The return of inflation

For a quarter of a century, the western world has enjoyed a macroeconomic environment characterized by low and stable inflation. Over the last two years, this benign state has dramatically changed. In America and Europe, inflation has resurged with unexpected vigor. Treated at first by central banks and most of their observers as a mere temporary aberration, which would soon fade again without much need for action, it has since assumed a virulence which has forced central banks to tighten their policies much more forcefully than was initially expected. How did all this come about? How are central banks and their monetary policies to be judged

Banking deregulation in Europe

Banking deregulation Ernst Baltensperger and Jean Dermine Deregulation of financial services is well under way in many European countries. This has led to fears that economies are now more vulnerable to macroeconomic shocks. The authors focus on one aspect of financial deregulation, namely liberalization of the banking system. They show that measures such as the abolition of reserve requirements increase macroeconomic variability under some circumstances but reduce it under others. No general macroeconomic case can be made for banking regulation or for its liberalization. Analysis of microeconomic issues is more fruitful. Asymmetric information and the risks of contagion in a panic can lead to runs against the banking system. To the extent that these are socially inefficient, public intervention may be justified. This presumption is stronger since the risks of bank runs have grown recently with the increased maturity mismatch - the finance of illiquid loans by liquid short-term deposits. To meet this danger, the authors recommend regulation of deposit contracts whilst preserving incentives for bank monitoring by private parties. Specifically, they propose an ex post liability of current and former depositors when banks default, thereby offsetting the incentive to withdraw funds at the onset of a crisis. Being quick off the mark would no longer be sufficient, and sophisticated depositors would press for greater disclosure and fuller monitoring of bank activities. The authors also recommend that remaining controls on deposit interest rates should be scrapped and that supervision of international banking should be cooperatively conducted by host and parent authoritie

Exporting against Risk? Theory and Evidence from Public Export Insurance Schemes in OECD Countries

This paper endeavours to find out in how far public export insurance schemes foster international trade. Thereto, a gravity equation is derived, which accounts for the risk of financial losses in case firms contract defaulting foreign buyers. Empirical results suggest that OECD countries issuing trade credits with generous state-guarantees did not, during the 1999 to 2005 period, witness more exports towards politically and commercially more unstable low-income countries. Rather, publicly indemnified trade finance has promoted exports, to a modest degree, towards high and middle-income countries, where financial intermediaries and markets provide viable alternatives to hedge against payment risk

The Swiss National Bank's monetary policy concept - an example of a 'principles-based' policy framework

The practice of monetary policy has evolved a great deal since the early 1990s. This evolution was significantly influenced by rapid developments in the theory of monetary policy. A new consensus about 'principles-based' monetary policy appears to be emerging. It marries a firm long-term anchor for nominal stability, rooted in the original ideas behind inflation targeting, with short-term flexibility, based on a more discretionary and pragmatic approach to monetary policy. The SNB's monetary policy framework - with a firm nominal anchor but with an emphasis on the need for flexibility - reflects, to a considerable degree, the emerging academic consensus about best-practice monetary policy. With its successful seven-year track record, it may serve as an interesting case study for a policy aiming at an intermediate position between full discretion and rigidly defined short-term inflation targeting.Swiss National Bank, monetary policy, inflation targeting, rules, discretion

Geldpolitik in großen und kleinen Währungsräumen - Was lehrt uns das Beispiel des Schweizer Frankens?: Thünen-Vorlesung 2016

In seiner Thünen-Lecture vor dem Verein für Socialpolitik geht Ernst Baltensperger den Fragen nach, wie die Schweiz als relativ kleines Land dazu gekommen ist, eine unabhängige, "autonome" Geldpolitik mit flexiblen Wechselkursen zu betreiben; wie der Schweizer Franken zur Hartwährung geworden ist; und ob es ein Fluch oder ein Segen ist, eine stabile, starke Währung zu besitzen. Ihr vergleichsweise ausgeprägter Wille zur monetären und finanzpolitischen Stabilität hat die Schweiz im extrem instabilen Umfeld des 20. Jahrhunderts schließlich dazu geführt, monetäre Selbständigkeit zu wählen. Die Stärke des Frankens ist im Grunde die Schwäche der anderen Währungen, verbunden mit dem Wunsch nach Stabilität und der Bereitschaft zur Eigenständigkeit. Entscheidend war, dass es der Schweiz gelungen ist, Institutionen aufzubauen, die sich als fruchtbar für die Schaffung und Erhaltung politischer und wirtschaftlicher Stabilität erwiesen haben. Die Wirtschaftsentwicklung der Schweiz gemäß praktisch allen relevanten Kriterien weist nicht darauf hin, dass sie an ihrer Politik der monetären Stabilität gelitten hat

Competition between market-making Intermediaries

Abstract We introduce capacity constrained competition between market-making intermediaries in a model in which agents can choose between trading with intermediaries, joining a search market or remaining inactive. Recently, market-making by a monopolistic intermediary has been analyzed by Keywords: Market-making, capacity constrained competition, market microstructure. JEL-Classification: C72, D41, D43, L13. * Economics Department, University of Bern, Vereinsweg 23, CH-3012 Bern Email: [email protected] This is a preliminary version of chapter 2 of my PhDthesis. I want to thank Ernst Baltensperger, Esther Brügger, Alain Egli, Thomas Gehrig, Christian Ghiligno, Armin Hartmann, Roland Hodler, Michael Manz, Gerd Mühlheusser JeanCharles Rochet, Yves Schneider and Manuel Wälti for valuable comments and discussions. Any remaining errors are mine