Goodreads rating 4.55. Surprising, sympathetic.

On bankunderground, Michael Kumhof, Phurichai Rungcharoenkitkul, and Andrej Sokol question that foreign savings is an important driver of US current account deficits:
Consider how US imports can be paid for in the real world: first, by transferring existing domestic or foreign bank balances to foreigners, which involves no new financing. Second, by borrowing from domestic banks and transferring the resulting bank balances to foreign households, which involves domestic but not foreign financing. And finally, by borrowing from foreign banks and transferring the resulting bank balances to foreign households. Only the last option involves foreign financing, but in practice it is the least likely option for most domestic residents.
Gross balance sheet positions are critical to discern

VoxEU, January 11, 2021, with Martin Gonzalez-Eiras. HTML.
Based on the CEPR discussion paper, we draw conclusions for the pandemic endgame. We explain why Israel will likely impose a harsher lockdown than other countries, especially poor ones. And why we should expect “inverse lockdowns”—measures to stimulate social interaction.

Some modest new year’s resolutions inspired by the commencement speech of US Navy Admiral William H. McRave.

Goodreads rating 4.39. Concise, to the point, insightful.

Goodreads rating 4.11. Tranquility.

Goodreads rating 4.17. Stronger on relativity than on quantum mechanics and thermodynamics.

Olivier Blanchard, Public Debt and Low Interest Rates, AER 2019, 109(4).
Robert Barro, r Minus g, NBER wp 28002, October 2020.
Dmitriy Sergeyev and Neil Mehrotra, Debt Sustainability in a Low Interest World, CEPR dp 15282, September 2020.
Stan Olijslagers, Nander de Vette, and Sweder van Wijnbergen, Debt Sustainability when r−g

Writing about CBDC, John Cochrane makes it clear that he is in favor. He links to my work and writes
Dirk Niepelt has written a lot about CBDC theory, including reserves for all in 2015, a recent Vox-EU summary and papers,  here with Markus Brunnermeier a JME paper “CBDC coupled with central bank pass-through funding need not imply a credit crunch nor undermine financial stability,” a follow up including “The model implies annual implicit subsidies to U.S. banks of up to 0.8 percent of GDP during the period 1999-2017.”  Here  “reserves for all” “does not affect macroeconomic outcomes,”

On Fazit, Gerald Braunberger reviews the concept of “liquidity trap.”
Keynes never used the term but Robertson did.
Hicks introduced the common notion (represented, e.g., by a flat LM curve).
Krugman talks about a different trap. So does Blanchard and he (incorrectly) attributes it to Keynes. So does Sinn.

Alberto Bisin (Journal of Economic Literature, December 2020) reviews Stephanie Kelton’s “The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy:”
Never is its logical structure expressed in a direct, clear way, from head to toe. … Some of these statements are literally correct but used for incorrect or misleading implications—plays on words, effectively. They seem taken directly from the book of tricks of the Greek sophists (the ones Aristophanes makes fun of).
John Cochrane (blog post, July 2020) reviews the same book:
Skeptics have called it “magical monetary theory.” They’re right.
Dirk Niepelt (blog post/Neue Zürcher Zeitung (in German), April 2019):
The Macroeconomic Perpetuum Mobile.

Discussion at the 2020 Bank of Canada Annual Economic Conference: The Future of Money and Payments: Implications for Central Banking. PDF.

Dirk Niepelt ist der Direktor des Studienzentrums Gerzensee und Professor für Makroökonomie an der Universität Bern. Hier im Gespräch mit Geldcast-Host Fabio Canetg. swissinfo.ch
Swissinfo, December 14, 2020. HTML, podcast.
We talk about CBDC, the Swiss National Bank, whether CBDC would render it easier to implement helicopter drops, and how central bank profits should be distributed.

Dirk Niepelt ist weltweit einer der führenden Forscher auf dem Gebiet der elektronischen Zentralbankengelder. Fabio Canetg traf ihn zum Geldcast.
“Bis vor wenigen Jahren wurde das elektronische Zentralbankengeld von den Notenbanken noch sehr skeptisch beurteilt”, sagt Dirk Niepelt. Das sei heute aber nicht mehr so. Denn: “Der Weg geht ganz klar in Richtung digitale Währungen.” Der

Swissinfo, December 14, 2020. HTML, podcast.
We talk about CBDC, the Swiss National Bank, whether CBDC would render it easier to implement helicopter drops, and how central bank profits should be distributed.

CEPR Discussion Paper 15541, December 2020, with Martin Gonzalez-Eiras. PDF (local copy).
We propose a flexible model of infectious dynamics with a single endogenous state variable and economic choices. We characterize equilibrium, optimal outcomes, static and dynamic externalities, and prove the following: (i) A lockdown generically is followed by policies to stimulate activity. (ii) Re-infection risk lowers the activity level chosen by the government early on and, for small static externalities, implies too cautious equilibrium steady-state activity. (iii) When a cure arrives deterministically, optimal policy is dis-continous, featuring a light/strict lockdown when the arrival date exceeds/falls short of a specific value. Calibrated to the ongoing COVID-19 pandemic the baseline

Finanz und Wirtschaft, December 9, 2020. PDF.
Economic policy is not about GDP growth. It’s about welfare.
Externalities are key. Infection externalities don’t go away by calling for responsible behavior. Infection externalities can turn positive.
Keeping worthy companies or networks alive does not require government intervention, unless capital markets don’t work.
To judge the right amount of burden sharing is beyond economics. But economics gives some clues: In an ideal world, idiosyncratic risk exposure would be insured while in second best, taxes and subsidies achieve only part of that. The data show that trade-offs between public health and economic activity are less severe than sometimes argued.

