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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

SNB Annual Report

23 days ago

The SNB has published its annual report. Some highlights from the summary:
Climate risks and adjustments to climate policy can trigger or amplify market fluctuations and influence the attractiveness of investments. From an investment perspective, such risks are essentially no different from other financial risks. The SNB manages the risks to its investments by means of its diversification strategy. …
A prerequisite for illiquid assets to be used as collateral in obtaining liquidity assistance is that a valid and enforceable security interest in favour of the SNB can be established on these assets. Otherwise, should the loan not be repaid, the SNB would be unable to realise the collateral. A decisive factor for the usability of assets is that the banks have made the necessary

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Banks and Privacy, U.S. vs Canada

February 3, 2024

JP Koning writes:
An interesting side point here is that Canadians don’t forfeit their privacy rights by giving up their personal information to third-parties, like banks. We have a reasonable expectation of privacy with respect to the information we give to our bank, and thus our bank account information is afforded a degree of protection under Section 8 of the Charter.
My American readers may find this latter feature odd, given that U.S. law stipulates the opposite, that Americans have no reasonable expectation of privacy in the information they provide to third parties, including banks, and thus one’s personal bank account information isn’t extended the U.S. Constitution’s search and seizure protections. This is known as the third-party doctrine, and it doesn’t extend north of the

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“Topics in Macroeconomics,” Bern, Spring 2024

January 31, 2024

BA course at the University of Bern.
Time: Monday, 10:15–12:00. Location: H4, 115. Uni Bern’s official course page.
The course targets students who have completed their mandatory training in microeconomics, macroeconomics and mathematics and who want to make use of macroeconomic theory in order to analyze questions related to asset prices, bubbles, government debt, or the link between fiscal and monetary policy. The grade may depend on participation in class; small group projects; and/or a written exam.

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“Fiscal and Monetary Policies,” Bern, Spring 2024

January 31, 2024

MA course at the University of Bern.
Lecture: Monday, 12.15 – 14.00, UniS A027.Session: Tuesday, 12.15 – 14.00, UniS A017, on 5 Mar, 19 Mar, 26 Mar, 16 Apr, 30 Apr, 14 May. Some lecture and session dates may be swapped.
Uni Bern’s official course page. Problem sets and solutions can be found here.
The course covers macroeconomic theories of fiscal policy (including tax and debt policy) and the interaction between fiscal and monetary policy. Participants should be familiar with the material covered in the course Macroeconomics II. The course grade reflects the final exam grade. The classes follow selected chapters in the textbook Macroeconomic Analysis (MIT Press, 2019) and build on the material covered in the Macroeconomics II course, which follows the same text.
Main contents:

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“Augenwischerei um SNB-Ausschüttungen (Misconceptions about SNB Distributions),” NZZ, 2024

January 27, 2024

Neue Zürcher Zeitung, January 25, 2024. PDF. HTML.
Kritik an der Höhe der SNB-Ausschüttungen ist somit nur gerechtfertigt, wenn die Finanzverantwortlichen von Bund und Kantonen die genannten Hebel nicht in Bewegung setzen können. Einer solchen Kritik muss sich die SNB stellen. Sie hat die Kompetenz, ihre Bilanz nach geldpolitischen Erfordernissen zu gestalten, aber eine mechanische Rückstellungspolitik entspricht diesem Erfordernis kaum. Die SNB sollte daher begründen, warum eine stabilitätsorientierte Politik vor dem Hintergrund der geldpolitischen Analyse und plausibler Szenarien die gewählte Bilanzstruktur und Rückstellungspolitik erfordert.
Ebenso wichtig ist ein Perspektivenwechsel in der politischen Diskussion. Mehr Interesse als SNB-Ausschüttungen verdienen das

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Bank of England CBDC Academic Advisory Group

January 2, 2024

The Bank of England and HM Treasury have formed a CBDC Academic Advisory Group (AAG).
The AAG will bring together a diverse, multi-disciplinary group of experts to encourage academic research, debate and promote discussion on a range of topics, to support the Bank and HM Treasury’s work during the design phase of a digital pound.
Members:
Alexander Edmund Voorhoeve
Professor of Philosophy
London School of Economics
Alistair Milne
Professor of Financial Economics
Loughborough University
Andrew Theo Levin
Professor of Economics
Dartmouth College
Anna Omarini
Tenured Researcher and an Adjunct Professor in Financial Markets and Institutions
Bocconi University
Bill Buchanan
Professor of Computing
Edinburgh Napier University
Burcu Yüksel Ripley
Senior Lecturer of Law
University of Aberdeen

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Panel on the Economics of CBDC, Riksbank, 2023

November 17, 2023

Panel at the Bank of Canada/Riksbank Conference on the Economics of CBDC, November 16, 2023. Video.
Fed Governor Christopher Waller, UCSB professor Rod Garratt and myself assess the case for central bank digital currency and stable coins and respond to excellent questions from the audience.

