“Macroeconomics II,” Bern, Fall 2022

MA course at the University of Bern.

Time: Monday 10:15-12:00. Location: A-126 UniS. Uni Bern’s official course page. Course assistant: Stefano Corbellini.

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 the Lucas tree model.

Lectures follow chapters 1–4 (possibly 5) in this book.

“Makroökonomie I (Macroeconomics I),” Bern, Fall 2022

BA course at the University of Bern, taught in German.

Time: Monday 14:15-16:00. Location: Audimax. Uni Bern’s official course page. Course assistant: Wjera Yell Leutenegger.

Course description:

Die Vorlesung vermittelt einen ersten Einblick in die moderne Makroökonomie. Sie baut auf der Veranstaltung „Einführung in die Makroökonomie“ des Einführungsstudiums auf und betont sowohl die Mikrofundierung als auch dynamische Aspekte. Das heisst, sie interpretiert makroökonomische Entwicklungen als das Ergebnis zielgerichteten individuellen (mikroökonomischen) Handelns, und sie wird der Tatsache gerecht, dass wirtschaftliche Entscheidungen Erwartungen widerspiegeln und Konsequenzen in der Zukunft haben. Der klassische Modellrahmen, der in der Vorlesung entwickelt wird, bietet die Grundlage für die Analyse von Wachstum, Konsum, Arbeitsangebot, Investitionen oder Geld- und Fiskalpolitik sowie vieler anderer Themen, die auch in anderen Veranstaltungen des BA Studiums und darüber hinaus behandelt werden.

The course closely follows Pablo Kurlat’s (2020) textbook A Course in Modern Macroeconomics (book website). Lecture notes are available here.

Other intermediate macro texts:

  • Julio Garín, Robert Lester and Eric Sims (2021): Intermediate Macroeconomics (book website, PDF).
  • Matthias Doepke, Andreas Lehnert and Andrew W. Sellgren (1999): Macroeconomics (PDF). (Written by (then) graduate students as a companion text to Robert J. Barro’s textbook Macroeconomics [publisher website].)
  • Stephen D. Williamson (2018): Macroeconomics (publisher website).

SNB Losses in the News

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.

SRF website and SRF Echo der Zeit (interview taken on 26 July).

The SNB’s Financial Result, Currency Reserves, and Distribution Reserve

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.

Allocation Rules

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.

“The Political Economy of Early COVID-19 Interventions in US States,” JEDC, 2022

Journal of Economic Dynamics and Control, July 2022, with Martin Gonzalez-Eiras. PDF (local copy).

We investigate how politico-economic factors shaped government responses to the spread of COVID-19. Our simple framework uses epidemiological, economic and politico-economic arguments. Confronting the theory with US state level data we find strong evidence for partisanship even when we control for fundamentals including the electorate’s political views. Moreover, we detect an important role for the proximity of elections which we interpret as indicative of career concerns. Finally, we find suggestive evidence for complementarities between voluntary activity reductions and government imposed restrictions.

21st BIS Annual Conference

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.

Program and slides:

  • La’O, Kalemli-Özcan, Smets
  • Reis, Krogstrup, Sturzenegger
  • Schoar, Adrian, Biais
  • Parlour, He, Niepelt

Economic Journalism Award 2022

Der diesjährige Preis der Schweizerischen Gesellschaft für Volkswirtschaft und Statistik geht an Hansueli Schöchli. Pressemitteilung.
Le prix de cette année de la Société suisse d’économie et de statistique est décerné à Hansueli Schöchli. Communiqué de presse.
Il premio di quest’anno della Società svizzera di economia e di statistica va a Hansueli Schöchli. Comunicato stampa.
This year’s prize of the Swiss Society of Economics and Statistics goes to Hansueli Schöchli. Press release.

When Children Die

Interview in NZZ with the leader of the palliative care section at the University of Zurich’s childrens’ hospital:

Wie sprachen [Kinder] darüber [ihre Ahnung, bald sterben zu müssen]?

Ein Kind sagte, es müsse zwei Koffer packen. Den einen nehme es auf seine Reise mit, den anderen lasse es zu Hause, damit es nicht vergessen werde. Ein anderes wollte auf einem Besen in den Himmel reiten. Ich habe auch schon ein kleines Kind erlebt, das kaum sprach und plötzlich zu seinen Eltern sagte, wie lieb es sie habe. Das war unglaublich berührend. Im Moment, als es das sagte, war der Satz noch nicht als Zeichen der Verabschiedung deutbar. Manchmal merken wir erst im Rückblick, dass das Kind gespürt hat, was kommt.

