the IMF reasoning and which assumes that “Greece will not undertake the structural reforms needed to achieve higher potential growth”;
and scenario D, which corresponds to what Greece committed to when the third program was agreed, and which represents the German position.
They assume that interest rates on privately held debt rise with the debt-to-GDP ratio, and they use two “sustainability” metrics: The debt-to-GDP ratio (should fall), and gross financing needs as a share of GDP (should be smaller than 20%).
When running Monte Carlos simulations, the authors find that for each scenario, the assumptions about growth and primary surpluses are consistent with the conclusions drawn by the different institutions:
In A (borderline) and D, debt is “sustainable.”
Not so in B, C, and I, due to “accelerating substitution of official debt by more expensive borrowing from private sources”.
The authors then evaluate the plausibility of the scenario assumptions.

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Historical Living Standards in International Comparison

April 23, 2017

On VoxEU, Peter Lindert summarizes his recent work on long-term international comparisons of living standards. Lindert compares nominal incomes per capita, deflated by historical prices (for staple goods). He makes five points:
The real income gap between Northwest Europe and the major Asian countries was greater since the 1500s than even Maddison had estimated.
Contrary to all previous estimates, Mughal India around 1600 was already far behind both Japan and Northwest Europe.
Within Europe, the new estimation procedure shows little bias in Maddison’s estimates.
Average incomes in North America were already higher than in Britain or France in the late 17th century, long before Maddison’s c.1900 catching up date for the US versus Britain. A similar ‘frontier advantage’ has now emerged from estimates for Australia in 1870.
Adding what is known about the ability to buy luxuries and capital goods raises the income of Western Europe relative to all other regions, except possibly resource-rich North America.

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Kenneth Arrow’s Work

April 23, 2017

On VoxEU, Steven Durlauf offers an excellent overview over Kenneth Arrow’s work. Durlauf emphasizes five areas of research:
The impossibility theorem, in the tradition of Condorcet.
General equilibrium theory and the welfare theorems, in the tradition of Walras.
Decision-making under uncertainty, the Arrow-Pratt measures of risk aversion and contingent commodities.
Imperfect information, in the context of medical care and as a source of statistical discrimination.
Economics of knowledge, anticipating the endogenous growth literature.
Durlauf closes:
Like Faust, limitless curiosity and passion for knowledge meant that Arrow strove without relenting; but unlike Faust, Arrow needed no redemption. His intellectual integrity was pristine and unparalleled at every stage of his life. His character was as admirable and admired as his intellect. Arrow’s personal and scholarly example continues to inspire, nurture, and challenge.

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The Kremlin and Russian Criminals

April 23, 2017

From the European Council on Foreign Relations, Mark Galeotti reports about ties between Russian criminal networks and the Kremlin. From the summary:
The Russian state is highly criminalised, and the interpenetration of the criminal ‘underworld’ and the political ‘upperworld’ has led the regime to use criminals from time to time as instruments of its rule.
Russian-based organised crime groups in Europe have been used for a variety of purposes, including as sources of ‘black cash’, to launch cyber attacks, to wield political influence, to traffic people and goods, and even to carry out targeted assassinations on behalf of the Kremlin.

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Mankiw on the Congressional Tax Plan

April 23, 2017

In the New York Times, Greg Mankiw applauds the tax reform plan discussed in Congress. He emphasizes four points:
The reform would move the US tax system toward international norms, from worldwide to territorial taxation.
It would move the system from income towards less distorting consumption taxation, by allowing businesses to deduct investment spending immediately.
The reform would change the origin-based into a destination-based system (taxing imports and exempting exports, a.k.a. “border adjustment”), with similarities to a value-added tax, making it harder to game the system. “[T]he immediate impact of the change would be to discourage imports and encourage exports. … the dollar would appreciate … The movement in the exchange rate would offset the initial impact on imports and exports.”
The reform would abolish tax deductions for interest payments to bondholders, eliminating incentives for corporate leverage. “A business’s taxes would be based on its cash flow: revenue minus wage payments and investment spending. How this cash flow is then paid out to equity and debt holders would be irrelevant.

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Python and Julia for Economists

April 13, 2017

On their “Quantitative Economics” website, Thomas Sargent and John Stachurski offer great introductions to the Python and Julia programming languages.

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Swiss Franc Exchange Rate Index

April 12, 2017

The Swiss National Bank has updated its exchange rate indices. In an SNB Economic Studies paper, Robert Müller describes how. The upshot is that the SNB considers the Swiss Franc slightly less overvalued than before. From the abstract:

The key aspects of the revision are: the application of the weighting method used by the IMF, which takes into account so-called third-market effects; continuous updating of the countries incorporated into the index; and calculation of a chained index. The methodological changes in the calculation of the new index have only a slight effect on the development of the nominal index. However, the difference between the nominal and real index (CPI-based) has increased with the new calculation. This is explained by the fact that countries with a greater weighting in the new index have higher average rates of inflation than those whose weighting has been reduced.

Nominal and real effective exchange rate indices of Swiss Franc(see more posts on Swiss Franc Index, ) Source: www.snb.

