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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

Central Banks Have Accepted a Future Retail CBDC

13 days ago

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)

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“Dynamic Tax Externalities and the U.S. Fiscal Transformation,” JME, 2020

September 10, 2020

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,

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Economic Aspects of the Energy Transition

September 8, 2020

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

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High-Skilled Immigration and Employment at Multinationals

September 1, 2020

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.

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Assar Lindbeck (1930–2020)

August 31, 2020

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.

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First Regulated Stablecoin Retail Transaction—at Digitec?

August 29, 2020

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.

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“Macroeconomics II,” Bern, Fall 2020

August 26, 2020

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.

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“Unabhängigkeit der Nationalbank (Independence of the SNB),” FuW, 2020

July 27, 2020

Finanz und Wirtschaft, July 25, 2020. PDF.
The Swiss National Bank—yes, the Swiss one—feels it must remind politicians of its independence. Parliamentarians from left to right (!) voice demands. To shrink the SNB’s balance sheet? No, for more central bank profits to be distributed sooner rather than later.
I discuss misconceptions, possible motivations, and a constructive response. «The best way to defend the independence of a central bank is never to exercise it.»

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“Monetäre Staatsfinanzierung mit Folgen (Monetary Financing of Government),” Die Volkswirtschaft, 2020

July 24, 2020

Die Volkswirtschaft, 24 July 2020. PDF.
Clarifying the connections between outright monetary financing, QE, the distribution of seignorage profits, the relationship between fiscal and monetary policy, and central bank independence.
Abstract:
Wenn Parlamentarier höhere Gewinnausschüttungen der Nationalbank fordern, Kritiker im
Euroraum mehr «Quantitative Easing» oder Helikoptergeld verlangen und andere Stimmen
monetäre Staatsfinanzierung monieren, dann steht die Beziehung zwischen Geld- und
Fiskalpolitik zur Debatte. Eine Auslegeordnung.

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“Austerity,” EJ, forthcoming

July 24, 2020

Economic Journal, forthcoming, with Harris Dellas. PDF.
We study the optimal debt and investment decisions of a sovereign with private information. The separating equilibrium is characterized by a cap on the current account. A sovereign repays debt amount due that exceeds default costs in order to signal creditworthiness and smooth consumption. Accepting funding conditional on investment/reforms relaxes borrowing constraints, even when investment does not create collateral, but it depresses current consumption. The model contains the signalling elements emphasized by creditors in the Greek austerity programs and is consistent with the reduction in the loans issued by Greece and their interest rate following the 2015 election.

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Financial Innovation, Central Banks, CBDC

June 29, 2020

In its annual economic report, the BIS further warms to the idea that CBDC is a key part of central banks’ response to financial innovation.
Central banks play a pivotal role in maintaining the safety and integrity of the payment system. They provide the solid foundation by acting as guardians of the stability of money and payments. The pandemic and resulting strain on economic activity around the world have confirmed the importance of central banks in payments.
Digital innovation is radically reshaping the provision of payment services. Central banks are embracing this innovation. They promote interoperability, support competition and innovation, and operate public infrastructures – all essential for easily accessible, low-cost and high-quality payment services.
Central banks, as

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Money and Memory

June 26, 2020

On Alphaville, Claire Jones and Izabella Kaminska discuss privacy issues related to CBDC. In the background, Kocherlakota’s “Money is Memory” is lurking.

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“Macroeconomic Analysis,” VoxEU, 2020

June 22, 2020

VoxEU, June 22, 2020. HTML.
Is macroeconomics useful? Of course. To make the point, academics must regain the interpretative high ground from market commentators. While it helps when policymakers understand fundamental macroeconomic concepts, it is equally important for the general public to grasp them. More, and how this relates to the new textbook, on VoxEU.

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Robert Pirsig’s “Zen and the Art of Motorcycle Maintenance: An Inquiry Into Values”

June 21, 2020

Quality, not subject or object, as the elementary fabric. ἀρετή. A rehabilitation of the sophists.
Some quotes:
If the purpose of scientific method is to select from among a multitude of hypotheses, and if the number of hypotheses grows faster than experimental method can handle, then it is clear that all hypotheses can never be tested. If all hypotheses cannot be tested, then the results of any experiment are inconclusive and the entire scientific method falls short of its goal of establishing proven knowledge. …
God, I don’t want to have any more enthusiasm for big programs full of social planning for big masses of people that leave individual Quality out. These can be left alone for a while. There’s a place for them but they’ve got to be built on a foundation of Quality within the

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“Digital Money, Payments and Banks,” CEPR/IESE Report, 2020

