Author Archives: Dirk Niepelt

More Endorsements for “Macroeconomic Analysis”

“This is an excellent textbook for macroeconomics at the master’s or beginning PhD level. The topics and the material used to cover them are well chosen; the treatment gives a solid and unified background for positive and normative analysis. It strikes a good balance between being conceptually clear and logically consistent, and at the same time quite accessible.”
Fernando Alvarez, Saieh Family Professor of Economics, University of Chicago

Forthcoming, MIT Press.
MIT Press book page. My book page.

India’s Unified Payments Interface

In the FT, Benjamin Parkin reports about the transformation of India’s payments landscape.

Behind the boom is an innovation launched by the Indian government in 2016: the unglamorous sounding Unified Payments Interface, or UPI, which allows immediate mobile payments directly between bank accounts.

Conceived as a public utility, the service is transforming India’s cash-dependent economy into fertile soil for mobile-money apps. … Both the volume and value of transactions had more than doubled in a year.

Harvard’s Admissions Policy

A paper by Peter Arcidiacono, Josh Kinsler, and Tyler Ransom offers some glimpses.

The lawsuit Students For Fair Admissions v. Harvard University provided an unprecedented look at how an elite school makes admissions decisions. Using publicly released reports, we examine the preferences Harvard gives for recruited athletes, legacies, those on the dean’s interest list, and children of faculty and staff (ALDCs). Among white admits, over 43% are ALDC. Among admits who are African American, Asian American, and Hispanic, the share is less than 16% each. Our model of admissions shows that roughly three quarters of white ALDC admits would have been rejected if they had been treated as white non-ALDCs. Removing preferences for athletes and legacies would significantly alter the racial distribution of admitted students, with the share of white admits falling and all other groups rising or remaining unchanged.

Where the Phillips Curve is Alive, Contd

In an NBER working paper, Laurence Ball and Sandeep Mazumder question the puzzles of first, missing disinflation and subsequently, missing inflation in the Euro area. From the abstract:

… we measure core inflation with the weighted median of industry inflation rates, which is less volatile than the common measure of inflation excluding food and energy prices. We find that fluctuations in core inflation since the creation of the euro are well explained by three factors: expected inflation (as measured by surveys of forecasters); the output gap (as measured by the OECD); and the pass-through of movements in headline inflation. Our specification resolves the puzzle of a “missing disinflation” after the Great Recession, and it diminishes the puzzle of a “missing inflation” during the recent economic recovery.

See also the paper by James Stock and Mark Watson.

More Endorsements for “Macroeconomic Analysis”

“Finally, a book that fills the longstanding, and growing, gap between existing undergraduate and graduate macroeconomics textbooks. The winning approach of the author is to rigorously develop the core insights in each topic studied, avoiding superfluous diversions. The emphasis on government policy and political economy is especially useful in interpreting current global macroeconomic events.”
Gianluca Violante, Professor of Economics, Princeton University
(To be continued.)

Forthcoming, MIT Press.
MIT Press book page. My book page.

More Endorsements for “Macroeconomic Analysis”

“Niepelt’s textbook provides a concise, but rigorous introduction to the key concepts, tools, and models that constitute modern macroeconomic theory. His pedagogical approach, introducing the key building blocks of the theory one at a time, and focusing on what is essential at each stage, should make the learning experience a pleasant one. I expect it to become a staple reference in first-year graduate courses.”
Jordi Galí, CREI, Universitat Pompeu Fabra and Barcelona GSE
(To be continued.)

Forthcoming, MIT Press.
MIT Press book page. My book page.

Spyware for Sale

NSO Group “creates technology that helps government agencies prevent and investigate terrorism and crime to save thousands of lives around the globe,” according to the technology group’s website.

But according to the FT (article, article, article), NSO has (also) helped governments around the world to target journalists and dissidents.

The University of Toronto’s Citizen Lab knows more—and offers advice on how to take precautions.

More Endorsements for “Macroeconomic Analysis”

“Macroeconomic Analysis is the rare textbook that is both comprehensive and rigorous, as well as concise and simple. By staying focused on the core model of dynamic macroeconomics, it elegantly navigates through many topics. After studying this book, students will be ready to join the exciting debates in modern macroeconomics.”
Ricardo Reis, A. W. Phillips Professor of Economics, London School of Economics and Political Science
(To be continued.)

Forthcoming, MIT Press. Book page.

More Endorsements for “Macroeconomic Analysis”

“A needed, up-to-date primer on macroeconomic theory. It is comprehensive, covering all the essential topics, from optimal consumption and labor supply to economic growth, business cycles, and asset markets. It is thorough and rigorous, yet accessible, as it requires little prior knowledge of the key concepts and mathematical tools.”
George-Marios Angeletos, Professor of Economics, MIT
(To be continued.)