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Swiss Franc Exchange Rate Index

April 12, 2017

The Swiss National Bank has updated its exchange rate indices. In an SNB Economic Studies paper, Robert Müller describes how. The upshot is that the SNB considers the Swiss Franc slightly less overvalued than before. From the abstract:

The key aspects of the revision are: the application of the weighting method used by the IMF, which takes into account so-called third-market effects; continuous updating of the countries incorporated into the index; and calculation of a chained index. The methodological changes in the calculation of the new index have only a slight effect on the development of the nominal index. However, the difference between the nominal and real index (CPI-based) has increased with the new calculation. This is explained by the fact that countries with a greater weighting in the new index have higher average rates of inflation than those whose weighting has been reduced.

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On the State of Macroeconomics

April 12, 2017

In a paper, Ricardo Reis defends macroeconomics against various critiques. He concludes:

I have argued that while there is much that is wrong with macroeconomics today, most critiques of the state of macroeconomics are off target. Current macroeconomic research is not mindless DSGE modeling filled with ridiculous assumptions and oblivious of data. Rather, young macroeconomists are doing vibrant, varied, and exciting work, getting jobs, and being published. Macroeconomics informs economic policy only moderately and not more nor all that differently than other fields in economics. Monetary policy has benefitted significantly from this advice in keeping inflation under control and preventing a new Great Depression. Macroeconomic forecasts perform poorly in absolute terms and given the size of the challenge probably always will. But relative to the level of aggregation, the time horizon, and the amount of funding, they are not so obviously worst than those in other fields. What is most wrong with macroeconomics today is perhaps that there is too little discussion of which models to teach and too little investment in graduate-level textbooks.

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Models Make Economics A Science

April 12, 2017

In the Journal of Economic Literature, Ariel Rubinstein discusses Dani Rodrik’s “superb” book “Economics Rules.” The article nicely articulates what economics and specifically, economic modeling is about. Some quotes (emphasis my own) …
… on the nature of economics:
[A] quote … by John Maynard Keynes to Roy Harrod in 1938: “It seems to me that economics is a branch of logic, a way of thinking”; “Economics is a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world.”
[Rodrik] … declares: “Models make economics a science” … He rejects … the … common justification given by economists for calling economics a science: “It’s a science because we work with the scientific method: we build hypotheses and then test them. When a theory fails the test, we discard it and either replace it or come up with an improved version.” Dani’s response: “This is a nice story, but it bears little relationship to what economists do in practice …”
… on models, forecasts, and tests:
A good model is, for me, a good story about an interaction between human beings …
A story is not a tool for making predictions. At best, it can help us realize that a particular outcome is possible or that some element might be critical in obtaining a particular result. … Personally, I don’t have any urge to predict anything.

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Who Voted for Brexit?

April 10, 2017

In a CEPR Discussion Paper, Sascha Becker, Thiemo Fetzer, and Dennis Novy argue that education and income mainly explain voting outcomes. In the abstract of their paper, the authors write:
We find that exposure to the EU in terms of immigration and trade provides relatively little explanatory power for the referendum vote. Instead, … fundamental characteristics of the voting population were key drivers of the Vote Leave share, in particular their education profiles, their historical dependence on manufacturing employment as well as low income and high unemployment. … within cities, we find that areas with deprivation in terms of education, income and employment were more likely to vote Leave.

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Independent Fiscal Institutions

April 6, 2017

In the FT blog, Peter Doyle emphasizes the importance of independent fiscal watchdogs.
They matter.
That’s why less autocratic governments pursuing competent policies support them (and others don’t).
It would be useful to have independent fiscal institutions and policy watchdogs on a supranational level.

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Does the Swiss Agricultural Sector Add Value?

April 2, 2017

In December 2016, the Swiss Federal Council concluded that in international comparison, government support for the Swiss agricultural sector is very high. But critics point out that the government report might understate the social cost of government support. In a separate study the lobby group `Vision Landwirtschaft’ had presented estimates according to which the Swiss agricultural sector adds negative value, on the order of 1 billion CHF per year.
NZZ reports by Désirée Föry: February 9, 2017 and April 2, 2017.

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Citigroup Advises Against the `Fiscal Theory of the Price Level’

March 30, 2017

In a recent Citigroup Global Economics View Research report, Willem Buiter discusses “Bad and Good ‘Fiscal Theories of the Price Level’.” Quoting my own work on the Fiscal Theory, Buiter warns that policy makers start to pay attention to the theory:
It does not often happen that a rather obscure technical bit of economic theory
merits an audience wider than the small band of academics who spend their waking
hours pondering such matters because that is the kind of thing they do. This note
addresses one of those occasions. The obscure economic theory in question is the
so-called fiscal theory of the price level (FTPL) …
The destruction of the logic of the FTPL by Buiter and Niepelt ought to have been
the end of the FTPL – their arguments were never refuted.

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MXN/USD

March 28, 2017

The Mexican Peso has been recovering ever since Donald Trump assumed office. Its value has climbed back to nearly where it was at the time of the US election.
Time series as reported by xe.

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