June 18, 2020

Discussion of Antonio Fatás’ chapter in Elena Carletti, Stijn Claessens, Antonio Fatás, Xavier Vives, The Bank Business Model in the Post-Covid-19 World, CEPR/IESE report, London, June 2020. PDF.
Antonio’s chapter offers a rich overview of the dramatic changes in the world of money and banking that we have seen in recent years. I focus on two themes: the nature of money and how it relates to these developments, and the government’s response to the structural changes we observe.
I discuss the price of money, its fundamental value, store-of-value bubble, and liquidity bubble components; the opaque legal tender concept and the absurd situation that governments outlaw the use of government money (contrary to what some theories would imply); the role of trust in a world without cash; and

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Covid-19 Superspreading Events Database

June 17, 2020

By Koen Swinkels, on Medium, a database and preliminary interpretation subject to various caveats. The preliminary suggested interpretation is as follows:

Nearly all SSEs in the database — more than 97% — took place indoors
The great majority of SSEs happened during flu season in that location
The vast majority took place in settings where people were essentially confined together, indoors, for a prolonged period (for example, nursing homes, prisons, cruise ships, worker housing)
Processing plants where temperatures are kept very low (especially meat processing plants) seem particularly vulnerable to SSEs

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“The Cancel Culture Twitter Mob Comes to Economics”

June 16, 2020

On his blog, John Cochrane comments on Harald Uhlig’s tweets and the reaction by Janet Yellen (AEA), other established economists, the Chicago Fed, and the JPE.
In the comments, one person provides additional information and another links to the list of signatories.

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“Reserves For All? Central Bank Digital Currency, Deposits, and their (Non)-Equivalence,” IJCB, 2020

June 4, 2020

International Journal of Central Banking. PDF.

This paper offers a macroeconomic perspective on the “Reserves for All” (RFA) proposal to let the general public hold electronic central bank money and transact with it. I propose an equivalence result according to which a marginal substitution of outside money (e.g., RFA) for inside money (e.g., deposits) does not affect macroeconomic outcomes. I identify key conditions for equivalence and argue that these conditions likely are violated, implying that RFA would change macroeconomic outcomes. I also relate the analysis to common arguments found in discussions on RFA and point to inconsistencies and open questions.

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“Wenn die Notenbank den Staat finanziert (When the Central Bank Finances the State),” FAS, 2020

June 2, 2020

FAS, 31 May 2020. PDF.
Monetary deficit financing is the norm—after all, central banks distribute their profits. Monetary financing occurs in the context of regular open market operations and QE and, hyper charged, with helicopter drops. The question is not whether monetary policy should finance the government, but why it does so, and to what extent. Fiscal and monetary policy are inherently connected; what constitutes monetary policy is defined by objectives.

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Central Banks Zoom In on CBDC
According to a BIS press release, several leading central banks collaborate with the BIS on matters relating to the introduction of CBDC: The Bank of Canada, the Bank of England, the Bank of Japan,

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“Wenn die Notenbank den Staat finanziert (When the Central Bank Finances the State),” FAS, 2020

June 1, 2020

FAS, 31 May 2020. PDF.
Monetary deficit financing is the norm—after all, central banks distribute their profits. Monetary financing occurs in the context of regular open market operations and QE and, hyper charged, with helicopter drops. The question is not whether monetary policy should finance the government, but why it does so, and to what extent. Fiscal and monetary policy are inherently connected; what constitutes monetary policy is defined by objectives.

Read More »

“Tractable Epidemiological Models for Economic Analysis,” CEPR, 2020

May 21, 2020

CEPR Discussion Paper 14791, May 2020, with Martin Gonzalez-Eiras. PDF (local copy).
We contrast the canonical epidemiological SIR model due to Kermack and McKendrick (1927) with more tractable alternatives that offer similar degrees of “realism” and flexibility. We provide results connecting the different models which can be exploited for calibration purposes. We use the expected spread of COVID-19 in the United States to exemplify our results.

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Debt Monetization

May 14, 2020

On VoxEU, Refet Gürkaynak and Deborah Lucas argue in favor of helicopter drops to finance the fiscal burden due to Covid-19 and they propose an elegant way to implement such drops without undermining the central bank’s equity position (if regulators accept accounting tricks).
The special issue bonds would be zero coupon perpetuities and therefore would not obligate Treasury to any future payments. The legislation would require the Fed to buy these bonds from the banks at par. The bonds would then remain on the Fed’s balance sheet indefinitely. This monetises the special issue bonds.

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Censorship Resistant Payment Technologies

May 11, 2020

On Coin Center’s blog, Matthew Green and Peter van Valkenburgh write:
Censorship resistance is the only way to guarantee that a digital asset truly is “bearer” and can be sent directly from one person to another without reliance on a third party. Cryptocurrencies achieve this property by making network participants (miners) compete for the power to add transactions to the ledger. Even if some miners wish to censor a transaction, we assume that others will not, particularly if it means they are forgoing fee revenue. A centralized digital dollar would not have competitive mining but if the role of the ledger-keeper was reduced to verifying zero-knowledge proofs then any refusal to perform that verification risks indiscriminately censoring users throughout the economy. If the Treasury

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