On Alphaville, Izabella Kaminska questions the utility settlement coin project (for an update on the project, see Martin Arnold’s recent FT article). She suspects that
USC isn’t really a blockchain project as much as a market infrastructure project — even if it leans on blockchain jargon for the purpose of gaining popular momentum. …
On paper, the technology promises to un-encumber cash collateral by creating a much more reliable form of distributed settlement, requiring a fraction of the collateral needed to operate a comparable centralised system.
She points to possible conflicts of interests. The project could just aim at convincing regulators that settlement processes are robust.
Hence most blockchain ventures today equate to nothing more than a lobbying effort by banks to get

In a BIS Quarterly Review article, Morten Bech and Rodney Garratt offer a taxonomy of money, with special emphasis given to central bank issued digital and crypto currency. They stress four dimensions:
issuer (central bank or other); form (electronic or physical); accessibility (universal or limited); and transfer mechanism (centralised or decentralised). The taxonomy defines a CBCC as an electronic form of central bank money that can be exchanged in a decentralised manner known as peer-to-peer, meaning that transactions occur directly between the payer and the payee without the need for a central intermediary. This distinguishes CBCCs from other existing forms of electronic central bank money, such as reserves, which are exchanged in a centralised fashion across accounts at the

On Alphaville, Izabella Kaminska asks why a central bank would want to issue cryptocurrency rather than conventional digital currency.
… if anonymity is not the objective of issuing a centrally supervised cryptocurrency, what really is the point of using blockchain or crypto technology? Just issue a conventional digital currency and be done with it. If, on the other hand, anonymity is the objective of issuing a centrally supervised cryptocurrency, how can this be justified by a central bank in light of years of regulatory policy focused on making sure cashflows are more easily tracked and monitored … The idea it should be the central bank unwinding this trend is utterly bizarre.
And:
… the only incentive central banks really have for introducing cryptocurrencies is in performing a

On VoxEU, David Blanchflower and Andrew Oswald argue that it exists.
Overall, we think there is a great deal of evidence – though we have critics, especially among a small group of social psychologists – that humans experience a midlife psychological ‘low’. The midlife decline in wellbeing is apparently substantial and not minor … It should perhaps be emphasised that the midlife low is not affected by regression-equation controls for having young children, nor by changing the exact nature of the dependent variable.

Ivan K. Aivazovsky, 1883

The Economist reports that according to estimates,
undoing identity fraud can take an average of six months and 100 to 200 hours of a person’s time.
In addition there is the risk of substantial financial losses due to identity fraud.
Suppose a data breach exposes personal information of 1 million people. As a consequence, 0.1% of the affected persons suffer financial costs of $100 each, and all affected persons spend 100 hours to undo the damage. Suppose the average wage of the affected population is $15 per hour. The data breach then costs $100’000 + $1’500’000’000, of which the latter component is a pure social loss.
Why do we move in the direction of more and more centralized data storage? Why do customers accept this? Why do some institutions, including “virtual” companies and

The Economist on “initial coin offerings:”
Many ICOs are designed to finance applications that will make use of the blockchain … In some cases, the “coins” can be exchanged for services on the site. In a way, this is like selling air miles in a startup airline; investors can either use the miles for flights or hope they can trade them at a profit. For the business, it is also a way of creating demand for the product they are selling.
But in plenty of cases, an ICO is just a way of raising capital without all the hassle of meeting regulatory requirements, or the burden of paying interest to a bank.

On bankunderground, Simon Scorer reminds us that a central bank issued digital currency (CBDC) need not operate on a distributed ledger platform. The two do not have much to do with each other.
Scorer suggests a series of technical requirements for a CBDC:

And he concludes that a distributed ledger does not meet all requirements.
It’s unlikely that all of the above attributes could be perfectly met with today’s technology; you may need to make compromises between features – e.g. the trade-off between resilience and privacy …
CBDC is far from just a simple question of technology; any central bank contemplating CBDC will need to answer a host of fundamental economic questions, as well as considering how feasible it is to achieve all the required features and what type of technology

That’s what Gerald Auten and David Splinter argue in a paper from last year.
… new estimates of top income shares using two consistent measures of income. Our measure of consistent market income includes full corporate profits and adjusts for changes from TRA86, including changes to the tax base and increased filing by dependent filers. In addition, we include employer paid payroll taxes and health insurance and adjust for falling marriage rates. The effect of these adjustments on estimated top income shares are dramatic. Using a consistent measure of market income shows that the increase in income shares of the top one percent since 1979 is about half of the PS unadjusted estimate. The increase since 1960 is about one-quarter of the unadjusted estimate. Moreover, our measure of broad

The comparative constitution’s project shows timelines of the world’s constitutions. Japan’s constitution appears as one of the most stable ones, Switzerland’s doesn’t.

