At the conference of “Positiva Pengar” and “Monetative” in Stockholm, I argued that it is not so much the introduction of CBDC which would make a difference, but the policies accompanying such an introduction. This view is backed by research of Markus Brunnermeier and myself, as well as by myself.
Many of the proponents of the sovereign money movement appeared open to the argument. Some of the followers, however, did not; they associate CBDC with many benefits that money, in whatever form, will not be able to deliver.

CEPR Discussion Paper 13778, June 2019, with Markus Brunnermeier. PDF. (Local copy of NBER wp.)
We develop a generic model of money and liquidity that identifies sources of liquidity bubbles and seignorage rents. We provide sufficient conditions under which a swap of monies leaves the equilibrium allocation and price system unchanged. We apply the equivalence result to the “Chicago Plan,” cryptocurrencies, the Indian de-monetization experiment, and Central Bank Digital Currency (CBDC). In particular, we show why CBDC need not undermine financial stability.

Central Banking reports about the new working paper by Markus Brunnermeier and myself.

In the New York Times, John Henderson reports about a new hiking trail in Liechtenstein that was opened to mark the country’s 300-year anniversary.
This Cross-Country Hike Took 5 Days. That’s Going the Long Way.
According to Lonely Planet, the trail makes Liechtenstein one of the top European travel destinations in 2019.

NBER Working Paper 25877, May 2019, with Markus Brunnermeier. PDF. (Local copy.)
We develop a generic model of money and liquidity that identifies sources of liquidity bubbles and seignorage rents. We provide sufficient conditions under which a swap of monies leaves the equilibrium allocation and price system unchanged. We apply the equivalence result to the “Chicago Plan,” cryptocurrencies, the Indian de-monetization experiment, and Central Bank Digital Currency (CBDC). In particular, we show why CBDC need not undermine financial stability.

In the NZZ, Thomas Hürlimann reviews his experience as a patient in Swiss and German hospitals. Top: Stans, Prof. Dr. Bachmann. Flop: Baar, Berlin Friedrichshain.

In the NZZ, Thomas Hürlimann reviews his experience as a patient in Swiss and German hospitals. Top: Stans, Prof. Dr. Bachmann. Flop: Baar, Berlin Friedrichshain.

In a CEP Discussion Note, Pierre Monnin argues that financial markets mis-price climate related credit risk. If this were corrected some securities held by the ECB would loose their investment grade credit rating.
Assessing climate risks requires methodologies based on forward-looking scenarios, on complex cause-and-effect linkages and on data that has not been observed in the past. Such models are at their infancy, but already offer meaningful insights. This note provides an overview of key components that such models are built on and illustrates them with examples of the analytics that are already available. It also applies one of the available methodologies to assess transition risk to the corporate bond holdings of the European Central Bank.

In a CEP Discussion Note, Pierre Monnin argues that financial markets mis-price climate related credit risk. If this were corrected some securities held by the ECB would loose their investment grade credit rating.
Assessing climate risks requires methodologies based on forward-looking scenarios, on complex cause-and-effect linkages and on data that has not been observed in the past. Such models are at their infancy, but already offer meaningful insights. This note provides an overview of key components that such models are built on and illustrates them with examples of the analytics that are already available. It also applies one of the available methodologies to assess transition risk to the corporate bond holdings of the European Central Bank.

NZZ, April 25, 2019. PDF.
Modern monetary theory (MMT) is neither a theory, nor modern, nor exclusively monetary.
I discuss fallacies related to MMT.
Dynamic inefficiency requires permanent, not transitory, r

NZZ, April 25, 2019. PDF.
Modern monetary theory (MMT) is neither a theory, nor modern, nor exclusively monetary.
I discuss fallacies related to MMT.
Dynamic inefficiency requires permanent, not transitory, r

