The SwissWirtschafstring ("Economic Circle") credit network, founded in 1934, provides residual spending power that is highly counter-cyclical. Individuals are cash-short in a recession and economize by greater use of WIR-credits. A money in the production function (MIPF) specification implies that transactions in WIR form a stabilizing balance that makes up for the lack of ordinary currency. Thus, unlike the ordinary money, WIR money is negatively correlated with GDP in the short run. This implication is confirmed by empirical estimates. Such credit networks play a stabilizing role that should be considered in monetary policy.
Saturday, November 7, 2009
Alternative Money As A Macro Stabilizer, The Swiss Case
Old monetarists used to praise monetary policy in Switzerland and its macro stability, a stability seen recently with only a small decline in GDP and a 4.1% unemployment rate, despite the international crisis nearly bringing down UBS, its largest bank. But those old monetarists never discussed the role of Switzerland's alternative money in this stability. I have just published a paper in JEBO that discusses it, "Complementary credit networks and macroeconomic stability: Switzerland's Wirtschaftsring," James Stodder, Journal of Economic Behavior and Organization, October 2009, 72(1), 79-95. (.pdf). I reproduce the abstract below.