In one of the eBooks that CEPR published in 2022 several authors draw first conclusions. From the introduction by Jonathan Portes:
The analyses in this eBook are very much a preliminary and incomplete account of the economic impacts of Brexit. In some cases, they raise as many questions as they answer.
For example, why have UK imports of EU goods fallen so sharply, while UK exports are much less affected, when (in contrast to the EU) the UK has not yet introduced the full panoply of import controls provided for under the TCA? Why has the large fall in the number of EU workers in some sectors – and a corresponding rise in vacancies – not translated into higher wages, at least in relative terms? Nevertheless, the overwhelming weight of the evidence presented suggests that – very much as economists predicted – Brexit has made the UK a less open economy, reduced UK trade in both goods and services, and increased prices for some products. Moreover, despite public scepticism of economists and their forecasts, our verdict is increasingly shared by the wider public (Surridge 2022).
However, as Fetzer points out, aggregate impacts are not the whole story by any means. His analysis suggests not only that the costs of Brexit are very unevenly distributed, but that, perhaps paradoxically, those areas that voted most heavily for Brexit are the worst affected, while London has escaped largely unscathed, at least so far.
The New York Times collects background information about failures in Russia’s war against Ukraine.
Lucas Kyriacou has posted a Jupyter notebook with a great introduction to Python.
From the readme file:
This course aims to introduce PhD students to the basics of the popular and powerful programming language called Python. After going through the basics, we will also see some applications such as OLS regression, extraction of information from textual data, data visualization and object-oriented programming. In an extended version of this course we will further discuss various applications such as bulk downloading macroeconomic data, VAR estimation and solving macroeconomic models.
In an NBER working paper, Jessica Bai, Matthew Esche, W. Bentley MacLeod and Yifan Shi argue:
We introduce a model of the admissions process based upon standard agency theory and explore its implications with economics PhD admissions data from 2013-2019. We show that a subjective score that aggregates subjective ratings and recommendation letter features plays a more important role in determining admissions than an objective score based upon graduate record exam (GRE) scores. Subjective evaluations by references who write multiple letters are not only more influential than those of references who write one letter, but they are also more informative. Since multiple-letter references are also more highly ranked economists, this implies that there is a constraint on the supply of high-quality references. Moreover, we find that both the subjective and objective scores are correlated with job placement at a top economics department after the completion of the PhD. These indicators of individual achievement have a smaller effect than an undergraduate degree from an Ivy Plus school (i.e., Ivy League + Stanford, MIT, Duke, and Chicago). In the self-selected pool of applicants, Ivy Plus graduates are twice as likely to be admitted to a top 10 graduate program and are much more likely to obtain an assistant professor position at a top 10 program upon PhD completion. Given that Ivy Plus students must pass a stringent selection process to gain admission to their undergraduate program, we cannot reject the hypothesis that admission committees use information efficiently and fairly. However, this also implies that there may be a return to attending a selective undergraduate program in order to be pooled with highly skilled individuals.
Goodreads rating 4.37. Wolff describes his experiences in rural Malaysia and in the jungle among the Sng’oi, where he learns (rather than being taught) new forms of awareness and knowledge.
I saw clearly—perhaps for the first time—that most people, even scientists, can see the world only from one point of view: their own. [p. 146]
Malay culture values halus—soft, gentle, polite—and despises kasar.
In the Quarterly Journal of Economics (137, 4), a group of authors estimates that
the mean global increase in mortality risk due to climate change, accounting for adaptation benefits and costs, is valued at roughly 3.2% of global GDP in 2100 under a high-emissions scenario. Notably, today’s cold locations are projected to benefit, while today’s poor and hot locations have large projected damages. Finally, our central estimates indicate that the release of an additional ton of CO2 today will cause mortality-related damages of $36.6 under a high-emissions scenario, with an interquartile range accounting for both econometric and climate uncertainty of [−$7.8, $73.0].
Three BIS innovation hubs plan to test DeFi inspired liquidity pools to exchange wCBDCs. BIS press release:
- Project Mariana will use DeFi protocols to automate foreign exchange markets and settlement.
- Automated market makers can become the basis for new generation of financial infrastructure.
- Exploration on cross-border exchange of wholesale CBDCs is the first to involve three Hub centres.