The Economist discusses the risk of CBDC-induced bank disintermediation. Their summary of the 2019 paper by Markus Brunnermeier and myself:
If people prefer CBDCS, however, the central bank could in effect pass their funds on to banks by lending to them at its policy interest rate. “The issuance of CBDC would simply render the central bank’s implicit lender-of-last-resort guarantee explicit,” wrote Markus Brunnermeier of Princeton University and Dirk Niepelt of Study Centre Gerzensee in a paper in 2019. Explicit and, perhaps, in constant use.

SUERF Webinar “CBDC: State of play, practical challenges, open issues” with Ulrich Bindseil (ECB) and Morten Bech (BIS). Moderated by Dirk Niepelt. December 4, 2020, 2 pm.

Webinar website.
Presentation by Morten Bech.
Presentation by Ulrich Bindseil.
CBDC = MM0GA.

CEPR Discussion Paper 15457, November 2020. PDF (local copy).
We analyze policy in a two-tiered monetary system. Noncompetitive banks issue deposits while the central bank issues reserves and a retail CBDC. Monies differ with respect to operating costs and liquidity. We map the framework into a baseline business cycle model with “pseudo wedges” and derive optimal policy rules: Spreads satisfy modified Friedman rules and deposits must be taxed or subsidized. We generalize the Brunnermeier and Niepelt (2019) result on the macro irrelevance of CBDC but show that a deposit based payment system requires higher taxes. The model implies annual implicit subsidies to U.S. banks of up to 0.8 percent of GDP during the period 1999-2017.

K. Kıvanç Karaman, ¸Sevket Pamuk, Seçil Yıldırım-Karaman (2020), Money and monetary stability in Europe, 1300–1914, Journal of Monetary Economics (115).

At one extreme, the Dutch Republic depreciated its monetary unit by about 2.3 times, at the other, the Ottomans depreciated by about 25,000 times. These two numbers correspond to average annual depreciation rates of 0.2 and 2.5% respectively, with the other states falling in-between. … depreciations tended to be episodic. In particular, long periods of constant silver and gold value alternated with episodes of rapid depreciation in consecutive years. … There were also instances of one-off depreciations, but they were few, and at low rates. … monetary stability was not an elusive objective. Some states stabilized their monetary unit

Recent indications:
BIS: Central banks and BIS publish first central bank digital currency (CBDC) report laying out key requirements (9 October 2020)
ECB: A Digital Euro (updated regularly)
Bank of Russia: Bank of Russia announces public discussions on digital ruble (13 October 2020)
Related recent developments:
Digital Dollar Project: The Digital Dollar Project Publishes Nine Pilot Scenarios to Test Elements of a US CBDC (October 2020)
Monetative e.V.: Digitales Zentralbankgeld aus Sicht der Zivilgesellschaft (June 2020)

A Fine Theorem offers a very nice description of their work.

Event directory with links to videos and summaries.

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 share’s doubling in the 1930s,

In an NBER working paper, Geoffrey Heal discusses some aspects of the energy transition to come.
On infrastructure investments:
the likely net investment required to go carbon-free is now as little as $0.179 trillion
renewable power from wind and solar PV plants is now less expensive than power from gas, coal or nuclear plants … If it were not for the intermittency of renewables, we would save money by converting to clean power.
the social benefits from stopping the CO2 emissions from coal and gas in power generation in the U.S. amount to $200bn annually, roughly an order of magnitude greater than the costs. Furthermore, these benefits will continue for ever, whereas the costs are fully paid by 2050. … As greenhouse gases are a global public bad, many of these benefits will accrue to

Britta Glennon reports in an NBER working paper that the two go together.
Skilled immigration restrictions may have secondary consequences that have been largely overlooked in the immigration debate: multinational firms faced with visa constraints have an offshoring option, namely, hiring the labor they need at their foreign affiliates. If multinationals use this option, then restrictive migration policies are unlikely to have the desired effects of increasing employment of natives, but rather have the effect of offshoring jobs. Combining visa data and comprehensive data on US multinational firm activity, I find that restrictions on H-1B immigration caused foreign affiliate employment increases at the intensive and extensive margins, particularly in Canada, India, and China.

Colleague, co-author, visionary. Assar remains a role model. He was curious, open minded, and incorruptible. He didn’t need to prove himself or that he was correct (politically and otherwise), all he wanted was to contribute and learn. He was a generalist, both in economics and beyond. He exposed nonsense and shaped policy. He will be sadly missed.
In memory of Assar Lindbeck.

C. Septhon reports in Modern Consensus:

The Sygnum Digital Swiss Franc (DCHF), which is pegged on a 1:1 basis with the fiat currency, was used to complete a payment for an Apple iPad at Digitec Galaxus, Switzerland’s largest online retailer. Coinify, a digital currency platform provider, enabled the sale to take place.

Sygnum is different from Tether etc. because it is a regulated bank. Accordingly, DCHF corresponds to a monitored currency board.

MA course at the University of Bern.
Time: Wed 10-12. KSL course site. Course assistant: Armando Näf.
The course introduces Master students to modern macroeconomic theory. Building on the analysis of the consumption-saving tradeoff 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 book.

The new Global Sanctions Database covers bilateral, multilateral, and plurilateral sanctions from 1950 to 2016.