Homo appeared roughly 2 million years ago in Africa and Homo sapiens roughly 200’000 years ago in East Africa. Harari divides his account of the last 70’000 years into four parts: The cognitive revolution (language), the agricultural revolution (about 10’000 years ago in today’s Turkey, Iran, Levant), the unification of humankind (through money, empire, and religion), and the scientific revolution. According to Harari, Sapiens developed more efficient strategies for cooperation than other species and in particular, Neanderthals (which sapiens eradicated around 30’000 years ago). The rest is history, i.e., evolutionary biology and cultural history.
On his website, Harari summarizes:
Homo sapiens rules the world because it is the only animal that can believe in things that exist purely

Homo appeared roughly 2 million years ago in Africa and Homo sapiens roughly 200’000 years ago in East Africa. Harari divides his account of the last 70’000 years into four parts: The cognitive revolution (language), the agricultural revolution (about 10’000 years ago in today’s Turkey, Iran, Levant), the unification of humankind (through money, empire, and religion), and the scientific revolution. According to Harari, Sapiens developed more efficient strategies for cooperation than other species and in particular, Neanderthals (which sapiens eradicated around 30’000 years ago). The rest is history, i.e., evolutionary biology and cultural history.
On his website, Harari summarizes:
Homo sapiens rules the world because it is the only animal that can believe in things that exist purely

280 pages of frantic search for an end. New York, Denver, San Francisco, New Orleans, Mexico City, and the miles in between. Music, drugs, talk, sex.
Wikipedia:
Inspired by a 10000-word rambling letter from his friend Neal Cassady, Kerouac in 1950 outlined the “Essentials of Spontaneous Prose” and decided to tell the story of his years on the road with Cassady as if writing a letter to a friend in a form that reflected the improvisational fluidity of jazz.In a letter to a student in 1961, Kerouac wrote: “Dean and I were embarked on a journey through post-Whitman America to find that America and to find the inherent goodness in American man. It was really a story about 2 Catholic buddies roaming the country in search of God. And we found him.”

280 pages of frantic search for an end. New York, Denver, San Francisco, New Orleans, Mexico City, and the miles in between. Music, drugs, talk, sex.
Wikipedia:
Inspired by a 10000-word rambling letter from his friend Neal Cassady, Kerouac in 1950 outlined the “Essentials of Spontaneous Prose” and decided to tell the story of his years on the road with Cassady as if writing a letter to a friend in a form that reflected the improvisational fluidity of jazz.In a letter to a student in 1961, Kerouac wrote: “Dean and I were embarked on a journey through post-Whitman America to find that America and to find the inherent goodness in American man. It was really a story about 2 Catholic buddies roaming the country in search of God. And we found him.”

Angesichts anhaltend negativer Leitzinsen solle die Schweizerische Nationalbank einen Teil ihrer Gewinne an die Pensionskassen abführen, so eine kürzlich erhobene Forderung. Dieser Vorschlag ist aus mehreren Gründen problematisch.[ 1 ]
Die Schweizerische
Nationalbank (SNB) steht aufgrund anhaltend negativer Leitzinsen in der Kritik.
Ein Vorwurf lautet, die SNB schenke den Auswirkungen der lockeren Geldpolitik
auf die Pensionskassen zu wenig Beachtung. Um die Pensionskassen zu entlasten,
so eine kürzlich erhobene Forderung,
solle die SNB einen Teil ihrer Gewinne an die Kassen abführen. Dieser Vorschlag ist aus mehreren Gründen
problematisch: Er basiert auf einer fehlenden Unterscheidung zwischen Nominal-
und Realzinsen, missachtet das Verursacherprinzip (obwohl er es umzusetzen

VoxEU, March 20, 2019, with Markus Brunnermeier. HTML.
Both proponents and opponents have suggested that CBDC would fundamentally change the macroeconomy, either for the better or the worse. We question this paradigm. We derive an equivalence result according to which the introduction of CBDC need not alter the allocation nor the price system. And we argue that key concerns put forward in discussions about CBDC are misplaced.
See also our VoxEU book chapter and my paper from last year.

