The Effects of Monetary Policy on Unemployment Dynamics under Model Uncertainty: Evidence from the United States and the Euro Area

This paper explores the role that the imperfect knowledge of the structure of the economy plays in the uncertainty surrounding the effects of rule-based monetary policy on unemployment dynamics in the euro area and the United States. We employ a Bayesian model averaging procedure on a wide range of models which differ in several dimensions to account for the uncertainty that the policymaker faces when setting the monetary policy and evaluating its effect on real economy. We find evidence of a high degree of dispersion across models in both policy rule parameters and impulse response functions. Moreover, monetary policy shocks have very similar recessionary effects on the two economies with a different role played by the participation rate in the transmission mechanism. Finally, we show that a policymaker who does not take model uncertainty into account and selects the results on the basis of a single model may come to misleading conclusions not only about the transmission mechanism, but also about the differences between the euro area and the United States, which are on average essentially small.     

INFORMATION EXCHANGE AND COMPETITION IN COMMUNICATIONS NETWORKS*

We develop a model of information exchange between calling parties. We characterize the equilibrium when two interconnected networks compete by charging both for outgoing and incoming calls. We show that networks have reduced incentives to use off‐net price discrimination to induce a connectivity breakdown when calls originated and received are complements in the information exchange. This breakdown disappears if operators are allowed to negotiate reciprocal access charges. We also study the relationship between sending and receiving retail charges as a function of the level of access charges. We identify circumstances where private negotiations over access charges induce first‐best retail prices.     

Cross‐country asymmetries in monetary policy transmission: evidence from EMU members

This paper analyzes monetary policy asymmetries in EMU participating countries. In particular, we use a structural dynamic modelling approach to investigate asymmetric monetary transmission in Europe. Asymmetries are investigated in two different ways. First, we restrict the estimated structural models reflecting the monetary constraints each country faced during the EMS period. We obtain well‐behaved and comparable effects of monetary policy shocks. Second, efficiency frontiers for the selected EMU countries are estimated. In computing the optimal combinations of output gap and inflation volatility we use a weighted average of interest rate and exchange rate, i.e. the Monetary Condition Index (MCI), as a policy instrument. The impulse response analysis implemented with the MCI shows relatively small differences in the responses of the real economy to monetary policy shocks. Altogether the results suggest that, no matter which policy instrument is used, output gap and inflation respond to identical monetary shocks with a similar speed and movement, albeit with a different degree of effect.     

Through the magnifying glass: provincial aspects of industrial growth in post‐Unification Italy1

This article presents estimates of industrial production in post‐Unification Italy's 69 provinces in the census years 1871, 1881, 1901, and 1911. Initially industry was largely artisanal, and located in the former political capitals; but even then the waterfalls of the subalpine north‐west attracted what factory industry there was. Contrary to widespread opinion, in the aftermath of Unification the industrial and overall growth leaders were actually in the south, where selected provinces reaped the gains from the freer foreign trade, and infrastructure investment, that accompanied the loss of independence. Over the later nineteenth century industry concentrated into the ‘industrial triangle’; but even there industrialization remained sharply local, and excluded the right bank of the upper Po. The early twentieth century, in turn, brought a measure of industrial diffusion—to the centre/north‐east, where it was tied to the production of perishables on recently improved land—and concentration within the north‐western triangle itself, into its major cities, as progress in energy transmission effectively moved the waterfalls into the plains.