Category Archives: Contributions

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

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

“Macroeconomic Analysis,” VoxEU, 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.

“Digital Money, Payments and Banks,” CEPR/IESE Report, 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 the substitution of money by smart contracts tied to a database.

And I comment on the many facets of digitalization; the time lag between the origination of new business models and regulatory catch-up; and on central bank digital currency as a key element of structural change in the financial system.

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

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

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

Debt Monetization

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.

“On the Optimal ‘Lockdown’ during an Epidemic,” CovEc, 2020

Covid Economics, April 2020, with Martin Gonzalez-Eiras. PDF.

We embed a lockdown choice in a simplified epidemiological model and derive formulas for the optimal lockdown intensity and duration. The optimal policy reflects the rate of time preference, epidemiological factors, the hazard rate of vaccine discovery, learning effects in the health care sector, and the severity of output losses due to a lockdown. In our baseline specification a Covid-19 shock as currently experienced by the US optimally triggers a reduction in economic activity by two thirds, for about 50 days, or approximately 9.5 percent of annual GDP.

“On the Optimal ‘Lockdown’ during an Epidemic,” CEPR, 2020

CEPR Discussion Paper 14612, April 2020, with Martin Gonzalez-Eiras. PDF (local copy).

We embed a lockdown choice in a simplified epidemiological model and derive formulas for the optimal lockdown intensity and duration. The optimal policy reflects the rate of time preference, epidemiological factors, the hazard rate of vaccine discovery, learning effects in the health care sector, and the severity of output losses due to a lockdown. In our baseline specification a Covid-19 shock as currently experienced by the US optimally triggers a reduction in economic activity by two thirds, for about 50 days, or approximately 9.5 percent of annual GDP.

Medical Specialist Condemns Swiss Covid-19 Preparations and Response

In Die Mittelländische Zeitung, a Swiss doctor criticizes Switzerland’s preparations and response to Covid-19. He points to

  • Lack of preparation by political decision makers
  • Misleading communication by federal health officials
  • Their apparent lack of awareness of academic work on the topic
  • Arrogance in Switzerland and the West vis-à-vis China and other far eastern countries
  • Sensationalist scare mongering in the media
  • Calls for systematic infection of groups that are less at risk

Informative as far as medical aspects are concerned. Not convincing when criticizing statistical approaches to grasping the problem. Questionable as far as ex-post validation of eight studies and calls for action are concerned.

Deaths Per Capita versus Confirmed Cases Per Capita

Data from April 6, 2020.

Iceland and Luxembourg have many more confirmed cases per capita than other countries (either because they have more cases or better information). Mortality per confirmed case is highest in Italy, Spain, France, Belgium, Netherlands, UK.

Source: Author’s calculations based on Johns Hopkins data and World Bank data.

“Wirtschaftspolitik angesichts von Covid-19: Lastenteilung, aber keine Preismanipulationen (Economic Policy Responses to Covid-19: Burden Sharing, But no Price Distortions),” ÖS, 2020

Ökonomenstimme, 3 April 2020. HTML. Shorter version published in NZZ.

The aggregate Covid-19 shock calls for transfers of the type a pandemic insurance would have brought about. But we must not distort relative prices. They have to reflect scarcity, to provide incentives to overcome it. (This applies within countries but also across.)

“Preise müssen sich frei bilden können (Prices Must Reflect Scarcity),” NZZ, 2020

NZZ, 2 April 2020. PDF.

The aggregate Covid-19 shock calls for transfers of the type a pandemic insurance would have brought about. But we must not distort relative prices. They have to reflect scarcity, to provide incentives to overcome it. (This applies within countries but also across.)

“Цифровые деньги и цифровые валюты центральных банков: главное, что нужно знать,” Econs, 2020

Econs (a non-profit project of the communications department of the Russian central bank), February 13, 2020. HTML.

Russian version of my VoxEU column on digital money and CBDC. What are we actually talking about? What do we know? And what should policymakers do? I discuss the following points:

  • Finance has been digital forever – what’s new about ‘digital money’?
  • Does the nature of money change?
  • What is central bank digital currency?
  • What is the link between CBDC and the blockchain?
  • Would CBDC have macroeconomic effects?
  • Would CBDC foster bank disintermediation and bank runs?
  • Why consider CBDC at all?
  • What opportunities does CBDC offer?
  • Where do the risks lie?
  • Do the opportunities justify the risks?
  • Do central banks have a choice?

“Digital Money and Central Bank Digital Currency: An Executive Summary for Policymakers,” VoxEU, 2020

VoxEU, February 3, 2020. HTML.

What are we actually talking about? What do we know? And what should policymakers do? I discuss the following points:

  • Finance has been digital forever – what’s new about ‘digital money’?
  • Does the nature of money change?
  • What is central bank digital currency?
  • What is the link between CBDC and the blockchain?
  • Would CBDC have macroeconomic effects?
  • Would CBDC foster bank disintermediation and bank runs?
  • Why consider CBDC at all?
  • What opportunities does CBDC offer?
  • Where do the risks lie?
  • Do the opportunities justify the risks?
  • Do central banks have a choice?

“Digital Finance,” FuW, 2020

Finanz und Wirtschaft, January 4, 2020. PDF.

  • Finance has been digital for decades. And both technology and preferences are only changing gradually. So, what triggers the abrupt changes in business models that we currently observe?
  • The interaction between industry on the one hand and legislators and regulators on the other has changed. New entrants exploit synergies across areas that have so far been regulated by independent authorities, or not at all. While entrants think and act outside the box, regulators and legislators have not yet been able to catch up.
  • Digital finance poses new challenges, including for financial stability, national security, and consumer protection (digital literacy).

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.

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.