Lessons from the ECB Experience: Frankfurt Still Matters!

This paper compares the European Central Bank's (ECB) conduct of monetary policy (1999–2005) with that of the Bundesbank (after the German Unification: 1990–1998) in order to test the hypothesis of an ECB with 'Bundesbank's preferences' put forward in the theoretical literature ( Alesina and Grilli, 1993 ; Fatum, 2006 ). Econometric tests and simulations based on monetary policy reaction functions show that the continuation of the former Bundesbank regime is supported by the data. Given this empirical evidence we discuss the lessons for future Monetary Unions stemming from the ECB experience.     

Social Organization in an Endogenous Growth Model

We develop an endogenous growth model in which individuals form matches in order to consume goods that are not explicitly traded. The matching process endogenously generates a concern for relative wealth and is thereby beneficial for capital accumulation and economic growth. We then study how social segmentation in the matching process affects economic growth. Under strong segmentation, social competition over mates occurs inside homogeneous groups. This homogeneity increases the severity of the "rat race" of wealth accumulation and fosters economic growth.     

New Deal für Deutschland als wirtschaftspolitische Alternative

Mit der Globalisierung und dem technischen Wandel sind Chancen und Risiken verbunden. Wer profitiert von dem ?konomischen Wandel und wer geh?rt zu den Verlierern? Welche Probleme ergeben sich aus einer m?glichen Spaltung der Gesellschaft? Wie sollte die Wirtschaftspolitik auf diese Herausforderungen reagieren? Professor Giacomo Corneo pl?diert für einen „New Deal“. Prof. Dr. Dr. Giacomo Corneo, 43, ist Inhaber des Lehrstuhls für ?ffentliche Finanzen an der Freien Universit?t Berlin.     

Footloose Monopolies: Regulating a "National Champion"

We analyze the design of optimal regulation of a domestic monopolist that also competes in an unregulated foreign market. We show how foreign activities affect regulation, consumers' surplus, national welfare, and firm's profits. Although expansion in unregulated foreign markets amplifies the distortions that are caused by the regulator's limited information, we also show that allowing the firm to compete abroad does not necessarily harm domestic consumers. We analyze if and when the firm's decision to expand abroad coincides with national interests.     

Incentive Regulation of Multinational Enterprises*

Sectors with a long regulatory tradition have recently experienced intense activity by multinationals whose international operations and relocation threats represent a new cause for concern for regulators. I analyze a multinational serving two countries and being regulated by two national authorities. The firm is shown to favor, or cross‐subsidize, the country with a larger stake in the firm's profit, and the linkage among national regulations may induce unexpected effects on outputs. I also analyze a multinational's lobbying decisions and its effects on national regulations. Finally, a credible threat to “fly” away from tough regulators lets the firm obtain larger profits.     

Limited knowledge of demand and oligopoly equilibria

In a standard model of oligopoly with differentiated products, the existence of an equilibrium at which the first-order conditions for profit maximisation are simultaneously satisfied for all firms is proved and this is done without imposing any restrictions on the demand functions. This is an equilibrium in the following sense: although some firms may not necessarily be maximising their profits, nevertheless if each firm's knowledge of demand is limited to the linear approximation of its own demand curve, then it will believe that it is indeed maximising its profits.     

Impact of multiple curve dynamics in credit valuation adjustments under collateralization

We present a detailed analysis of interest rate derivatives valuation under credit risk and collateral modeling. We show how the credit and collateral extended valuation framework presented in Pallavicini et al. [Funding valuation adjustment: FVA consistent with CVA, DVA, WWR, collateral, netting and re-hyphotecation, 2011], and the related collateralized valuation measure, can be helpful in defining the key market rates underlying the multiple interest rate curves that characterize current interest rate markets. A key point is that spot Libor rates are to be treated as market primitives rather than being defined by no-arbitrage relationships. We formulate a consistent realistic dynamics for the different rates emerging from our analysis and compare the resulting model performances to simpler models used in the industry. We include the often neglected margin period of risk, showing how this feature may increase the impact of different rates dynamics on valuation. We point out limitations of multiple curve models with deterministic basis considering valuation of particularly sensitive products such as basis swaps. We stress that a proper wrong way risk analysis for such products requires a model with a stochastic basis and we show numerical results confirming this fact.