The ECB has published a first report on Stella, a joint research project with the Bank of Japan. The two banks are interested in potential roles that distributed ledger technology could play to support the financial market infrastructure. The report assesses whether existing payments systems could be safely and efficiently run on a distributed ledger. It concludes that
a distributed-ledger-based system could meet the performance needs of real-time gross settlement systems, up to some limits;
such a system could strengthen resilience.

On his blog, JP Koning offers two explanations for the surprisingly high rupee notes redemption rate—nearly 99%—after last year’s demonetization experiment: Money laundering, and a partial amnesty.
Indians who had large quantities of illicit cash were able to contract with those who had room below their ceiling to convert illicit rupees on their behalf …
Two weeks after the initial … announcement, the government introduced a formal amnesty for demonetized banknote holders. Any deposit of cash above the ceiling would only be taxed at 50%, assuming it was declared. If not declared, the funds might still get through the note blockade undetected, although if apprehended an 85% penalty was to be levied. These new options were better than throwing away one’s stash altogether and suffering a

MA course at the University of Bern.
Time: Wed 10-12. KSL course site. Course assistant: Christian Myohl.
The course introduces Master students to modern macroeconomic theory. Building on the analysis of the consumption-saving trade off and on concepts from general equilibrium theory, the course covers workhorse general equilibrium models of modern macroeconomics, including the representative agent framework, the overlapping generations model, and possibly the Lucas tree model. Lectures follow chapters 1–4 (possibly 5) in this text.

CEPR Discussion Paper 12252, August 2017, with Tamon Asonuma and Romain Ranciere. PDF. (ungated IMF WP.)
Rejecting a common assumption in the sovereign debt literature, we document that creditor losses (“haircuts”) during sovereign restructuring episodes are asymmetric across debt instruments. We code a comprehensive dataset on instrument-specific haircuts for 28 debt restructurings with private creditors in 1999–2015 and find that haircuts on shorter-term debt are larger than those on debt of longer maturity. In a standard asset pricing model, we show that increasing short-run default risk in the run-up to a restructuring episode can explain the stylized fact. The data confirms the predicted relation between perceived default risk, bond prices, and haircuts by maturity.

In Historia Mathematica, Daniel Mansfield and N.J. Wildberger argue that Plimpton 322, the Old Babylonian tablets, served as an exact ratio-based trigonometric table.
… Instead, P322 is a trigonometric table of a completely unfamiliar kind and was ahead of its time by thousands of years.
… we must adopt two ideas that are unique to the mathematical culture of the Old Babylonian (OB) period, between the 19th and 16th centuries B.C.E.
First we abandon the notion of angle, and instead describe a right triangle in terms of the short side, long side and diagonal of a rectangle. Second we must adopt the OB number system and its emphasis on precision. The OB scribes used a richer sexagesimal (base 60) system which is more suitable for exact computation than our decimal system, and while they

In der Schweiz läuft die Diskussion um die Vollgeldinitiative, die die Geldschöpfung durch Geschäftsbanken verbieten will. Dieser Beitrag zweifelt an deren Wirksamkeit und zeigt, es gäbe eine Alternative, die auf Freiwilligkeit setzt und dem Publikum die Wahl zwischen traditionellen Sichtguthaben und elektronischem Notenbankgeld lässt.
Der Kreis
derjenigen, die der Vollgeldinitiative viel abgewinnen können, scheint zu
wachsen.[ 1 ]
Viele Kommentatoren in Schweizer Zeitungen thematisieren die Praxis
der Geldschöpfung durch Geschäftsbanken, nicht wenige kritisieren sie, und
einige erwärmen sich für die Initiative, die dem Souverän in den nächsten
Monaten zur Abstimmung vorgelegt werden soll und ein Verbot derartiger
Geldschöpfung anstrebt.
Auf den
ersten Blick mag dies nicht

The Economist discusses the North-South divide in Germany which increasingly replaces the East-West division. The Southern states (Saarland, Rhineland-Palatinate, Hesse, Baden-Württemberg, Bavaria, Thuringia, Saxony) do better along many dimensions.
Germans in the southern states … go to better schools, get jobs more easily, earn more and live longer to enjoy it. Their governments have healthier finances, so they can invest more … crime rates are “strikingly” lower in the south.

More from the recent working paper by Oscar Jorda, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan Taylor (“The Rate of Return on Everything, 1870–2015“). (Previous blog post about the return on residential real estate.)
Return data for 16 advanced economies over nearly 150 years …
…on the income and capital gains (and thus, total returns) from equities, residential housing, government bonds, and government bills.
Real returns average 7% p.a. for equity, 8% for housing, 2.5% for bonds, and 1% for bills.
Housing returns are much less volatile than equity returns.
Real interest rates have been volatile over the long-run, sometimes more so than real risky returns. Real interest rates peaked around 1880, 1930, and 1990. Current low real interest rates are “normal.”
Risk

NZZ, August 17, 2017. HTML, PDF.
The Vollgeld initiative may point to a problem but it does not propose a viable solution.
Even with Vollgeld, the time consistency friction with its Too-Big-To-Fail implication would persist.
A more flexible, liberal approach appears more promising.
It would give the general public a choice between holding deposits and reserves.
Financial institutions and central banks around the world are pushing in that direction.

