Consumption, house prices, and collateral constraints: a structural econometric analysis

If borrowing capacity of indebted households is tied to the value of their home, house prices should enter a correctly specified aggregate Euler equation for consumption. I develop a simple two-agent, dynamic general equilibrium model in which home (collateral) values affect debt capacity and consumption possibilities for a fraction of the households. I then derive and estimate an aggregate consumption Euler equation, and estimate its structural parameters. The results provide robust support for housing prices as a driving force of consumption fluctuations.     

The consensus between Italian HR and sustainability managers on HR management for sustainability-driven change – towards a ‘strong' HR management system

By sustainability-driven change, we mean the transformation of a company into an active agent of broad sustainable development. This paper focuses on two key features of this transformation: (i) the key role played by the company's human resource (HR) management system within that process; and (ii) the fact that the transformation involves a variety of agents and that, among others, HR and sustainability managers are pivotal to the success of the process. Gaining consensus between them on those aspects of the HR system that support sustainability-driven change is a key success factor, as it results in a ‘strong' HR management system that sends coherent messages to the organization. In addition, consensus between the two managers can be critical in preparing a compelling business case for sustainability for the senior management of the organization. This paper explores the level of consensus between the HR and sustainability managers using a survey of 89 managers in Italian companies committed to sustainability. The results of our research indicate which elements of an HR management system are seen as important for sustainability-driven change by both the HR and the sustainability managers and what differences in perception exist between them. Based upon our findings, implications for HR practice and research are then advanced and discussed.     

Conditional risk premia in currency markets and other asset classes

The downside risk capital asset pricing model (DR-CAPM) can price the cross section of currency returns. The market-beta differential between high and low interest rate currencies is higher conditional on bad market returns, when the market price of risk is also high, than it is conditional on good market returns. Correctly accounting for this variation is crucial for the empirical performance of the model. The DR-CAPM can jointly rationalize the cross section of equity, equity index options, commodity, sovereign bond and currency returns, thus offering a unified risk view of these asset classes. In contrast, popular models that have been developed for a specific asset class fail to jointly price other asset classes.     

The trend over time of the gender wage gap in Italy

We analyse gender wage gaps in Italy in the mid-1990s and in the mid-2000s. In this period, important labour market developments took place and they could have had a gender asymmetric impact on wages. We identify the time trends of different components of the gender wage gap across all the wage distribution. Although the unconditional gender wage gap remained roughly constant over time, we find that the component of the gap due to different rewards of similar characteristics deteriorated women’s relative wage. We show that especially women at the centre-top of the wage distribution swam against the tide: while the trend in female qualifications slightly reduced the gender wage gap, the gender-relative trends in the wage structure significantly increased it.     

Religious polarization,religious conflicts and individual financial satisfaction: Evidence from India

The extant literature finds religion to be a major determinant of life satisfaction. However, in contexts characterized by religious tensions, the outcome may be very different. In particular, the literature shows that religious polarization has a major influence on some economic outcomes. The analysis presented in the paper tries to identify the impact of religious polarization on a major component of life satisfaction: financial satisfaction. The paper inquires how belonging to a minority religion and living in areas with different levels of religious polarization affect the individual satisfaction with the financial situation of the household. The results show that the members of minority religious groups are less satisfied than the members of the dominant group, and that the financial satisfaction decreases—for a given income—as the religious polarization increases.     

Distribution of wealth and incomplete markets: Theory and empirical evidence

This paper analyses the equilibrium distribution of wealth in an economy where firms’ productivities are subject to idiosyncratic shocks, returns on factors are determined in competitive markets, households have linear consumption functions and government imposes taxes on capital and labour incomes and equally redistributes the collected resources to households. The equilibrium distribution of wealth is explicitly calculated and its shape crucially depends on market incompleteness. With incomplete markets it follows a Paretian law in the top tail and the Pareto exponent depends on the saving rate, on the net return on capital, on the growth rate of population, and on portfolio diversification. The characteristics of the labour market crucially affects the bottom tail, but not the upper tail of the distribution of wealth in the case of completely decentralized labour market. The analysis also suggests a positive relationship between growth and wealth inequality. The theoretical predictions find a corroboration in the empirical evidence of United States in the period 1989-2004.     

THE DRIVERS OF INCOME INEQUALITY IN RICH COUNTRIES

Rising income inequality has recently come centre‐stage as a core societal concern for rich countries. The diagnosis of the forces driving inequality upwards and their relative importance remain hotly contested, notably with respect to the roles of globalization versus technology and of market forces versus institutions and policy choices. This survey provides a critical review and synthesis of recent research. The focus is on income inequality across the entire distribution, rather than only on what has been happening at the very top. We pay particular attention to include what has been learned from the analysis of micro‐data, to ensure that the coverage is not unduly US‐centric and to analyses of the interrelations between the different drivers of inequality. The marked differences in inequality trends across countries and time periods reflect how global economic forces such as globalization and technological change have interacted with differing national contexts and institutions. Major analytical challenges stand in the way of a consensus emerging on the relative importance of different drivers in how income inequality has evolved in recent decades.     

On the Stability of Euro Area Money Demand and Its Implications for Monetary Policy

We employ a recent time‐varying cointegration test to revisit the usefulness of long‐run money demand equations for the ECB, addressing the issue of their instability by means of a model evaluation exercise. Building on the results, we make a twofold contribution. First, we propose a novel stable money demand equation relying on two crucial factors: a speculative motive, represented by domestic and foreign price‐earnings ratios, and a precautionary motive, measured by changes in unemployment. Second, we use the model to derive relevant policy implications for the ECB, since excess liquidity looks more useful for forecasting stock market busts than future inflation. Overall, this evidence points to (i) a possible evolution of the monetary pillar in the direction of pursuing financial stability and (ii) the exclusion of a sudden liquidity–driven inflationary burst after the exit from the prolonged period of unconventional monetary measures.     

Density forecast comparisons for stock prices,obtained from high‐frequency returns and daily option prices

This paper presents the first comparison of the accuracy of density forecasts for stock prices. Six sets of forecasts are evaluated for DJIA stocks, across four forecast horizons. Two forecasts are risk‐neutral densities implied by the Black–Scholes and Heston models. The third set are historical lognormal densities with dispersion determined by forecasts of realized variances obtained from 5‐min returns. Three further sets are defined by transforming risk‐neutral and historical densities into real‐world densities. The most accurate method applies the risk transformation to the Black–Scholes densities. This method outperforms all others for 87% of the comparisons made using the likelihood criterion.