saturday, may 23, 2015saturday, may 23, 2015saturday, may 23, 2015saturday, may 23, 20151 reciprocal...

Tuesday, April 18, 2023Tuesday, April 18, 2023 11

Reciprocal Exchange and Reciprocal Exchange and Macroeconomic StabilityMacroeconomic Stability: :

Switzerland’sSwitzerland’s WirtschaftsringWirtschaftsring (Cercle Économique)(Cercle Économique)

James Stodder, (Ph.D., Economics, Yale 1990)Lally School of Management & Technology

Rensselaer Polytechnic Institute at HartfordHartford, Connecticut, USA

22

Main Idea of Microfinance:Main Idea of Microfinance:

Problem of CreditProblem of Credit for Investments for Investments Complimentary Complimentary

to Human Capitalto Human Capital

Recognized by Economists at least since Recognized by Economists at least since John Stuart MillJohn Stuart Mill

Tuesday, April 18, 2023Tuesday, April 18, 2023


But better Access to Credit is notBut better Access to Credit is notonlyonly a Problem of: a Problem of:

It can It can alsoalso be a Problem of be a Problem of

Macroeconomic StabilityMacroeconomic Stability

* Microeconomic * Microeconomic EfficiencyEfficiency, and, and* More Equality of * More Equality of OpportunityOpportunity … …

Local Currencies arise in every Local Currencies arise in every recession: e.g., “BerkShares”recession: e.g., “BerkShares”

Tuesday, April 18, 2023Tuesday, April 18, 2023 44http://www.berkshares.org/heroes/index.htm


Sufficient Money Needed to Effect Sufficient Money Needed to Effect All Improving TransactionsAll Improving Transactions

Figure 1: The Failure of Double-CoincidenceFigure 1: The Failure of Double-Coincidence


The Swiss WIR-BankThe Swiss WIR-Bank

Founded in 1934, inspired by the ideas of the Founded in 1934, inspired by the ideas of the German-Argentine economist and international German-Argentine economist and international trader: trader: Silvio GesellSilvio Gesell (1862-1930).

WirtschaftsringWirtschaftsring = “Cercle Économique” = “Cercle Économique”

Also, Also, WIRWIR = “WE” = “WE” – sense of Community– sense of Community

Restricted to Restricted to Small and MediumSmall and Medium Business. Business.


Employees and OwnersEmployees and Owners in in Small to Medium FirmsSmall to Medium Firms

can be shown to have:can be shown to have:

• Less Formal Education / Qualifications• Higher Risk of Layoffs & Bankruptcy

• Less Access to Bank Credit• More Self-Financing, and thus,

• Less Ability to Diversify to Mitigate Risk

- WINTER-EBMER, Rudolf, & Josef ZWEIMÜLLER (1999) “Firm Size Wage Differentials in Switzerland: Evidence from Job Changers,” American Economic Review


In 2003, WIR-Bank had In 2003, WIR-Bank had 77,000 Participants77,000 Participants

Turnover of Turnover of 1.7 Billion SFr1.7 Billion SFr ($US 1.28 B.)($US 1.28 B.)

WIR clients maintain two accounts, one in WIR clients maintain two accounts, one in Swiss Francs Swiss Francs (SFr), the other in (SFr), the other in WIRWIR..

WIR accounts can be used to clear (in WIR) WIR accounts can be used to clear (in WIR) trades only trades only with other WIR clientswith other WIR clients..

Since 1973, Since 1973, WIR credits not openly tradedWIR credits not openly traded for SFr (although this may still happen)for SFr (although this may still happen)


Long-term Correlation with Unemployment Long-term Correlation with Unemployment


Did WIR “de-link” from M2 around 1973?Did WIR “de-link” from M2 around 1973?


