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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

Does Greece Need Official Debt Relief?

2 days ago

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

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Historical Living Standards in International Comparison

2 days ago

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

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Kenneth Arrow’s Work

2 days ago

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

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The Kremlin and Russian Criminals

2 days ago

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

2 days ago

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

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Swiss Franc Exchange Rate Index

13 days ago

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

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Swiss Franc Exchange Rate Index

13 days ago

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

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On the State of Macroeconomics

13 days ago

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

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Models Make Economics A Science

13 days ago

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

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Who Voted for Brexit?

15 days ago

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

19 days ago

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?

23 days ago

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’

26 days ago

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. … Recently, some of the

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MXN/USD

28 days ago

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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Money Without a Government II

29 days ago

On his blog, JP Koning discusses the case of Somalia which has managed without central bank issued money for decades.
Old, legitimate notes and newer, counterfeit notes trade at the same price which equals the cost of producing counterfeits.
See also this previous post.

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Macroeconomic Effects of Bank Solvency vs. Liquidity

29 days ago

In a CEPR discussion paper, Òscar Jordà, Björn Richter, Moritz Schularick, and Alan M. Taylor suggest that higher bank capital ratios help stabilize the financial system ex post but not ex ante, and that illiquidity breeds fragility.
Abstract of their paper:
Higher capital ratios are unlikely to prevent a financial crisis. This is empirically true both for the entire history of advanced economies between 1870 and 2013 and for the post-WW2 period, and holds both within and between countries. We reach this startling conclusion using newly collected data on the liability side of banks’ balance sheets in 17 countries. A solvency indicator, the capital ratio has no value as a crisis predictor; but we find that liquidity indicators such as the loan-to-deposit ratio and the share of

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`Brussels’ to Disrupt European Banking

March 25, 2017

The Economist reports that forthcoming European payments regulation has the potential to disrupt the industry.
Provided the customer has given explicit consent, banks will be forced to share customer-account information with licensed financial-services providers.
… payment services … could become more integrated into the internet-browsing experience …
With access to account data … fintech firms could offer customers budgeting advice, or guide them towards higher-interest savings accounts or cheaper mortgages. Those with limited credit histories may find it easier to borrow, too, since richer transaction data should mean more sophisticated credit checks.

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Portfolio Adjustments in Money Market Mutual Funds

March 23, 2017

On the Liberty Street Economics blog, Catherine Chen, Marco Cipriani, Gabriele La Spada, Philip Mulder, and Neha Shah discuss last year’s regulatory changes regarding money market mutual funds:
First, institutional prime and muni funds—but not retail or government funds—must now compute their net asset values (NAVs) using market-based factors, thereby abandoning the fixed NAV that had been a hallmark of the MMF industry. Second, all prime and muni funds must adopt a system of gates and fees on redemptions, which can be imposed under certain stress scenarios.
Investors adjusted their portfolios in response to these changes:
… investors’ shift from prime and muni funds to government—and, in particular, agency—funds means that a large segment of the industry still operates under a stable NAV (and therefore is, in principle, vulnerable to runs). … Since the new regulations have resulted in a very large shift of assets into relatively safe government funds, the SEC’s reforms have made runs on MMFs less likely and the industry itself more resilient.

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Switzerland’s WIR-Bank

March 23, 2017

In the Berner Zeitung, Mischa Aebi reports that many firms have closed their accounts at WIR-bank. The bank had imposed new requirements stipulating that account holders must accept at least 3% of their sales to be paid in WIR money.

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John Cochrane and Janet Yellen

March 19, 2017

On his blog, John Cochrane discusses the possibility of an alternative monetary policy regime in which the Fed tightly controls expected inflation. He states, repeatedly, that given our current understanding of the matter he would refrain from implementing such a regime if he became Fed chair (rather than stating that he would not currently advise to move in that direction). Given that Janet Yellen is expected to retire next year and John Cochrane is mentioned as a possible successor, I find the statement remarkable.

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Bitcoin Unlimited

March 14, 2017

On Bloomberg, Yuji Nakamura and Lulu Yilun Chen report about conflicting views in the Bitcoin community on how to address capacity limits in the blockchain.
Bitcoin Unlimited is essentially a software upgrade to the blockchain. Years ago, bitcoin’s early developers imposed a cap on the amount of data it could process. While that slowed down the network, it was seen as a necessary safety measure against potential attackers who could overload the system. Now, Unlimited supporters say the blockchain is robust enough that it doesn’t need any limit at all.
While most agree the blockchain is stronger, critics … say that removing the data cap is a risky move which will leave bitcoin vulnerable to governments and global banks. Without a limit, large organizations would use their resources to out-muscle smaller miners and effectively take control of the blockchain and bitcoin itself.

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Julian Baggini’s “Freedom Regained: The Possibility of Free Will”

March 12, 2017

In his book, Julian Baggini points out that materialism, not determinism, undermines the notion of free will. He accepts that man is subject to the laws of nature but simultaneously seems to argue for a holistic model of man and human choice. He concludes that the concept of free will is consistent with predetermined causes; with unconscious choice; and that it does not require that a choice could have been different.
Discussion in The Guardian.

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