MORE THAN A FEELING: CONFIDENCE,UNCERTAINTY, AND MACROECONOMIC FLUCTUATIONS

Economists, observers, and policy-makers often emphasize the role of sentiment as a potential driver of the business cycle. In this paper, we provide three contributions to this debate. First, we give an overview of the recent literature on the nexus between sentiment (considering both confidence and uncertainty) and economic activity. Second, we review existing empirical measures of sentiment, in particular consumer confidence, stock market volatility (SMV) and Economic Policy Uncertainty (EPU), on monthly data for 27 countries, 1985–2016. Third, we identify some new stylized facts based on international evidence. While different measures are surprisingly lowly correlated on average in each country, they are typically highly positively correlated across countries, suggesting the existence of a global factor or sizeable international spillovers of sentiment. Consumer confidence has the closest co-movement with economic and financial variables, and most of the correlations are contemporaneous or forward-looking, consistent with the view that economic sentiment is indeed a driver of activity.     

DELEGATED PORTFOLIO MANAGEMENT: A SURVEY OF THE THEORETICAL LITERATURE

Abstract.  This paper provides a selective review of the theoretical literature on delegated portfolio management as a principal–agent relationship. The main focus of the paper is to review the analytical issues raised by the peculiar nature of the delegated portfolio management relationship within the broader class of principal–agent models. In particular, the paper discusses the performance of linear versus nonlinear compensation contracts in a single-period setting, the possible effects of limited liability of portfolio managers, the role of reputational concerns in a multiperiod framework, and the incentives to noise trading. In addition, the paper deals with some general equilibrium dimensions and asset pricing implications of delegated portfolio management. The paper also suggests some directions for future research.     

Getting beyond carry trade: What makes a safe haven currency?

The main objective of this paper is to investigate the fundamentals of safe haven currencies, which are those currencies that provide an hedge for a reference portfolio of risky assets, conditional on shocks to global risk aversion. We analyse a large panel of 52 currencies in advanced and emerging countries over almost 25 years of data. We find that only a few factors are robustly associated to a safe haven status, most notably the net foreign asset position, an indicator of external vulnerability, and whether currencies have been a good hedge in the past. In addition, the currencies of large, less financially open economies are a good hedge against global risk aversion shocks. By contrast, the level of the interest rate spread vs. the US is significant only during the latest crisis. Finally, we find some evidence of non-linearity as the importance of the fundamentals is stronger during crisis times.     

Asymmetry in mobile access charges: is it an effective regulatory measure?

This paper analyses the regulation of the market of voice call termination on mobile networks, by considering the remedy of asymmetric access charges and the hypothesis of discriminatory retail pricing. In the two way interconnection, the operators revenue depends on two factors: the retail price and the access charge. If the retail prices are different between calls that terminate on the same network (on-net) and calls that terminate on the rival network (off-net), the competition is more complex, involving positive networks externalities for the incumbent operator. In order to reduce the competitive disadvantage for new entrants and smaller operators many European regulation authorities have introduced the remedy of asymmetric access charges. This paper is aimed at analysing the effectiveness of this regulatory measure, assuming that operators are differentiated in terms of brand loyalty and cost structure.     

Explaining European Union Citizens’ Trust in the European Central Bank in Normal and Crisis Times

We study the determinants of trust in the European Central Bank (ECB) as measured by the European Commission's Eurobarometer survey, in particular during the global financial crisis and the European sovereign debt crisis. We find that the fall in trust in the ECB in crisis times can be rather well explained based on the pre‐crisis determinants. We also show that the fall in trust reflected the macroeconomic deterioration, a more generalized fall in the trust in European institutions in the wake of the crisis, and the severity of the banking sector's problems, to which the ECB was associated in the public opinion.     

The evolution of financial intermediation: Evidence from 19th‐century Ontario microdata

Microdata for Ontario decedents in 1892 and 1902 is analyzed to help explain the dramatic growth of the Canadian banking system in the late 19th century. Combining data from probate inventories with census data at the township level, we find that the expansion of deposit banking happened at the extensive rather than intensive margin and was correlated with the expansion of the branch network of the banking system, although we cannot assign causation. Wealth and urbanization help to explain the growth of deposit banking but the significance of a dummy variable for 1902 points to other time‐correlated factors such as innovations in transportation and financial innovations that lowered costs and facilitated access to banking services.     

The political economy under monetary union: has the euro made a difference?

Economic and monetary union (EMU) has transformed Europe and has created an integrated pan-European economy. Much research has focused on understanding this integration process and what benefits and costs it entails. This paper identifies a political economy channel of EMU as the monetary union implies that member states had to transfer or at least curtail their policy autonomy in several areas, such as monetary policy and fiscal policy. The paper shows that EMU has helped reduce the impact of political shocks on the domestic economy of member states but magnified the transmission of political shocks within the euro area. Equally importantly, economies with weak domestic policies and institutions exhibited a significantly higher sensitivity to domestic political shocks before EMU, but not thereafter. While this may entail that EMU has brought benefits to countries with weaker policies and institutions by insulating them from adverse political developments at home, a potential drawback is that it may provide weaker market discipline for domestic political stability.
— Marcel Fratzscher and Livio Stracca     

Vertical Integration in International Telecommunication System

The process of liberalization and privatization is drastically altering the links among international telecommunications carriers. The model presented in this paper analyses the international telecommunications market illustrating the effects of vertical mergers, under symbiotic production conditions, when vertically integrated and unintegrated carriers coexist. The effect of competition is analysed both in the final market and in the intermediate one where carriers compete over tariffs to get an appropriate distribution of profits. In particular, the results show the relations between final market prices, intermediate tariffs and market dimensions and their implications on profits.     

Resource boom and bust, 1885–1920: regional wealth evidence from probate records

Wealth micro-data from records probated by the Thunder Bay District Surrogate Court for 1885–1920 are examined. These data span the Canadian wheat boom era and find a break in wealth accumulation over the period 1900–1914. A bust follows the boom and real wealth during 1915–1920 is approximately 75% lower than 1910–1914. Regression results show the key determinants of wealth in the region to be time period variables, gender, literacy, occupation, marital status, and number of children. The boom had no long-term impact on individual wealth levels in the Thunder Bay District.