The BIS Innovation Hub is launching a new project around central bank digital currencies (CBDCs) and Decentralised Finance (DeFi) protocols as part of its 2022 work programme.
Project Mariana explores automated market makers (AMM) for the cross-border exchange of hypothetical Swiss franc, euro and Singapore dollar wholesale CBDCs. It will seek to examine the potential between financial institutions to settle foreign exchange trades in financial markets.
The project involves the Eurosystem, Singapore and Switzerland BIS Innovation Hub Centres together with the Bank of France, Monetary Authority of Singapore and Swiss National Bank. The aim is to deliver a proof of concept by mid-2023.
Project Mariana uses DeFi protocols to automate foreign exchange markets and settlement, potentially improving cross-border payments (and supporting a priority of the Group of 20). Today, DeFi built on public blockchains uses smart contract protocols to automate markets for crypto and digital assets. AMM protocols combine pooled liquidity with innovative algorithms to determine the prices between two or more tokenised assets. In the future, similar AMM protocols could form the basis for a new generation of financial infrastructures facilitating the cross-border exchange of CBDCs.
- The SNB’s mandate
- Monetary policy strategy
- Implementation of monetary policy
- Ensuring the supply and distribution of cash
- The SNB’s role in the cashless payment system
- Asset management
- The SNB’s contribution to financial stability
- International monetary cooperation
- Independence, accountability and relationship with the Confederation
- The SNB as a company
- Legal basis
- Publications and other resources
- SNB balance sheet
Translated by Gregory Rabassa. Goodreads rating 4.10.
…the secret of a good old age is simply an honorable pact with solitude. [p. 205]
… and once again she shuddered with the evidence that time was not passing, as she had just admitted, but that it was turning in a circle. [p. 341]
Both looked back then on the wild revelry, the gaudy wealth, and the unbridled fornication as an annoyance and they lamented that it had cost them so much of their lives to find the paradise of shared solitude. Madly in love after so many years of sterile complicity … [p. 345]
… and then they understood that José Arcadio Buendía was not as crazy as the family said, but that he was the only one who had enough lucidity to sense the truth of the fact that time also stumbled and had accidents and could therefore splinter and leave an eternalized fragment in a room. [p. 355]
Some of the book’s best phrases according to NewsLiterature:
- “The world was so recent that many things lacked names, and to mention them you had to point your finger at them.”
- “You don’t die when you should, but when you can.”
- “Loneliness had selected his memories, and had incinerated the numbing heaps of nostalgic garbage that life had accumulated in his heart, and had purified, magnified and eternalized the others, the most bitter.”
- “Actually, he did not care about death, but life, and that is why the feeling he experienced when they pronounced the sentence was not a feeling of fear but of nostalgia.”
- “Like all the good things that happened to them in their long lives, that unbridled fortune had its origin in chance.”
- “He had the rare virtue of not existing completely but at the right time.”
- “He had had to promote thirty-two wars, and violate all his pacts with death and wallow like a pig in the dunghill of glory, to discover almost forty years late the privileges of simplicity.”
- “The oldest cry in the history of mankind is the cry of love.”
CEPR/SUERF/CB&DC webinar with Darrell Duffie, Todd Keister, Harald Uhlig, Dirk Niepelt.
Digitisation rapidly changes money, banking and finance. Are these changes fundamental and radical—or part of a continuous process of technological progress and efficiency improvement? Do academics have to re-think money, banking and finance—or do conventional theories apply? And do finance professionals and regulators need to re-assess their frameworks and tools to keep up with the transformation?
Darrell Duffie (Stanford University and Fintech & Digital Currencies RPN Member), Todd Keister (Rutgers University and Fintech & Digital Currencies RPN Member) and Harald Uhlig (University of Chicago, CEPR and Fintech & Digital Currencies RPN Member), three experts on macro economics, monetary economics and finance, shared their views on these and related questions. The webinar, which has been moderated by Dirk Niepelt (University of Bern, SUERF, CEPR and Fintech & Digital Currencies RPN Leader), started with brief opening remarks by each of the experts, followed by a discussion and a Q&A session.
