Residual Barter Networks and Macro-Economic Stability: Switzerland’s Wirtschaftsring

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 WIRbarter 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.

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