VoxEU, March 20, 2019, with Markus Brunnermeier. HTML.
Both proponents and opponents have suggested that CBDC would fundamentally change the macroeconomy, either for the better or the worse. We question this paradigm. We derive an equivalence result according to which the introduction of CBDC need not alter the allocation nor the price system. And we argue that key concerns put forward in discussions about CBDC are misplaced.
See also our VoxEU book chapter and my paper from last year.

MIT Technology Review reports about the results of an experiment (arxiv.org/abs/1902.05080: Experimental Rejection of Observer-Independence in the Quantum World) suggesting that objective reality … does not exist.
The experiment produces an unambiguous result. It turns out that both realities can coexist even though they produce irreconcilable outcomes, just as Wigner predicted.
That raises some fascinating questions that are forcing physicists to reconsider the nature of reality.
The idea that observers can ultimately reconcile their measurements of some kind of fundamental reality is based on several assumptions. The first is that universal facts actually exist and that observers can agree on them.
But there are other assumptions too. One is that observers have the freedom to make

MIT Technology Review reports about the results of an experiment (arxiv.org/abs/1902.05080: Experimental Rejection of Observer-Independence in the Quantum World) suggesting that objective reality … does not exist.
The experiment produces an unambiguous result. It turns out that both realities can coexist even though they produce irreconcilable outcomes, just as Wigner predicted.
That raises some fascinating questions that are forcing physicists to reconsider the nature of reality.
The idea that observers can ultimately reconcile their measurements of some kind of fundamental reality is based on several assumptions. The first is that universal facts actually exist and that observers can agree on them.
But there are other assumptions too. One is that observers have the freedom to make

NZZ, March 13, 2019. PDF.
Long-term real interest rates do not reflect monetary policy.
In the recent past, monetary policy has contributed to lower fixed-income interest rates but also to higher returns on other asset classes.
Complaining about low rates but not adjusting one’s portfolio makes little sense; there is no “financial repression.”
If politicians want to subsidize pension funds they should contribute funds from the government budget rather than asking the central bank to contribute.
Larger and earlier SNB dividend payouts to the government may not be in the government’s interest.

NZZ, March 13, 2019. PDF. Updated: Ökonomenstimme, March 22, 2019. HTML.
Long-term real interest rates do not reflect monetary policy.
In the recent past, monetary policy has contributed to lower fixed-income interest rates but also to higher returns on other asset classes.
Complaining about low rates but not adjusting one’s portfolio makes little sense; there is no “financial repression.”
If politicians want to subsidize pension funds they should contribute funds from the government budget rather than asking the central bank to contribute.
Larger and earlier SNB dividend payouts to the government may not be in the government’s interest.

Accepted for publication in the 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.

Accepted for publication in the 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.

The Board of Governors of the Federal Reserve System is requesting comment on the proposal to lower the interest rate on excess balances of eligible institutions that hold a very large proportion of their assets in the form of reserves—i.e., on balances of ‘The Narrow Bank.’
The document states that
[t]he Board is concerned that [Pass-Through Investment Entities] PTIEs, by maintaining all or substantially all of their assets in the form of balances at Reserve Banks and having the ability to attract very large quantities of deposits at a near-IOER rate, have the potential to complicate the implementation of monetary policy.

The Board of Governors of the Federal Reserve System is requesting comment on the proposal to lower the interest rate on excess balances of eligible institutions that hold a very large proportion of their assets in the form of reserves—i.e., on balances of ‘The Narrow Bank.’
The document states that
[t]he Board is concerned that [Pass-Through Investment Entities] PTIEs, by maintaining all or substantially all of their assets in the form of balances at Reserve Banks and having the ability to attract very large quantities of deposits at a near-IOER rate, have the potential to complicate the implementation of monetary policy.

Accepted for publication in the 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

Accepted for publication in the 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

Der Bund. March 5, 2019. HTML.
Short newspaper interview about corrective taxes, tackling problems at the root, and equity vs. efficiency.

Der Bund. March 5, 2019. HTML.
Short newspaper interview about corrective taxes, tackling problems at the root, and equity vs. efficiency.