Was sagen Sie, wenn ein Kind Sie fragt, ob es bald sterben werde?

Das werde ich äusserst selten gefragt. Kinder fragen auch ihre Eltern nicht. Wenn, dann eher das Reinigungspersonal oder eine Lehrerin.


Sie schützen die Eltern. Das heisst aber nicht, dass sie diese Frage nicht haben.

“Life Among the Econ”

White House on Digital Assets

An executive order dated March 9, 2022 outlines what is on the White House’s mind:

The United States has an interest in responsible financial innovation, expanding access to safe and affordable financial services, and reducing the cost of domestic and cross-border funds transfers and payments, including through the continued modernization of public payment systems.  We must take strong steps to reduce the risks that digital assets could pose to consumers, investors, and business protections; financial stability and financial system integrity; combating and preventing crime and illicit finance; national security; the ability to exercise human rights; financial inclusion and equity; and climate change and pollution. …

(d)  We must reinforce United States leadership in the global financial system and in technological and economic competitiveness, including through the responsible development of payment innovations and digital assets.  The United States has an interest in ensuring that it remains at the forefront of responsible development and design of digital assets and the technology that underpins new forms of payments and capital flows in the international financial system, particularly in setting standards that promote:  democratic values; the rule of law; privacy; the protection of consumers, investors, and businesses; and interoperability with digital platforms, legacy architecture, and international payment systems.  The United States derives significant economic and national security benefits from the central role that the United States dollar and United States financial institutions and markets play in the global financial system.  Continued United States leadership in the global financial system will sustain United States financial power and promote United States economic interests.

Passports for Sale

Henley & Partners lists what is costs.

A growing number of countries host residence and citizenship by investment programs (also known as golden visa programs) that offer a variety of attractive investment options designed to cater to each family’s unique requirements. In an unsettled, ever-changing world, wealthy individuals need a plan B for themselves and their families — one that offers them a safer place to live in times of crisis, while also providing them with greater access to global business and lifestyle opportunities.

BA and MA Thesis Guidelines, Writing Tips

I supervise theses that focus on macroeconomic questions, use models to answer them, and are written in English or German. If you are interested in writing your thesis with me please follow these steps:

  1. Contact me by e-mail to check whether I can act as your thesis supervisor. Attach your grade sheet and sketch very briefly what type of questions you are interested in. 
  2. Once we have agreed that I act as supervisor prepare a one- or two-page proposal outlining as concisely and precisely as possible, what your research question is; what kind of model you plan to use in order to answer the question; and what kind of results you anticipate.
  3. We will discuss your proposal and you might revise it until we have a common understanding of the research question and the strategy to answer it. We also agree on a rough timeline.
  4. Then you are free to go. It’s up to you how often you get back to me with questions.

(No) rules:

  • I do not impose strict time limits or minimum/maximum length requirements etc. Ceteris paribus, completing the thesis faster or composing a shorter text is preferred.
  • I don’t require a hardcopy of the thesis, a PDF suffices.
  • I strongly suggest that you work with LaTeX; this allows you to focus on content rather than layout (and it nevertheless results in a more appealing end product).
  • Of course, all formal requirements set by the faculty or the university apply.

The grade accounts for the following:

  • Language and presentation: Extent to which grammar, wording, terminology and bibliography are correct, clear, consistent.
  • Personal contribution: Extent to which thesis writer acts independently when choosing the topic, preparing the proposal, and working on the thesis.
  • Topic: Extent to which the research question is relevant, challenging and focused.
  • Depth: Extent to which the thesis thoroughly analyzes the topic.
  • Structure: Extent to which the presentation conforms with logical reasoning and to which formal analysis and verbal reasoning correspond to each other.
  • Model: Extent to which the model focuses on key aspects of interest and is solved correctly.
  • Literature: Extent to which the author relates the work to relevant existing literature.
  • Of course, BA students are not expected to deliver publishable research; it is all the more important that the thesis meets formal standards and the reasoning is clear and logical.

I typically grade within a few days.

Some advice on how to do research, write and present:

Updated September 2022

Fabio Panetta on the Digital Euro

In a speech, the ECB’s Fabio Panetta argues that a digital Euro is necessary because

[i]n the digital age … banknotes could lose their role as a reference value in payments, undermining the integrity of the monetary system. Central banks must therefore consider how to ensure that their money can remain a payments anchor in a digital world.