Mark Dittli of the market NZZ interviews Russell Napier:
… the power to control the creation of money has moved from central banks to governments. By issuing state guarantees on bank credit during the Covid crisis, governments have effectively taken over the levers to control the creation of money.
… statistics on bank loans to corporates within the European Union since February 2020: Out of all the new loans in Germany, 40% are guaranteed by the government. In France, it’s 70% of all new loans, and in Italy it’s over 100%, because they migrate old maturing credit to new, government-guaranteed schemes.
… we are headed into a significant growth slowdown, even a recession, and bank credit is still growing. … The CFO of Commerzbank was asked about this fact in July, and she said that the government would not allow large debtors to fail.
… in a world where large parts of the global economy are in a system of financial repression, there will be all sorts of capital controls. That means that as an investor, you best invest in jurisdictions where you plan to spend your retirement.
The GNU Taler project:
We are building an anonymous, taxable payment system using modern cryptography. Customers will use traditional money transfers to send money to a digital Exchange and in return receive (anonymized) digital cash. Customers can use this digital cash to anonymously pay Merchants. Merchants can redeem the digital cash for traditional money at the digital Exchange. As Merchants are not anonymous, they can be taxed, enabling income or sales taxes to be withheld by the state while providing anonymity for Customers.
Mr. Lee (for himself and Mr. Braun) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs
To amend the Federal Reserve Act to limit the ability of Federal Reserve banks to issue central bank digital currency.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the “No Central Bank Digital Currency Act” or the “No CBDC Act”.
SEC. 2. CENTRAL BANK DIGITAL CURRENCY.
Section 13 of the Federal Reserve Act is amended by adding after the 14th undesignated paragraph (12 U.S.C. 347d) the following:
“ No Federal reserve bank, the Board, the Secretary of the Treasury, any other agency, or any entity directed to act on behalf of the Federal reserve bank, the Board, the Secretary, or other agency, may mint or issue a central bank digital currency directly to an individual (including central bank digital currency issued to an individual through a custodial intermediary) or a digital currency intermediary, offer related products or services directly to an individual, or maintain an account on behalf of an individual (including an account in a specially designated account at a digital currency intermediary or supervised commercial bank). No Federal reserve bank may hold digital currencies minted or issued by the United States Government as assets or liabilities on their balance sheets or use such digital currencies as part of fulfilling the requirements under section 2A.”.
Carbon flow, stock and budget according to the recent Geneva Report on Climate and Debt:
- Annual global CO2 emissions from fossil fuel and industry: 40 gigatonnes.
- Cumulative historical emissions since 1850: 2400 gigatonnes. They are responsible for a temperature rise of 1 degree Celsius.
- Remaining carbon budget given 1.5 degree Celsius temperature rise cap: 300 gigatonnes.
Orell Füssli news release:
Orell Füssli Ltd. Security Printing and AUGENTIC GmbH announced their partnership on a “Smart Banknote CBDC” solution including trustwise.io’s Distributed Ledger Technology (DLT) a week ago. A smart banknote is a physical banknote that interacts with a CBDC solution and acts as a transitional device between traditional and CBDC based payment systems. A smart banknote can be used like a classic banknote; however, the owner can redeem his cold wallet (physical banknote) and transfer the note’s value to a digital wallet by scanning the QR code with the private key. Our smart banknote includes a public and a private key represented by QR codes of which the private one is sealed. When the cover of the private key is removed, the QR code scanned, the value of the banknote can be transferred to a digital wallet. Conceptually after this procedure, the smart banknote cannot be transferred anymore.
In a Carnegie-Rochester paper from 1979, Robert Lucas reviews an earlier report to the OECD by a group of independent experts. Lucas views the report as vacuous, eclectic, and dangerous:
… I know of no other way to convey the Report’s undisciplined eclecticism. It meanders through the long list of issues which have been defined in popular debate as “policy problems,” accepting all as equally suited to treatment by government action and equally amenable to economic expertise, offering ambiguous and unsupported opinion on each. Nowhere can one discern a consistent set of economic principles underlying either the choice of questions to be addressed or the policy stances which are recommended.