On Alphaville, Matthew Klein discusses recent work by Jorda, Knoll, Kuvshinov, Schularick, and Taylor (“The Rate of Return on Everything, 1870–2015“) according to which
Residential real estate, not equity, has been the best long-run investment over the course of modern history.
… but they didn’t calculate the returns most homeowners actually experience. Most people borrow to buy housing and most people live in their properties without renting them out. This makes a big difference.
… Net rental income has historically accounted for half of the total returns from owning housing. It’s also far less volatile, dramatically boosting the Sharpe ratio compared to what you would get just by looking at changes in house prices.
Housing has beaten stocks since 1950 because rental income has been

In the FT, Claire Jones reports about the German Federal Constitutional Court’s decision to refer a case against the European Central Bank’s PSPP program to the European Court of Justice.
“In the view of the [court] significant reasons indicate that the ECB decisions governing the asset purchase programme violate the prohibition of monetary financing and exceed the monetary policy mandate of the European Central Bank.” …
While Germany’s constitutional court said the OMT programme was legal, it stipulated, based on an earlier ECJ judgment, that bond purchases had to meet a number of requirements. On Tuesday the Karlsruhe-based court said there were “several factors” to indicate that one of these requirements — that bonds must be purchased on secondary markets and not directly from

In the NZZ, Simon Gemperli argues that Liechtenstein is doing better than Switzerland.
Swiss tabloid Blick criticizes Liechtenstein. Previous, more positive NZZ articles about Liechtenstein: May 2014; March 2016; November 2016; April 2017.

In the FT, Mark Odell, Nick Megaw, and Stefan Wagstyl report about Air Berlin’s (ABX:GER) insolvency. This outcome will barely surprise Air Berlin passengers.

In a blog post, Douglas Campbell offers a ranking of economics journals by response times (based on non-representative data). The ranking (with # indicating the rank according to citations):
#    Journal Name    Accept %    Desk Reject %    Avg. Time    Median Time    25th Percent. (Months)    75th Percent. (Months)    N =
1    Quarterly Journal of Economics    1%    62%    0.6    0    0    1    71
12    Journal of the European Economic Association    4%    56%    1.2    0.5    0    2    25
14    Journal of Human Resources    18%    58%    1.3    1    0    2    38
6    American Economic Journal: Applied Economics    3%    33%    1.6    2    0    2.5    36
31    European Economic Review    29%    50%    1.6    1    0    3    34
15    Review of Financial Studies    15%    20%    1.8

From The Economist’s economics brief on Say’s Law:
Supply gives people the ability to buy the economy’s output. But what ensures their willingness to do so? According to the logic of Say and his allies, people would not bother to produce anything unless they intended to do something with the proceeds. … Even if people chose to save not consume the proceeds, Say was sure this saving would translate faithfully into investment in new capital …
But what if the sought-after thing was [money] … as a store of value, to be held indefinitely? A widespread propensity to hoard money posed a problem for Say’s vision. It interrupted the exchange of goods for goods on which his theory relied. … And if, as he had argued, an oversupply of some commodities is offset by an undersupply of others, then by

In the NZZ, Sean Müller und Paolo Dardanelli report about long-term trends in the Swiss federalist structure.
Legislation has become more centralized.
Implementation less so. Cantons increasingly implement federal legislation.
But decentralized authority to collect taxes has remained largely in place.
Figure from the NZZ:

Berlin Tegel airport (TXL). Air Berlin flight to Zurich. Passengers have been waiting in the cabin for about half an hour. Apparently, some disagreement or confusion among ground staff on how to deal with delayed passengers. Enter the Maître de Cabine:
Ja, meine Damen und Herren. Sie haben es sicher schon bemerkt: Hier wieder mal völliges Chaos in Berlin Tegel … (Well, Ladies and Gentlemen: As you surely realize, we have once again complete chaos here in Berlin Tegel …)
While Berlin (and specifically BER) has recently been a recurring source of embarrassment for the “Made in Germany” label the chaos at Tegel is surprising. And while passengers are used to frustration with their carriers (on the outbound Air Berlin flight with a connection at TXL, I waited 5 days for my luggage) it is

The Economist’s economics brief on theories of the firm. For a nice exposition, see the 1998 JEP article by Partrick Bolton and David Scharfstein.

The Economist reports about conflicting strategies among important Bitcoin players; the struggle aligns pragmatists against libertarian ideologists. It also reports about attempts by competing crypto currencies to strengthen corporate governance:
Tezos, another blockchain, will … not only have regular votes on competing proposals for how to change the system, but a more scientific approach to evaluating them and a way to compensate the developers for coming up with ideas. If their proposals are accepted, they will get paid in Tezos coins. The approach appears to have resonated within the crypto world: when Tezos closed its ICO earlier this month, it had raised a record $232m.