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Working Paper
Beyond the Doomsday Economics of “Proof-of-Work” in Cryptocurrencies
This paper discusses the economics of how Bitcoin achieves data immutability, and thus payment finality, via costly computations, i.e., ?proof-of-work.? Further, it explores what the future might hold for cryptocurrencies modelled on this type of consensus algorithm. The conclusions are, first, that Bitcoin counterfeiting via ?double-spending? attacks is inherently profitable, making payment finality based on proof-of-work extremely expensive. Second, the transaction market cannot generate an adequate level of ?mining? income via fees as users free-ride on the fees of other transactions in a ...
Working Paper
Exchange rate pass-through in a competitive model of pricing-to-market
This paper extends the Mussa and Rosen (1978) model of quality-pricing under perfect competition. Exporters sell goods of different qualities to consumers who have heterogeneous preferences for quality. Production is subject to decreasing returns to scale and, therefore, supply and the toughness of competition react to cost changes brought about by exchange rate fluctuations. First, we predict that exchange rate shocks are imperfectly passed through into prices. Second, prices of low quality goods are more sensitive to exchange rate shocks than prices of high quality goods. Third, in response ...
Working Paper
Trade linkages and the globalisation of inflation in Asia and the Pacific
Some observers argue that increased real integration has led to greater co-movement of prices internationally. We examine the evidence for cross-border price spillovers among economies participating in the pan-Asian cross-border production networks. Starting with country-level data, we find that both producer price and consumer price inflation rates move more closely together between those Asian economies that trade more with one another, ie that share a higher degree of trade intensity. Next, using a novel data set based on the World Input-Output Database (WIOD), we examine the importance of ...
Working Paper
The Globalisation of Inflation: the Growing Importance of Global Value Chains
Greater international economic interconnectedness over recent decades has been changing inflation dynamics. This paper presents evidence that the expansion of global value chains (GVCs), ie cross-border trade in intermediate goods and services, is an important channel through which global economic slack influences domestic inflation. In particular, we document the extent to which the growth in GVCs explains the established empirical correlation between global economic slack and national inflation rates, both across countries and over time. Accounting for the role of GVCs, we also find that ...
Discussion Paper
Why Central Bank Digital Currencies?
In the past year, a number of central banks have stepped up work on central bank digital currencies (CBDCs – see map). For central banks, are CBDCs just a defensive reaction to private-sector innovations in money, or are they an opportunity for the monetary system? In this post, we consider several long-standing goals of central banks in their support and provision of retail payments, why and how central banks tackle these issues, and where CBDCs fit into the array of potential solutions.
Working Paper
Cryptocurrency Market Reactions to Regulatory News
Cryptocurrencies are often thought to operate out of the reach of national regulation, but in fact their valuations, transaction volumes and user bases react substantially to news about regulatory actions. The impact depends on the specific regulatory category to which the news relates: events related to general bans on cryptocurrencies or to their treatment under securities law have the greatest adverse effect, followed by news on combating money laundering and the financing of terrorism, and on restricting the interoperability of cryptocurrencies with regulated markets. News pointing to the ...
Working Paper
Quality pricing-to-market
We document that in the European car industry, exchange rate pass-through is larger for low than for high quality cars. To rationalize this pattern, we develop a model of quality pricing and international trade based on the preferences of Mussa and Rosen (1978). Firms sell goods of heterogeneous quality to consumers that differ in their willingness to pay for quality. Each firm produces a unique quality of the good and enjoys local market power, which depends on the prices and qualities of its closest competitors. The market power of a firm depends on the prices and qualities of its direct ...
Working Paper
Export basket and the effects of exchange rates on exports–why Switzerland is special
Why has Swiss export performance been so strong during the past quarters despite the strong appreciation of the CHF? In this paper, we use historical data on exchange rates and trade at the sectoral level to document that a contributing factor behind the limited impact of the exchange rate is the unique composition of Swiss exports. In particular, we document that the Swiss export basket is heavily concentrated in price-insensitive goods such as machinery or pharmaceuticals, where prices and thus the exchange rate have relatively little importance for demand. This makes the aggregate volume ...
Working Paper
International liquidity provision during the financial crisis: a view from Switzerland
We document the provision of CHF liquidity by the Swiss National Bank (SNB) to banks domiciled outside Switzerland during the recent financial crisis. What makes the Swiss case special is the size of this liquidity provision?making up 80 percent of all short term CHF liquidity provided by the SNB?and also the measures that were adopted to distribute this liquidity. In addition to making CHF available to other central banks via SWAP facilities, the SNB also allows banks domiciled outside Switzerland to directly participate in its REPO transactions. Although this policy was adopted for reasons ...