As an economist, I find this alarming, but not because I believe the Report will in any direct way contribute to a worsening in economic policy in the OECD countries. On the contrary, the Report is so nearly vacuous that it will be difficult to tell which governments are attempting to follow its guidance and which are not. It is alarming because of the vision of economics it presents, to the public and to us: an economics limited to the writing of safely ambiguous lines for insertion in the speeches of treasury officials and central bankers. It is opportunism posing as pragmatism.
And he argues that economics and economists can only lose from contributing to reports of this kind.
It seems certain that economic policy in the OECD countries in the coming ten years will involve a wide variety of government interventions in particular sectors and industries. The particular interventions which emerge will, looked at in the right way, presumably exhibit some pattern. (For a social scientist, this much must be taken as an article of faith.) The chances that it will be economic theory which provides coherence to these policies must be judged, however, to be near zero. In these circumstances, the McCracken Committee is attempting to create the appearance that economic advisors are technically in control of developments, guiding them in a spirit of flexibility and pragmatism, supported by the technical research efforts of an entire
Yet is it in the interest of economics that these political developments be viewed as being supported by a consensus of professional opinion? The main reason to answer in the negative, stressed in this review, is also the simplest: it is not true. There is also a second reason, of a more “pragmatic” nature. There is every reason to believe that the economic policies of the coming decade will, being guided by no economic principles, lead to very bad results. What can be the benefit of claiming for economic theory the blame for a collection of policies which in no way follow from it?
It would be interesting to know how Lucas assesses contemporary reports issued by the OECD and other bodies.
In an NBER working paper John Cochrane concludes that
… we have been guilty of playing with too-complex models when we don’t really understand basics, such as stability, determinacy, and the frictionless limit. …
Given the state of actual agreed-on knowledge, central banks’ proclamations of detailed technocratic ability to manipulate delicate frictions is laughable. Figure 10 shows in chart form the Rube-Goldberg list of mechanisms the ECB thinks it understands and can manipulate. Central bankers who think they have any idea how all these boxes and arrows work, and how to manipulate them, should reread Bob’s unsung classic “on a report to the OECD” Lucas (1979) once a week. A little humility would do us all good.
My written statement for 20minuten:
Anlageverluste der SNB sind schlecht für den Schweizer Steuerzahler, denn ihm gehört die SNB. Sie können aber auch Entwicklungen widerspiegeln, die ihre guten Seiten haben. Jetzt zum Beispiel führt die Frankenstärke zu Anlageverlusten, bremst aber auch die importierte Inflation.
Die Diskussion um die Höhe der SNB-Ausschüttungen ist vielfach fehlgeleitet. In der Debatte geht vergessen, dass Gewinnausschüttungen das Reinvermögen von Bund und Kantonen nicht verändern. Denn Ausschüttungen sind keine Transfers von Dritten an Bund oder Kantone – sie tauschen lediglich eine Aktivposition in der Bilanz von Bund oder Kantonen gegen eine andere aus, wie bei einer Dividendenausschüttung eines Unternehmens. Die Hauptwirkung von Ausschüttungen ist, dass sie Beschränkungen wie die Schuldenbremse vorübergehend lockern. Das mag der Grund dafür sein, dass manche Politiker und Wähler sie mögen.
And the resulting publication.
How are SNB profits and losses distributed and what issues are debated?
Annual Result Funds two “Reserves”
The annual result (Jahresergebnis) of the Swiss National Bank (SNB) is split into two parts. The first part funds “provisions for currency reserves” (Zuweisungen an Rückstellungen für Währungsreserven) which are meant to provide a buffer against future losses on the SNB’s asset positions. The second part funds current and future profit distributions to the Confederation and cantons (Ausschüttungen an Bund und Kantone) and dividend payments to SNB shareholders. The ad hoc announcement regarding the SNB’s 2021 annual result (English, German) provides an overview.
The SNB decides how the annual result is split, subject to some guidance in the National Bank Law (NBG, English, German, e.g., Art. 30 (1) and Art. 42 (2d) NBG). In practice the SNB follows a mechanical rule to determine the provisions for currency reserves. This rule operates “on the basis of double the average nominal GDP growth rate over the previous five years” or “10% of the provisions at the end of the previous year,” whatever yields higher provisions (source).