Forthcoming, MIT Press. Book page.

BIS Stablecoin Report

The BIS has published a report on stablecoins. On Alphaville Izabella Kaminska approves but argues that the report does not contain novel points. One aspect discussed in the report concerns the benefit of stablecoins for cross-border payments; it may be limited unless technology is able to address the key friction:

A major obstacle to the interlinking of domestic payment systems and/or the development of shared global payment platforms is differing legal frameworks across jurisdictions and the associated uncertainty about the enforceability of contractual obligations resulting from participation in interlinked or shared payment platforms operating across borders.

See the VoxEU series on the topic.

More Endorsements for “Macroeconomic Analysis”

“This book provides an excellent introduction into dynamic macroeconomics. Its analysis is deep, self-contained, and still concise. The chapters on labor search frictions, financial frictions, and money are an extra plus and make it a superb choice for a first-year PhD or advanced Masters’ course in macroeconomics.”
Markus Brunnermeier, Edwards S. Sanford Professor of Economics, Princeton University

(To be continued.)

Forthcoming, MIT Press. Book page.

BIS Innovation Hub Centre in Switzerland

From the SNB’s press release regarding the newly established BIS Innovation Hub Centre in Switzerland:

The Swiss Centre will initially conduct research on two projects. The first of these will examine the integration of digital central bank money into a distributed ledger technology infrastructure. This new form of digital central bank money would be aimed at facilitating the settlement of tokenised assets between financial institutions. Tokens are digital assets that can be transferred from one party to another. The project will be carried out as part of a collaboration between the SNB and the SIX Group in the form of a proof of concept.

The second project will address the rise in requirements placed on central banks to be able to effectively track and monitor fast-paced electronic markets. These requirements are arising in particular from the greater automation and fragmentation of the financial markets, but also from the increased use of new technologies.

Thomas Jordan and Agustín Carstens signed the Operational Agreement on the BIS Innovation Hub Centre in Switzerland yesterday.

Costs and Benefits of Unconventional Monetary Policy

The BIS has issued two reports that assess the implications of unconventional monetary policies.

The report prepared by the Committee on the Global Financial System discusses

… a number of unconventional monetary policy tools (UMPTs). After a decade of experience with UMPTs the report takes stock of central banks’ experience and draws some lessons for the future.

The report focuses on four sets of tools: negative interest rate policies, new central bank lending operations, asset purchase programmes, and forward guidance. It offers a summary of central banks’ shared understanding of the efficacy of these tools across countries, as well as the way that they were sequenced and coordinated.

The report concludes that, on balance, UMPTs helped the central banks that used them address the circumstances presented by the crisis and the ensuing economic downturn. It identifies side effects, such as dis-incentives to private sector deleveraging and spillovers to other countries, but does not consider them sufficiently strong to reverse the benefits of UMPTs.

The report also discusses whether, and under what circumstances, these tools could be useful in the future. Central banks report that the tools have earned a place in the monetary policy toolbox, but they also highlight that their use should be accompanied by measures that mitigate their potential side-effects. They also highlight that under the circumstances when the tools can be helpful, they need to be used in decisively but in a context that includes a wider set of policies as to avoid overburdening the central bank.

The report prepared by a Markets Committee study group argues that

… some balance sheet-expanding policies were specifically aimed at improving market functioning, and that they delivered on this front. The potential for adverse side effects arose most clearly at a later stage, when asset purchase programmes were introduced to provide monetary stimulus at the effective lower bound for interest rates. But side effects rarely tightened financial conditions in markets to a point that would have undermined policy effectiveness.

That said, the report finds that some market malfunctioning did arise. In bond markets, adverse effects were mostly associated with asset scarcity, but any such effects were often temporary, in part due to mitigating policies. In money markets, market functioning issues (for example in interbank reserve trading) arose from the abundance of reserves. Yet, other wholesale money markets remained robust and central banks retained sufficient control over short-term rates, typically by introducing new tools. The report acknowledges that prolonged use of large balance sheet policies may have longer-term adverse effects on the market ecosystem, but these are hard to measure at this point.

Entertainment TV, Politics, and Cognitive Skills

In the July issue of the American Economic Review, Ruben Durante, Paolo Pinotti, and Andrea Tesei argue that entertainment TV has shaped Italian politics and affected the cognitive skills of viewers. From the abstract:

We study the political impact of commercial television in Italy exploiting the staggered introduction of Berlusconi’s private TV network, Mediaset, in the early 1980s. We find that individuals with early access to Mediaset all-entertainment content were more likely to vote for Berlusconi’s party in 1994, when he first ran for office. The effect persists for five elections and is driven by heavy TV viewers, namely the very young and the elderly. Regarding possible mechanisms, we find that individuals exposed to entertainment TV as children were less cognitively sophisticated and civic-minded as adults, and ultimately more vulnerable to Berlusconi’s populist rhetoric.