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“Retail CBDC and the Social Costs of Liquidity Provision,” VoxEU, 2023

September 27, 2023

VoxEU, September 27, 2023. HTML.
From the conclusions:
… it is critical to account for indirect in addition to direct social costs and benefits when ranking monetary architectures.
… the costs and benefits we consider point to an important role of central bank digital currency in an optimal monetary architecture unless pass-through funding is necessary to stabilise capital investment and very costly.
… the interest rate on CBDC should differ from zero and from the rate on reserves.
From the text:

Notes: The dark grey area represents the efficiency advantage of CBDC needed to make it less costly than a two-tier system with optimum reserve holdings. The light grey area displays the same object but based on actual US reserve holdings rather than model-implied optimal ones. These

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Central Bank Balance Sheets, LOLR Safety Nets, and Moral Hazard

September 23, 2023

Niall Ferguson, Martin Kornejew, Paul Schmelzing and Moritz Schularick in CEPR dp 17858:

From the introduction:

… time and again, central banks deployed their power to create liquidity in a bid to insulate economies from disasters. … first began to be linked to geopolitical tail events during the 17th and 18th centuries – occurring with increasing regularity during wars and revolutions –, … the context of central bank liquidity support gradually but consistently shifted towards financial crises: … central banks’ sensitivity to financial crises has risen sharply over the 20th century and increasingly became a systematic response to financial distress after the Great Depression. …

… central bank liquidity support systematically cushioned economic effects of financial

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On the Credibility of the ‘Credibility Revolution’

September 23, 2023

Kevin Lang argues in NBER wp 31666:
When economists analyze a well-conducted RCT or natural experiment and find a statistically significant effect, they conclude the null of no effect is unlikely to be true. But how frequently is this conclusion warranted? The answer depends on the proportion of tested nulls that are true and the power of the tests. I model the distribution of t-statistics in leading economics journals. Using my preferred model, 65% of narrowly rejected null hypotheses and 41% of all rejected null hypotheses with |t|

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“Macroeconomics II,” Bern, Fall 2023

September 11, 2023

MA course at the University of Bern.
Time: Monday 10:15-12:00. Location: A-126 UniS. Uni Bern’s official course page. Course assistant: Stefano Corbellini.
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 the Lucas tree model.
Lectures follow chapters 1–4 (possibly 5) in this book.

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“Makroökonomie I (Macroeconomics I),” Bern, Fall 2023

September 11, 2023

BA course at the University of Bern, taught in German.
Time: Monday 14:15-16:00. Location: Audimax. Uni Bern’s official course page. Course assistant: Wjera Yell Leutenegger.
Course description:
Die Vorlesung vermittelt einen ersten Einblick in die moderne Makroökonomie. Sie baut auf der Veranstaltung „Einführung in die Makroökonomie“ des Einführungsstudiums auf und betont sowohl die Mikrofundierung als auch dynamische Aspekte. Das heisst, sie interpretiert makroökonomische Entwicklungen als das Ergebnis zielgerichteten individuellen (mikroökonomischen) Handelns, und sie wird der Tatsache gerecht, dass wirtschaftliche Entscheidungen Erwartungen widerspiegeln und Konsequenzen in der Zukunft haben. Der klassische Modellrahmen, der in der Vorlesung entwickelt wird, bietet die Grundlage

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“Money and Banking with Reserves and CBDC,” CEPR, 2023

September 9, 2023

CEPR Discussion Paper 18444, September 2023. HTML (local copy).
Abstract:
We analyze the role of retail central bank digital currency (CBDC) and reserves when banks exert deposit market power and liquidity transformation entails externalities. Optimal monetary architecture minimizes the social costs of liquidity provision and optimal monetary policy follows modified Friedman (1969) rules. Interest rates on reserves and CBDC should differ. Calibrations robustly suggest that CBDC provides liquidity more efficiently than deposits unless the central bank must refinance banks and this is very costly. Accordingly, the optimal share of CBDC in payments tends to exceed that of deposits.