How the second part of the annual result is split between current and future distributions is governed by an agreement between the SNB and the Federal Department of Finance (English, German). The law prescribes that the “[t]he Department and the National Bank shall, for a specified period of time, agree on the amount of the annual profit distribution with the aim of smoothing these distributions in the medium term” (31(2) NBG). In practice the SNB and the Federal Department of Finance have frequently revised the agreement. This reflected the SNB’s rapidly growing balance sheet and larger profits.
The current agreement determines the profit distributions and dividends to shareholders as follows: Define the “distributable annual result” (Ausschüttbares Jahresergebnis) as the annual result net of the allocation to provisions for currency reserves. The distribution reserve (Ausschüttungsreserve), a liability item in the SNB’s balance sheet, amounts to the cumulative past distributable annual results, net of the payments to Confederation, cantons and shareholders. The sum of distribution reserve and distributable annual result yields the “net profit” (Bilanzgewinn). When the net profit is negative the agreement prescribes zero distributions to the Confederation and the cantons. When it is positive the agreement prescribes distributions that rise up to CHF 6 billion, depending on the size of net profits. Under no circumstances must distributions be so high as to directly imply that the distribution reserve becomes negative.
That the SNB determines how the annual result is split certainly makes sense. After all the SNB bears responsibility for monetary policy and thus needs to be able to employ its balance sheet as far as this has current and future monetary policy implications. It is doubtful, however, that the mechanical rule the SNB follows adequately reflects foreign exchange and investment risks as well as monetary policy needs going forward. Preferably, the SNB should determine the adequate provisions based on an analysis of risks and monetary policy needs and communicate its analysis and conclusions to the public (see my proposal from February 2021). In June 2021 the SNB Observatory made a similar proposal, arguing that the SNB should “[d]etermine a target ratio of provisions-to-balance sheet or provisions-to-foreign investments. Provisions should not be accumulated beyond this point.” More specifically, the SNB Observatory criticized that the SNB never actually uses the provisions to cover losses when they occur; it proposed that the SNB “[u]se the provisions for foreign investments to cover losses when they occur. Replenish provisions with profits of subsequent years.”
The procedure to determine the split between current and future distributions is rather inflexible and thus requires frequent adjustment if the SNB’s balance sheet changes. The fact that the SNB smoothes payouts from the distribution reserve (at too low a rate according to the SNB Observatory) suggests a lack of trust in the ability of decision makers at the federal and cantonal level to responsibly manage the funds received from the SNB. I find this questionable (see my comments from February 2021) but I realize that the law does require some degree of smoothing.
Finally, many of the political discussions surrounding the amount of SNB distributions are misguided. The debate neglects that profit distributions do not significantly alter the net worth of the Confederation or the cantons. After all, SNB profit distributions are not transfers from a third party—they just swap one asset item in the balance sheets of the Confederation and cantons against another one, like dividend payouts of a firm. The main effect of distributions is to temporarily relax restrictions such as the debt brake (see my explanations with links to further analysis); that might be the reason why some politicians and voters like them.
- The agreement between the SNB and the Federal Department of Finance states that “[t]he non-distributed amount of the annual result is allocated to this [distribution] reserve, and any shortfall for a distribution is drawn from it.” I think it should read “[t]he non-distributed amount of the annual result net of provisions for currency reserves is allocated …”
- Per January 2022 the provisions for currency reserves amounted to CHF 95 billion. The distribution reserve amounted to CHF 103 billion.
- Between 2005 and 2020 the return rates on SNB investments never fell below -6% (source).
- As of mid 2022 the return rate appears to be on the order of -8% (balance sheet length approximately CHF 1 000 billion, first-quarter loss CHF 33 billion (source), prospective second-quarter loss 50 billion).
- Swiss net foreign assets amount to roughly CHF 600 billion.
Updates: Minor editorial changes, 29 July.
Central banking after the pandemic: challenges ahead
This year’s conference focused on the question of how central banks can meet their mission to preserve the value of money. The sessions focused on inflation – the containment of which is an important aspect of preserving money’s value – as well as preserving the value of money from the longer-term, structural perspective, focusing on the challenges of digital innovation.
- La’O, Kalemli-Özcan, Smets
- Reis, Krogstrup, Sturzenegger
- Schoar, Adrian, Biais
- Parlour, He, Niepelt