WIR-Credits could not be WIR-Credits could not be ‘Discounted’ for SFr. after 1973‘Discounted’ for SFr. after 1973

““The public perception … was that WIR money The public perception … was that WIR money was of lesser quality, since it was offered was of lesser quality, since it was offered publicly at large discounts…publicly at large discounts… [Discounting] had been tolerated based on the theory that it created additional turnover and facilitated members’ ability to ride out periodic currency-liquidity bottlenecks.”

- (“- (“WIR in the Swiss National Economy”)WIR in the Swiss National Economy”), Prof. Tobias Studer, , Prof. Tobias Studer, University of Basel (1998)University of Basel (1998)


My paper tests this theory:My paper tests this theory: Error Correction ModelError Correction Model (ECM) to distinguish (ECM) to distinguish

long-term (“secular”) from short-term (“cyclical”) long-term (“secular”) from short-term (“cyclical”) effect.effect.

I track effects of I track effects of UnemploymentUnemployment and and GDPGDP upon upon WIR TurnoverWIR Turnover

I find a I find a Structural BreakStructural Break at 1973 at 1973

I find strong I find strong counter-cyclical effectscounter-cyclical effects, but , but mostly mostly pre-1973pre-1973


Simple Error Correction Model:Simple Error Correction Model:

D(mD(mss) = ) = α (mα (msst – Qt)t – Qt)

long-term effectslong-term effects

+ ∑t βt (+ ∑t βt (D(mD(mss (-t)) (-t)) + ∑t + ∑t θθt (t (D(Q(-t))D(Q(-t))

Short-term (cyclical) effectsShort-term (cyclical) effects


Under normal conditions, Q = QUnder normal conditions, Q = Q11

But in But in conditions of recessionconditions of recession, m, mp p is is insufficient, and insufficient, and

Q = QQ = Qp p + Q+ Qss

This implies that changes in mThis implies that changes in mp p

Granger causeGranger cause m ms s and that the two and that the two are are negatively correlatednegatively correlated. .


Figure 3: Granger Causality Relationships -- WIR, Swiss Aggregates, 1950-2003

Note: Numbers are P-values on the null hypothesis of no Granger causality shown by directional arrow between variables. Solid arrows indicate that this null is rejected at 5 percent level, with thickness proportional to significance. Broken arrows show insignificance.


Table 4: Pre-1973, Counter-CyclicalTable 4: Pre-1973, Counter-Cyclical link: link: GDPGDP → → WIR-TurnoverWIR-Turnover

Sample: 1952-1972

Sample: 1973-2003

D(LnGDP_Ma2(-1)) -1.9444 -1.4894 [-3.241]****** [-1.884]**

D(LnGDP_Ma2(-2)) -0.5876 2.5289

[-1.035] [3.116]******

Adjusted R2 0.935 0.723t-stats in [ ]t-stats in [ ]: ***: ***: p < 0.01, : p < 0.01, **** : p < 0.05, : p < 0.05,

**: p < 0.10; : p < 0.10; oo: p < 0.15: p < 0.15


Table 5: Pre-1973, Counter-Cyclical link: Table 5: Pre-1973, Counter-Cyclical link: UnemploymentUnemployment →→ WIR-TurnoverWIR-Turnover

Sample: 1952-1972

Sample: 1973-2003

D(LnUE_Ma2(-1)) 0.1038 0.0430 [2.717]**** [1.999]**

D(LnUE_Ma2(-2)) 0.0482 -0.0527

[1.379] [-2.472]****Adjusted R2 0.921 0.711

t-stats in [ ]t-stats in [ ]: ***: ***: p < 0.01, : p < 0.01, **** : p < 0.05, : p < 0.05, **: p < 0.10; : p < 0.10; oo: p < 0.15: p < 0.15


Is WIR TurnoverIs WIR TurnoverMore Counter-CyclicalMore Counter-Cyclical than than National Money & Credit? National Money & Credit?

Comparable specifications show:Comparable specifications show:

No counter-cyclicalNo counter-cyclical effects for Swiss Money effects for Swiss Money Supply (M2).Supply (M2).

