Dirk Niepelt

On his blog, Ben Bernanke weighs the pros and cons of negative (nominal) interest rates vs. a higher inflation target to create monetary “policy space.” His main points are: Lower rates work immediately. In contrast, a higher inflation target only works once agents’ expectations adjust. A higher target may not be politically tenable a thus, not be credible. In contrast, “institutional changes … [such] as eliminating or restricting the issuance of large-denomination currency, could expand...

The Economist is very sceptical.

In the 18th Geneva Report on the World Economy, Laurence Ball, Joseph Gagnon, Patrick Honohan and Signe Krogstrup ask whether “central banks can do [more] to provide stimulus when rates are near zero; and … whether policies exist that would lessen future constraints from the lower bound.” They are optimistic and argue that the unconventional policies of recent years can be extended: “[I]t is likely that rates could go somewhat further than what has been done so far without adverse...

The blockchain technology opens up new possibilities for financial market participants. It allows to get rid of middle men and thus, to save cost, speed up clearing and settlement (possibly lowering capital requirements), protect privacy, avoid operational risks and improve the bargaining position of customers. Internet based technologies have rendered it cheap to collect information and to network. This lies at the foundation of business models in the “sharing economy.” It also lets...

In the NZZ, Axel Lehmann offers his views on the prospects of blockchain technologies in banking. Lehmann is Group Chief Operating Officer of UBS Group AG. New possibilities: Higher efficiency; lower cost; more robustness and simpler processes; real-time clearing; no need for intermediaries; information exchange without risk of interference automated “smart contracts;” automated wealth management; more control over transactions; better data protection; improved possibilities for macro...

On Project Syndicate, Andres Velasco argues that one of the sources of the current problems with the Chilean pension system are the high fees charged by fund managers: A government-appointed commission recently concluded that managers have generated high gross real returns on investments: from 1981 to 2013, the annual average was 8.6%; but high fees cut net returns to savers to around 3% per year over that period. The commission’s report.

On his blog, Ben Bernanke discusses the merits of the Fed’s strategy to slowly reduce the size of its balance sheet to pre crisis levels. Bernanke suggests that this strategy should be reconsidered: First, the large balance sheet provides lots of safe and liquid assets for financial markets. This might strengthen financial stability. (DN: In my view, there are also reasons to expect the opposite.) Second, a larger balance sheet can help improve the workings of the monetary transmission...

In the FT, looking back at ten years of The Long View, John Authers offers investment lessons that may be summarized in five points: Always worry about costs and don’t try to outsmart the market. That is, hold index funds. Rebalancing pays off. Since getting the timing right is very hard, being out of the market is as risky as being in it. To beat the market, buying at low prices is key. But know what you know and what you don’t. Public markets are efficient. Money isn’t everything; in...

In the FT, Elaine Moore reports that “[d]eveloping economies are on course to raise a record sum on global debt markets this year, as ultra-low rates in the developed world cheapen borrowing costs for countries from Asia to South America.” By the end of the year, hard currency debt sales by countries such as Mexico, Quatar, Saudi Arabia and Argentina are expected to reach USD 125 billion.

CEPR Discussion Paper 11482, August 2016, with Martin Gonzalez-Eiras. PDF. Also published as CESifo Working Paper 6062, Study Center Gerzensee Working Paper 16-05. PDF, PDF. We propose a theory of tax centralization and inter governmental grants in politico-economic equilibrium. The cost of taxation differs across levels of government because voters internalize general equilibrium effects at the central but not at the local level. This renders the degree of tax centralization and the tax...