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Report of the Banking Stability Expert Group

September 3, 2023

The “Banking Stability” Expert Group that was formed following the failure of Credit Suisse has published its report (in German). I quote and add my own comments in brackets […].
Summary:
Die staatlich unterstützte Übernahme der Credit Suisse durch die UBS im März 2023 hat eine gefährliche Situation schnell stabilisiert. Die Schweiz hat damit einen wichtigen Beitrag zur internationalen Finanzstabilität geleistet.
Die Credit Suisse war am 19. März 2023 die erste global systemrelevante Bank («Global Systemically Important Bank», G-SIB4), die unmittelbar vor einer Abwicklung stand. Vorangegangen waren Jahre von Skandalen, verfehlten Strategien, schlechter Profitabilität der Bank und vielen Führungswechseln. Die anhaltende Krise einer ganzen Reihe von Spezial- und Regionalbanken in den USA

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“Why the Digital Euro Might be Dead on Arrival,” VoxEU, 2023

August 10, 2023

With Cyril Monnet. VoxEU, August 10, 2023. HTML.
… promoting the digital euro requires an aggressive marketing strategy because private incentives for adoption are limited. However, the pursuit of such an aggressive approach is unlikely as this runs counter to the ECB’s fourth, implicit objective of protecting banks’ existing business model.
This is problematic and could turn the project into a significant missed opportunity, for the potential social benefits of the digital euro substantially exceed its private ones.

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“Payments and Prices,” CEPR/SNB, 2023

July 12, 2023

CEPR Discussion Paper 18291 and SNB Working Paper 3/2023, July 2023. HTML, PDF (local copy CEPR, local copy SNB).

We analyze the effect of structural change in the payment sector and of monetary policy on prices. Means of payment are obtained through portfolio choices and commodity sales and “liquified” through velocity choices. Interest rates, intermediation margins, and costs of payment instrument use affect portfolios, velocities, liquidity, relative prices, and the aggregate price level. Money is neutral, interest rate policy is not. Scarcer liquidity need not drive up velocity. Payment instruments and velocities generate positive externalities. Commodity price aggregates mis-measure consumer price inflation, distinctly so over the business cycle.

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“Digital Euro: An Assessment of the First Two Progress Reports,” SUERF, 2023

June 15, 2023

SUERF Policy Brief 612, June 2023. HTML, PDF.
Executive summary:
The ECB’s first two progress reports on the digital euro clarify the project teams’ considerations. Some motivations for a digital euro remain vague, some fundamental tradeoffs receive limited attention. Most importantly, the reports lack an analysis of why digital euro holdings as stores of value are not desirable and whether strategies to limit such holdings cause collateral damage. Against that backdrop some of the design choices backed by the Governing Council appear premature.

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“Digital Euro: An Assessment of the First Two Progress Reports,” European Parliament, 2023

May 2, 2023

European Parliament, April 2023. PDF.
Executive summary:
The two progress reports provide an insightful overview over some of the thinking underlying the digital euro project. The reports remain vague in some respects, which is not surprising given the early stage of the project and the division of tasks between the ECB and the Commission.
The first report suggests that the digital euro can help preserve public money as the anchor of the payment system, but it does not explain how the decline in cash use endangers the anchor role or how a digital euro would mitigate the associated risks. It motivates the digital euro as contributing to Europe’s strategic autonomy, but does not clarify whether the autonomy concerns national security, cheaper payment services, or monetary sovereignty,

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The Economist on CBDC—and SVB

April 13, 2023

The Economist refers to our work in the `Free Exchange’ section:
But some argue banks would work fine if the public switched their deposits for central-bank digital currencies, so long as the central bank stepped in to replace the lost funding. “The issuance of [such currencies] would simply render the central bank’s implicit lender-of-last-resort guarantee explicit,” wrote Markus Brunnermeier and Dirk Niepelt in 2019. This scenario seems to have partly materialised since the failure of svb, as deposits have fled small banks for money-market funds which can park cash at the Fed, while the Fed makes loans to banks.

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Bank Solvency vs. Liquidity

March 30, 2023

Recall this post from six years ago. 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.

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SNB Strategy Update

March 30, 2023

With its annual report from a few weeks ago the SNB communicated minor changes in its monetary policy strategy (p. 24):
The review of the monetary policy strategy showed that it has fundamentally proved its worth. There was no need to adjust the first two elements, namely the definition of price stability and the conditional inflation forecast. The strategy has enabled the SNB to fulfil its mandate of price stability well, despite repeated strong external shocks in recent years. The definition of price stability has allowed the SNB to react flexibly to such shocks and to weigh up the costs and benefits of monetary policy measures. The conditional inflation forecast has also proved its worth as the main indicator for the orientation of monetary policy and as a tool for its

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