No counter-cyclicalNo counter-cyclical effects for effects for Swiss Banking Swiss Banking CreditCredit as a whole. as a whole.

No Structural BreakNo Structural Break at 1973 for either one. at 1973 for either one.


The Question of InflationThe Question of Inflation The The best current monetary policybest current monetary policy cannot ‘cure all cannot ‘cure all

recessions’ without accelerating inflation.recessions’ without accelerating inflation.

Therefore, Central Banks are often forced to Therefore, Central Banks are often forced to tighten money supply during a recessiontighten money supply during a recession..

If a more If a more ‘Micro’ Monetary Policy‘Micro’ Monetary Policy can ‘reach can ‘reach deeper’ -- to sectors deeper’ -- to sectors not reached not reached by traditional by traditional monetary expansions -- monetary expansions --

In In providing new creditproviding new credit to these sectors, can it do to these sectors, can it do so so without new pressure on inflationwithout new pressure on inflation??


However, ‘Reaching Deeper’…However, ‘Reaching Deeper’…

If WIR Microfinance If WIR Microfinance ‘reaches deeper’ -- ‘reaches deeper’ -- down to thedown to the Micro-economies Micro-economies of small of small businesses, distressed regions, marginal businesses, distressed regions, marginal workers, and unemployment …workers, and unemployment …

Perhaps it can also Perhaps it can also ‘reach deeper’ ‘reach deeper’ intointo thethe Macroeconomy Macroeconomy, down to stabilization , down to stabilization measures impossible for standard measures impossible for standard Monetary Policy.Monetary Policy.


US Money Supply “Too Pro-Cyclical”?US Money Supply “Too Pro-Cyclical”?

US Money Supply Growth and Unemployment, Quarterly, 1959-2007

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Mo

ney S

up

ply

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wth

, U

nem

plo

ym

en

t R

ate

(P

erc

en

t)

Recession Unemployment M2 Growth


US Interest Rate Controls “Too Pro-Cyclical”?US Interest Rate Controls “Too Pro-Cyclical”?

US Federal Funds Rate and Unemployment, Quarterly, 1959-2007

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era

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s (

Perc

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t)

Recession Unemployment Fed Funds Rate


US Macro-Stability: US Macro-Stability: Better, Room for Improvement Better, Room for Improvement

Source: http://www.nber.org/cycles.html

45% 55%

66%34%


Closing ThoughtsClosing Thoughts WIR-type systems may be a form of WIR-type systems may be a form of

‘Micro-Central Banking’‘Micro-Central Banking’ suggested by suggested by Micro-FinanceMicro-Finance..

Traditional Monetary Policy is subject to Traditional Monetary Policy is subject to the the Limitations of AggregationLimitations of Aggregation..

WIR-Type systems control, not national WIR-Type systems control, not national monetary aggregatesmonetary aggregates, but credit to , but credit to specific regions specific regions and even and even individual individual businesses.businesses.


A closing analogy:A closing analogy:

As the internet enables As the internet enables AdvertisersAdvertisers to move from to move from BroadcastingBroadcasting to to ‘Point-Casting’‘Point-Casting’ – targeting – targeting specific customers …specific customers …

Similarly, WIR-type systems may enable Similarly, WIR-type systems may enable Monetary Monetary AuthoritiesAuthorities to move from changing just to move from changing just Macro-Macro-CreditCredit to also targeting to also targeting Micro-CreditMicro-Credit. .

This can This can Expand Expand (or Restrict)(or Restrict) Credit Credit just where it just where it can can do thedo the most goodmost good (or the most harm)! (or the most harm)!


For copies of Slides For copies of Slides and/or Paper, email:and/or Paper, email:

[email protected]

saturday, may 23, 2015saturday, may 23, 2015saturday, may 23, 2015saturday, may 23, 20151 reciprocal...

Documents

wir accounts

wir clients

wir trades

wir credits

swiss wirbank

coincidence slide

usa slide

unemployment slide