Beyond Eurosclerosis

Europe no longer suffers from Eurosclerosis; unemployment, notably long-term unemployment, had decreased substantially for more than a decade. Mobility across labour market states increased in those countries where unemployment has been falling the most. Institutional reforms -- such as declining employment protection for new entrants in the labour market and less generous unemployment benefits -- account for this increase in mobility. Focusing on these reforms, we rationalize why EU workers, including those with permanent contracts, are increasingly unhappy about labour market conditions in spite of the disappearance of mass unemployment in Europe. Due to these perceptions, policy reversals cannot be ruled out. Governments wishing to minimize the risk of going back to Eurosclerosis should move towards flexicurity configurations, compensating workers for higher risks of job loss, and introduce tenure tracks to the labour market, preventing the development of dual labour market structures. This would avoid dissipating the employment gains of the last decade during this recession.
--- Tito Boeri and Pietro Garibaldi     

Resources, innovation and growth in the global economy

The relative performance of open economies is analyzed in an endogenous growth model with asymmetric trade. A resource-rich country trades resource-based intermediates for final goods produced by a resource-poor economy. The effects of an increase in the resource endowment depend on the elasticity of substitution between resources and labor in intermediates' production. Under substitution (complementarity), the resource boom generates higher (lower) income, lower (higher) employment in the primary sector and faster (slower) growth in the resource-rich economy. In the resource-poor economy, the shock induces a higher (lower) relative wage and positive (negative) growth effects that are exclusively due to trade.     

Net Neutrality in Europe: Desperately seeking a market failure

Net Neutrality has become the focus of attention in the regulatory debate on the Internet. This article attempts to strip down the debate to its bare essential. It identifies two main types of Net Neutrality obligations that have been put forward and assesses what type of potential concerns they may be designed to address. It concludes that while some of these concerns may be important it remains doubtful (at least in Europe) that an ex ante per se rule, such as those proposed under the Net Neutrality term, is the best way to address them.     

Rational panics and stock market crashes

This paper offers an explanation for stock market crashes which focuses on the role of rational but uninformed traders. We show that uninformed traders can precipitate a price crash because as prices decline, they surmise that informed traders received negative information, which leads them to reduce their demand for assets and drive the price of stocks even lower. The model yields several implications, such as that crashes can occur even when the fundamentals are strong, and that the magnitude of the crash depends on the fraction of uninformed investors and the amount of unsophisticated passive investing present in the market.     

A note on the exact transformation associated with the first-order moving average process

Exact analytical expressions for the transformation that can be used to transform a generalized regression problem into a simple regression problem are available for a variety of models. Such is the case, for instance, for purely heteroscedastic models, for the first-order Markov process and for error components models. For the first-order moving average process, on the other hand, the exact transformation has not yet been produced. This gap is filled in the present note.Implications for estimation and prediction are also considered.     

Credit quantity and credit quality: Bank competition and capital accumulation

In this paper we show that bank competition has an intrinsically ambiguous impact on capital accumulation. We further show that it is also responsible for the emergence of development traps in economies that otherwise would be characterized by unique equilibria. These results explain the conflicting evidence emerging from the recent empirical studies of the effects of bank competition on economic growth. We obtain them developing a dynamic, general equilibrium model of capital accumulation where banks operate in a Cournot oligopoly. More banks lead to a higher quantity of credit available to entrepreneurs, but also to diminished incentives to offer relationship services that improve the likelihood of success of investment projects. We also show that conditioning on one key parameter resolves the theoretical ambiguity: in economies where intrinsic market uncertainty is high (low), less (more) competition leads to higher capital accumulation.     

The role of family ownership in international entrepreneurship: exploring nonlinear effects

Empirical research on international entrepreneurship is growing, but results on the role of family ownership in this phenomenon are inconsistent. We believe these inconsistencies owe to prior researchers having not yet investigated nonlinear relationships. Drawing on opposing perspectives of stewardship and stagnation, we explore potential benefits and drawbacks of family ownership for international entrepreneurship and explore nonlinear relationships among these two variables. Using a sample of 1,035 US family businesses and applying ordinal regression analysis, we find an inverted U-shaped relationship between family ownership and international entrepreneurship: International entrepreneurship is maximized when family ownership stands at moderate levels. We discuss the implications of our findings for theory and practice and indicate avenues for future research.     

Reinforced urn processes for credit risk models

We propose a Bayesian nonparametric model to estimate rating migration matrices and default probabilities using the reinforced urn processes (RUP) introduced in Muliere et al. (2000). The estimated default probability becomes our prior information in a parametric model for the prediction of the number of bankruptcies, with the only assumption of exchangeability within rating classes. The Polya urn construction of the transition matrix justifies a Beta distributed de Finetti measure. Dependence among the processes is introduced through the dependence among the default probabilities, with the Bivariate Beta Distribution proposed in Olkin and Liu (2003) and its multivariate generalization.     

Trade credit in SMEs: a quantile regression approach

This article analyses the determinants of the trade credit in Spanish manufacturing small and medium-sized enterprises (SMEs) from a new perspective. Specifically, we focus on the relationship between trade credit and other relevance financial resources: bank credit and self-financing. For the first time in the literature, a quantile regression approach is used, which takes into account the heterogeneity of firms in different quantiles of trade credit distribution. Our results show that the relationship between trade credit and other financial sources presents dissimilarities, including differences in sign, on SMEs with different degrees of trade credit. Our findings help to clarify the confusing results achieved in previous research on this topic.