Canadian Charity!

This post is going to be much different than what you would think from the title =]. Over at Worthwhile Canadian Initiative, Nick Rowe contemplates:

The Wall Street Journal (H/T Peter Gordon) says that barter is countercyclical. Barter increases in recessions, like now, and decreases in booms. Can anyone confirm this? Because that fact (if it is a fact) is really important in understanding the nature of business cycles and recessions. Countercyclical barter is exactly what one would predict from a monetary (deficient aggregate demand) theory of recessions. It makes no sense from a real business cycle or recalculation theory of recessions. And the very existence of barter, even in normal times and booms, is evidence in favour of doing macroeconomics with monopolistic competition.

Indeed, I can! It just so happens that James Stodder did an analytical study of the counter-cyclical effects of the Swiss WIR:

The experience of the Swiss Wirtschaftsring (“Economic Circle”), founded in the early 20th century, suggests that the “residual” spending power it provides during recessions is highly countercyclical, with important implications for monetary theory and policy.

A money-in-the-production-function (MIPF) specification implies that the quantity of WIR barter credits should grow with GDP in the long-run, as do ordinary Swiss Franks. Unlike transactions in Swiss Franks, however, the transactions in WIR are negatively correlated with GDP in the short-run. Individuals are cash-short in a recession, and economize by greater use of WIR-credits. This countercyclical pattern is confirmed in the empirical estimates.


6 thoughts on “Canadian Charity!

  1. It’s odd to me that Economics in the US doesn’t pay more attention to what other countries are doing with policies (except healthcare of course), especially in regards to money. You’d think Economists would have a keen interest on the effects of B2B money and barter currencies

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