The nature of regional unemployment in Italy

Taking as a starting point the evidence of growing disparities for most of the 1984–2007 period, this article investigates the nature of regional unemployment in Italy. In particular, we assess whether the Italian regional unemployment rates contain a unit root and are, thus, subject to pure hysteresis, considering as alternative hypotheses both a linear and a non-linear stationary process. For that purpose, we employ three recently developed panel unit-root tests, taking account of structural breaks, cross-section dependence and non-linearities. Contrary to previous studies in the literature, our results reject the pure hysteresis hypothesis and support the characterisation of regional unemployment in Italy as a stationary but non-linear process, subject to multiple equilibria, in line with the ‘structuralist hypothesis’ advanced by Phelps (1994).     

Complexity and financial stability in a large random economy

I study the limit of a large random economy, in the ideal case of perfect competition, where full information is available to all market participants, and where a set of consumers invests in financial instruments engineered by banks in order to optimize their future consumption. This provides a picture of how unregulated financial innovation pushes an economy towards the ideal limit of complete markets. Hedging new products with existing products allows financial institutions to reduce the associated risk and hence the risk premium. This has the expected consequence that markets, under such ideal conditions, converge to market completeness as the repertoire of financial instruments expands. As markets approach completeness, however, two ‘unintended consequences’ also arise: (i) equilibrium portfolios develop a marked susceptibility to idiosyncratic shocks and/or parameter uncertainty and (ii) hedging engenders divergent trading volumes in the interbank market. Combining these suggests an inverse relation between financial stability and the size of the financial sector, which can be quantified within the present framework. These results suggest that even under perfect competition and symmetric information, the pursuit of market efficiency—in terms of completeness—may erode financial stability. The proliferation of financial instruments exacerbates the effects of market imperfections and, in order to prevent an escalation of perverse effects, markets may require institutional structures that become more and more substantial as their complexity expands.     

Exploring the effect of gender diversity in MFIs during turbulent periods

Abstract

Gender diversity is generally recognized as relevant in microfinance, and the relationship between gender diversity and firms’ performance has received attention in academic literature. The above-mentioned relationship has not been addressed until now in the microfinance industry specifically. This study seeks to explain the role played by gender diversity in the workforce of microfinance institutions (MFIs) during turbulent periods in the firms’ performance. The study analyses data from 555 ratings of 185 MFIs from MicroFinanza Rating, a leading microfinance rating agency. The analysis shows that the number of women on the staff of MFIs is significantly and positively associated with both the Return on Equity and Operational Self-Sufficiency of MFIs, indicating a positive impact of gender diversity on firms’ performance.     

The theory of storage in the crude oil futures market,the role of financial conditions

This study examines the impacts of inventory and financial instability on the basis of the crude oil market. The results show that, first, the basis rises with inventory, and this effect is higher during low inventory regimes. This validates the theory of storage in the crude oil market. Second, the basis rises with financial instability, and this effect is higher during turbulent regimes. These results warn the oil market participants that, to make decisions based on the basis variation, traditionally known as a signal of scarcity or abundance, the underlying cause of the variation has to be considered.     

The ‘Duce hometown effect’ on local industrial development: The case of Forlì

Abstract

The history of fascist intervention and rescue in support of Italian banks and firms (either through nationalisation or direct aid) in the inter-war years is well known. The case of Forlì adds an important piece of information to the broad literature on state-sponsored development. Benito Mussolini was born in Predappio, a small village in the Apennines in the province of Forlì. And Forlì was meant to become ‘la città del Duce’ (‘the Duce’s hometown’). The case of Forlì offers an original perspective: entrepreneurs who chose Mussolini’s hometown to obtain special concessions, a novel element in the crowded panorama of special relationships between government and industry in Italy. But on the other hand, this article will also underline the unsuitability of big business to local economic characteristics (and post-war challenges) and the return to a traditional growth path centred around the small-firm model specialising in traditional sectors and family-owned, centralised management. State-sponsored business failed and provided no stimulus to local growth: any talk of ‘industrial continuity’ in Forlì requires us to acknowledge that it is based on the steady presence and continuous regeneration of locally grown, small family businesses.     

A cluster driven log-volatility factor model: a deepening on the source of the volatility clustering

We introduce a new factor model for log volatilities that considers contributions, and performs dimensionality reduction, at a global level through the market, and at a local level through clusters and their interactions. We do not assume a-priori the number of clusters in the data, instead using the Directed Bubble Hierarchical Tree algorithm to fix the number of factors. We use the factor model to study how the log volatility contributes to volatility clustering, quantifying the strength of the volatility clustering using a new nonparametric integrated proxy. Indeed finding a link between volatility and volatility clustering, we find that a global analysis reveals that only the market contributes to the volatility clustering. A local analysis reveals that for some clusters, the cluster itself contributes statistically to the volatility clustering effect. This is significantly advantageous over other factor models, since it offers a way of selecting factors in a statistical way, whilst also keeping economically relevant factors. Finally, we show that the log volatility factor model explains a similar amount of memory to a principal components analysis factor model and an exploratory factor model.     

Robust martingale selection problem and its connections to the no‐arbitrage theory

We analyze the martingale selection problem of Rokhlin in a pointwise (robust) setting. We derive conditions for solvability of this problem and show how it is related to the classical no‐arbitrage deliberations. We obtain versions of the Fundamental Theorem of Asset Pricing in models spanning frictionless markets, models with proportional transaction costs, and models for illiquid markets. In all these models, we also incorporate trading constraints.     

On some ‘Austrian’ misreadings of Cantillon's notions of intrinsic value and market price

The article clarifies some aspects of the Cantillonian notions of intrinsic value and of market prices. Furthermore, the major flaws of the ‘Austrian’ interpretations put forward in recent years by Rothbard and Thornton are highlighted. This criticism provides an additional dimension to the view already expressed by Groenewegen against the new edition of Cantillon's Essai by Thornton. Finally, the connection between the Essai and mature classical economics is highlighted and the proposed ‘Austrian’ interpretation of Cantillon is strongly rejected.