“Libra Paves the Way for Central Bank Digital Currency,” finews and WNM, 2019

My VoxEU column now also on finews and World News Monitor, September 17, 2019.

Digital currencies involve tradeoffs. Libra resolves them less favorably than other projects, and less favorably than CBDC.

When confronted with the choice between the status quo and a new financial architecture with CBDC, most central banks have responded cautiously. But Libra or its next best replica will take this choice off the table – the status quo ceases to be an option. The new choice for monetary authorities and regulators will be one between central bank managed CBDC on the one hand and – riskier – private digital tokens on the other. Central banks have a strong interest to maintain control over the payment system as well as the financial sector more broadly and to defend the attractiveness of their home currency. Nolens volens, they will therefore introduce ‘Reserves for All’ or promote synthetic CBDCs. In economics, things take longer than one thinks they will, as Rudi Dornbusch quipped, but then they happen faster than one thought they could.

How to Prevent Cash Hoarding when Interest Rates are Strongly Negative

On swissinfo.ch, Fabio Canetg explains how the Swiss National Bank prevents banks from hoarding cash rather than holding reserves at the central bank (which pay negative interest). He points to the following sentence in the SNB’s December 2014 press release (my emphasis) and he speculates that banks could, in principle, implement similar schemes to keep depositors from withdrawing cash:

The threshold currently corresponds to 20 times the minimum reserve requirement for the reporting period 20 October 2014 to 19 November 2014 (static component), minus any increase/plus any decrease in the amount of cash held (dynamic component). The change in the amount of cash held is calculated as the difference between the average cash holdings during the most recent reporting period for which the minimum reserve requirement is determined prior to the reference date (cf. section 5 below) and the cash holdings of the corresponding reporting period in a given reference period.

“Libra Paves the Way for Central Bank Digital Currency,” VoxEU, 2019

VoxEU, September 12, 2019. HTML.

Digital currencies involve tradeoffs. Libra resolves them less favorably than other projects, and less favorably than CBDC.

When confronted with the choice between the status quo and a new financial architecture with CBDC, most central banks have responded cautiously. But Libra or its next best replica will take this choice off the table – the status quo ceases to be an option. The new choice for monetary authorities and regulators will be one between central bank managed CBDC on the one hand and – riskier – private digital tokens on the other. Central banks have a strong interest to maintain control over the payment system as well as the financial sector more broadly and to defend the attractiveness of their home currency. Nolens volens, they will therefore introduce ‘Reserves for All’ or promote synthetic CBDCs. In economics, things take longer than one thinks they will, as Rudi Dornbusch quipped, but then they happen faster than one thought they could.

“On the Equivalence of Private and Public Money,” JME, 2019

Journal of Monetary Economics, with Markus Brunnermeier. PDF.

When does a swap between private and public money leave the equilibrium allocation and price system unchanged? To answer this question, the paper sets up a generic model of money and liquidity which identifies sources of seignorage rents and liquidity bubbles. We derive sufficient conditions for equivalence and apply them in the context of the “Chicago Plan”, cryptocurrencies, the Indian de-monetization experiment, and Central Bank Digital Currency (CBDC). Our results imply that CBDC coupled with central bank pass-through funding need not imply a credit crunch nor undermine financial stability.

“Macroeconomics II,” Bern, Fall 2019

MA course at the University of Bern.

Time: Wed 10-12. KSL course site. Course assistant: Christian Wipf.

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 these notes.

The Bank of England’s “Future of Finance Report”

Huw van Steenis’ summarizes his report as follows (my emphasis):

A new economy is emerging driven by changes in technology, demographics and the environment. The UK is also undergoing several major transitions that finance has to respond to.

What this means for finance

Finance is likely to undergo intense change over the coming decade. The shift to digitally-enabled services and firms is already profound and appears to be accelerating. The shift from banks to market-based finance is likely to grow further. Ultra low rates, new regulations and the need to invest in updating their businesses mean many UK and global banks are struggling to make their cost of capital. Brexit and political and policy changes around the world will also impact the shape of financial services. Risks are likely to shift.
Regulators and the private sector have to collaborate in new ways as technology breaks down barriers. Finance is hugely important to the UK and the right infrastructure can support new finance.

What we ask the Bank of England to do

Shape tomorrow’s payment system
Enable innovation through modern financial infrastructure
Support the data economy through standards and protocols
Champion global standards for markets
Promote the smooth transition to a low-carbon economy
Support adaption to the needs of a changing demographic
Safeguard the financial system from evolving risks
Enhance protection against cyber-risks
Embrace digital regulation

Mark Carney’s June 2019 speech. See also the 2018 US Treasury report on financial innovation.