He argues that

outsourcing the provision of central bank money [to stable coin providers] … would endanger monetary sovereignty [as would the absence of a national digital currency].

Panetta also argues that a digital Euro could

  • improve the confidentiality of digital payments and
  • increase choice and reduce costs

and should

  • avoid interfering with the functioning of the financial system and
  • be available within private payment solutions.

Panetta does not discuss

  • seignorage and
  • time consistency motivations.

“Digital Finance bedroht Geld- und Währungshoheit (Digital Finance Threatens Monetary Sovereignty),” NZZ, 2022

Neue Zürcher Zeitung, February 17, 2022. PDF.

  • The federal council’s digital finance strategy focuses on regulation.
  • There are limits to this strategy when financial markets operate globally and virtually.
  • Preserving monetary sovereignty requires an attractive national currency.
  • Carrots, not only sticks.
  • An attractive currency is not only stable but also usable in digital form.

Olga Tokarczuk’s “The Books of Jacob”

Goodreads rating 4.19.

A sweeping novel of 950 pages (!) which starts on page 960. The Nobel laureate describes hundreds of characters, with even more names; immerses in countless locations, languages, and creeds. Her protagonists always remain strangers.

There is something wonderful in being a stranger, in being foreign, something to be relished, something as alluring as candy. It is good not to be able to understand a language, not to know the customs, to glide like a spirit among others who are distant and unrecognizable. Then a particular kind of wisdom awakens—an ability to surmise, to grasp the things that aren’t obvious. Cleverness and acumen come about. A person who is a stranger gains a new point of view, becomes, whether he likes it or not, a particular type of sage. Who was it who convinced us that being comfortable and familiar was so great? Only foreigners can truly understand the way things work. (pp. 390)

From Smyrna and Athos to Ivanie, across fluid Poland, Brünn (exact location), Vienna (exact location) and Offenbach to Paris in times of the French Revolution and the Supreme Court. From pariah creditors to noble debtors. Jacob and his daughter Eva; Yente and Nahman; and the heroes in the background, Hayah, Asher, and Thomas. Life in the eighteenth century, torn between hunger, disease, murder and rape; lies that kill, curses that float; and debates about Aufklärung, when religious zeal morphs into political activism and the practice of law.

The Word rules.

… the world is made of words that, once uttered, lay claim to every order, so that all things seem to occur at their behest. All things belong to them. Every curse, even the slightest, has an effect. Every single word that’s said. (pp. 645)

Nahman’s creed:

… I patiently stumble forward, not inquiring into the price I will have to pay, and even less so about any reward. My friend and ally is that moment, that urgent hour, the dearest time to me, when suddenly out of nowhere the writing gets easy, and then everything appears to be wonderfully able to be expressed. What a blissful state it is! Then I feel sage, and the whole world becomes a cradle that the Shekhinah has laid me down in, and now the Shekhinah leans in over me like a mother over an infant.

The path to the left is only for those who have shown they deserve it, those who understand what Reb Mordke always said—that the world itself demands to be narrated, and only then does it truly exist, only then can it flourish fully. But also that by telling the story of the world, we are changing the world.

That is why God created the letters of the alphabet, that we might have the opportunity to narrate to him what he created. Reb Mordke always chuckled at this. “God is blind. Did you not know that?” he would say. “He created us that we would be his guides, his five senses.” And he would chuckle long and hard until he began to cough from the smoke.

The novel comes with a bibliography, so is the story real?

Literature is a particular type of knowledge, it is … the perfection of imprecise forms. (p. 14)

In any case,

… any person who toils over matters of Messiahs, even failed ones, even just to tell their stories, will be treated just the same as he who studies the eternal mysteries of light. (p. 10)

Goodreads summary:

The Nobel Prize-winner’s richest, most sweeping and ambitious novel yet follows the comet-like rise and fall of a mysterious, messianic religious leader as he blazes his way across eighteenth-century Europe.

