Military conflict and the rise of urban Europe

We present new evidence about the relationship between military conflict and city population growth in Europe from the fall of Charlemagne’s empire to the start of the Industrial Revolution. Military conflict was a main feature of European history. We argue that cities were safe harbors from conflict threats. To test this argument, we construct a novel database that geocodes the locations of more than 800 conflicts between 800 and 1799. We find a significant, positive, and robust relationship that runs from conflict exposure to city population growth. Our analysis suggests that military conflict played a key role in the rise of urban Europe.     

What goes up sometimes stays up: shocks and institutions as determinants of unemployment persistence

We analyse the determinants of unemployment persistence in four OECD countries by estimating a structural Bayesian VAR with an informative prior based on an insiders/outsiders model. We explicitly insert unemployment benefits and labour taxes so that our identification is not affected by the Faust and Leeper (1997) critique. We find widespread hysteresis: demand shocks play a dominant role in explaining unemployment also in the medium‐run. Moreover real wages have low sensitivity to cyclical fluctuations and to labour market disequilibria. Our results emphasise the real power of the unions and their interactions with structural shocks and other institutions as crucial determinants of hysteresis.     

Regulating Public Transit Networks: How do Urban‐Intercity Diversification and Speed‐up Measures Affect Firms’ Cost Performance?

Abstract Empirical studies on the cost structure of Public Transit Networks are mainly based on specialized firms providing urban or intercity services. In this study we estimate a translogarithmic variable cost function to assess the behaviour of returns to scale and the impact of network characteristics. The analysis is based on a sample of 45 Italian municipal companies observed from 1996 to 1998 and including both specialized and mixed transit operators. Results confirm previous evidence on the existence of natural monopoly in the industry and support a regulation introducing competitive tenders to access to the market. In addition, we provide insights about the advantages associated with urban‐intercity diversification and with the improvement of network commercial speed. Cost benefits can then be achieved by promoting mergers between neighbouring firms, so as to create new companies operating on integrated local networks and supplying in combination urban and intercity public transport. Implications of such a strategy for the design of tender mechanisms are also underlined, together with the need for a regulatory policy which takes more care of speed‐up measures.     

Dating Business Cycles: A Methodological Contribution with an Application to the Euro Area

This paper proposes a dating algorithm based on an appropriately defined Markov chain that enforces alternation of peaks and troughs, and duration constraints concerning the phases and the full cycle. The algorithm, which implements Harding and Pagan's non‐parametric dating methodology, allows an assessment of the uncertainty of the estimated turning points caused by filtering and can be used to construct indices of business cycle diffusion, aiming at assessing how widespread are cyclical movements throughout the economy. Its adaptation to the notion of a deviation cycle and the imposition of depth constraints are also discussed. We illustrate the algorithm with reference to the issue of dating the euro‐area business cycle and analysing its characteristics, both from the classical and the growth cycle perspectives.     

Structural FECM: Cointegration in large‐scale structural FAVAR models

Starting from the dynamic factor model for nonstationary data we derive the factor‐augmented error correction model (FECM) and its moving‐average representation. The latter is used for the identification of structural shocks and their propagation mechanisms. We show how to implement classical identification schemes based on long‐run restrictions in the case of large panels. The importance of the error correction mechanism for impulse response analysis is analyzed by means of both empirical examples and simulation experiments. Our results show that the bias in estimated impulse responses in a factor‐augmented vector autoregressive (FAVAR) model is positively related to the strength of the error correction mechanism and the cross‐section dimension of the panel. We observe empirically in a large panel of US data that these features have a substantial effect on the responses of several variables to the identified permanent real (productivity) and monetary policy shocks.     

LSM: A DSGE model for Luxembourg

Luxembourg is a small open economy with a set of particular features, including rather limited competition in the domestic goods market, strong union power, and a segmented labor market for resident and non-resident workers. In this paper we develop a medium scale DSGE model that captures these features, calibrate it to mimic the actual behavior of the key macroeconomic aggregates, and use it to conduct policy experiments aimed at relaxing some of the existing rigidities in the goods and labor market.