In the mid-eighteenth century, as new ideas–and a new unrest–begin to sweep the Continent, a young Jew of mysterious origins arrives in a village in Poland. Before long, he has changed not only his name but his persona; visited by what seem to be ecstatic experiences, Jacob Frank casts a charismatic spell that attracts an increasingly fervent following. In the decade to come, Frank will traverse the Hapsburg and Ottoman empires with throngs of disciples in his thrall as he reinvents himself again and again, converts to Islam and then Catholicism, is pilloried as a heretic and revered as the Messiah, and wreaks havoc on the conventional order, Jewish and Christian alike, with scandalous rumors of his sect’s secret rituals and the spread of his increasingly iconoclastic beliefs. The story of Frank–a real historical figure around whom mystery and controversy swirl to this day–is the perfect canvas for the genius and unparalleled reach of Olga Tokarczuk. Narrated through the perspectives of his contemporaries–those who revere him, those who revile him, the friend who betrays him, the lone woman who sees him for what he is–The Books of Jacob captures a world on the cusp of precipitous change, searching for certainty and longing for transcendence.

Goodreads reader Marc’s summary:

For those who like wide-ranging historical novels, this is the real thing. Tokarczuk immersed herself in 18th-century Greater Poland, which then covered large parts of Eastern Europe. Seen from the West, it was a perifere area, but it stood in intense contact with the Eastern Ottoman Empire, which at that time still controlled almost the entire Balkans. Tokarczuk sketches dozens of characters who constantly go back and forth between those two regions. These are especially Jews, and the author examines that Jewish world in great detail.

Her central story focuses on a Jewish heretic movement which actually existed in the middle of the 18th century. The movement was led by Jacob Frank, an Ottoman Jew. He was a very unlikely guru, but had an enormous charisma and managed to get tens of thousands of Jews behind his ‘Trinity Faith’. He seduced them with an eclectic mix of Judaism, Christianity and Islam, which was particularly attractive because it offered the Jews, with their always precarious position in Catholic Poland, the prospect of civil rights through baptism.

Olga Tokarczuk is the most acclaimed Polish writer of the moment (twice the Niké prize, once the Man Booker International prize, and, of course, the Nobel Prize 2018), but with this book she has had a really difficult time in her own country. Her focus on the Catholic discrimination against Jews in Greater Poland was not appreciated by the right-wing, conservative government currently in power in Warsaw. Also the picture she paints of an extremely diversified Polish nation, with a jumble of ethnicities and religious movements that lived together, contradicts the homogenic Polish identity that has been cultivated since the 2nd world war.

But that is precisely what makes this book extremely interesting. The way Tokarczuk brings all these different movements, cultures and ethnicities to life is a feast for the reader’s eye. Her narrative style even has a certain Marquezian flair, with a dash of magical realism through the character of the old Yenta who remains in a state of coma for hundreds of pages, and – stepped out of herself – glides through space and time, guiding the story a step further.

But there is a downside to this verbal firework: the immersion in all those worlds, the dozens of characters, the constant changes in perspective and time, all this makes reading this very bulky book a real test. For instance, it takes a quarter of the book, almost 250 pages, before the real story about the heresy of Jacob Frank takes off; until then Tokarczuk builds up, with constantly new characters, and travels back and forth between Poland, the Balkans and Smyrna (present-day Izmir in Turkey). Also the sometimes very intense theological discussions among the Jewish rabbis, diving into kabbala, demand a lot from the reader.

Again: this historical novel is quite a tour de force , not only in terms of size and depth. For me, the charm of the reading was mainly in the Chagal-like character of the visual language of Tokarczuk: she regularly sketches dreamy scenes with the comatose Yenta that floats over time and space and oversees everything. But in the long run it’s all a bit too much: the story just lingers on, endlessly, and I missed a real existential story, with people of flesh and blood. Hence the slightly lesser rating. But I’m definitely going to dive into Tokarczuk’s other work!

The FT Favors a Digital Dollar

On the question whether the Fed should seriously consider retail CBDC, the FT sides with the pro camp.

While elsewhere such central bank digital currencies can appear “a solution in search of a problem”, America’s lacklustre retail banking system and the importance of the dollar in cross-border money flows make an obvious case for reform.

Compare the contributions by Darrell Duffie and Chris Waller in the CEPR eBook.


“The Political Economy of Early COVID-19 Interventions in US States,” CEPR, 2022

CEPR Discussion Paper 16906, January 2022, with Martin Gonzalez-Eiras. PDF (local copy).

We investigate how politico-economic factors shaped government responses to the spread of COVID-19. Our simple framework uses epidemiological, economic and politico-economic arguments. Confronting the theory with US state level data we find strong evidence for partisanship even when we control for fundamentals including the electorate’s political views. Moreover, we detect an important role for the proximity of elections which we interpret as indicative of career concerns. Finally, we find suggestive evidence for complementarities between voluntary activity reductions and government imposed restrictions.

Forthcoming in the JEDC.