RESIDUAL WAGE DISPARITY AND COORDINATION UNEMPLOYMENT*

How much of residual wage dispersion can be explained by an absence of coordination among firms? To answer, we construct a dynamic directed search model with identical workers where firms can create high‐ or low‐productivity jobs and are uncoordinated in their offers to workers, calibrated to the U.S. economy. Workers can exploit ex post opportunities once approached by firms, and can conduct on‐the‐job search. The stationary equilibrium wage distribution is hump‐shaped, skewed significantly to the right, and, with baseline parameters, generates residual dispersion statistics 75–90% of those found empirically. However, the model underestimates the average duration of unemployment.     

Raising Capital in an Insurance Oligopoly Market

We consider an oligopoly market where firms offer insurance coverage against a risk characterised by aggregate uncertainty. Firms behave as if they were risk averse for a standard reason of costly external finance. The model consists in a two-stage game where firms choose their internal capital level at stage one and compete on price at stage two. We characterise the subgame perfect Nash equilibria of this game and focus attention on the strategic impact of insurers capital choice. We discuss the model with regard to the insurance industry specificities and regulation.     

Understanding the economic determinants of the severity of operational losses: A regularized generalized Pareto regression approach

We investigate a novel database of 10,217 extreme operational losses from the Italian bank UniCredit. Our goal is to shed light on the dependence between the severity distribution of these losses and a set of macroeconomic, financial, and firm‐specific factors. To do so, we use generalized Pareto regression techniques, where both the scale and shape parameters are assumed to be functions of these explanatory variables. We perform the selection of the relevant covariates with a state‐of‐the‐art penalized‐likelihood estimation procedure relying on L₁‐penalty terms. A simulation study indicates that this approach efficiently selects covariates of interest and tackles spurious regression issues encountered when dealing with integrated time series. Lastly, we illustrate the impact of different economic scenarios on the requested capital for operational risk. Our results have important implications in terms of risk management and regulatory policy.     

Does Central Bank Financial Strength Really Matter for Inflation? The Key Role of the Fiscal Support

This paper examines whether weak central bank finances affect inflation by scrutinizing the key rationale for such a relationship: that the absence of Treasury support makes central bank finances relevant for price stability. Specifically, I ask whether central banks which are not likely to enjoy fiscal support when needed experience higher inflation as their financial situation deteriorates. I find this to be true among a large sample of 82 countries between 1998 and 2008. De facto potential fiscal support appears relevant, while de jure fiscal support, which I survey analyzing 82 central bank laws, does not appear to matter. The results also bring forward an explanation for the conflicting results of the previous empirical studies, which neglected this key component.     

Risky public domestic debt composition in emerging economies

This paper explains why public domestic debt composition in emerging economies can be risky, namely in foreign currency, with a short maturity or indexed. It analyses empirically the determinants of these risk sources separately, developing a new large dataset compiled from national sources for 33 emerging economies over 1994–2006. The paper finds that economic size, the breadth of the domestic investor base, inflation and fiscal soundness are all associated with risky public domestic debt compositions, yet to an extent that varies considerably in terms of magnitude and significance across sources of risk. Only inflation impacts all types of risky debt, underscoring the overarching importance of monetary credibility to make domestic debt compositions in emerging economies safer. Given local bond markets' rapid development, monitoring risky public domestic debt compositions in emerging economies becomes increasingly relevant to global financial stability.     

Modelling risk premia in CO2 allowances spot and futures prices

This article analyzes the modelling of risk premia in CO₂ allowances spot and futures prices, valid for compliance under the EU Emissions Trading Scheme (EU ETS). Similarly to electricity markets, a salient characteristic of CO₂ allowances is that the theory of storage does not hold, as CO₂ allowances only exist on the balance sheets of companies regulated by the scheme. The main result features positive time-varying risk premia in CO₂ spot and futures prices, which are strictly higher for post-2012 contracts (€6–9/ton of CO₂) than for Phase II contracts (€0–6/ton of CO₂). Contrary to Benth et al.'s (2008) for electricity markets, a positive relationship between risk premia and time-to-maturity is found in the EU ETS. As for relative differences between CO₂ futures and spot prices, CO₂ futures traded between + 1% (December 2008 contract) and + 33% (December 2014 contract) above spot prices during February 2008–April 2009. Contrary to Bessembinder and Lemmon (2002) for the electricity market, a positive relationship between risk premia and the variance/skewness of CO₂ spot prices is found. The futures-spot bias to the EU ETS explains around 1–6% of the variance of CO₂ futures premia.     

Critical Geopolitics and the 1950s Bomber Gap

In this paper, I outline three main issues that divide classical and critical geopolitics and offer a critique of the latter. The three issues are (1) criticism, (2) the relative importance of discourses vs. materiality/political economy, and (3) the status of knowledge claims (universal or partial). Through this discussion I present my own view, whose central claim is that versions of critical geopolitics relying to a great extent on discursive analysis should pay more attention to political economic factors. True, most studies in critical geopolitics pay attention to the institutional affiliation of political elites, but very few discuss the workings of the political economic system within which policy is formulated. To illustrate my points empirically, I discuss the bomber gap of the 1950s; the gap refers to the alleged fall of the United States behind the Soviet Union in strategic bombers under Eisenhower, a scare that gave rise to influential discourses describing American military inferiority.     

Time-varying correlations in oil,gas and CO2 prices: an application using BEKK,CCC and DCC-MGARCH models

Previous literature has identified oil and gas prices as being the main drivers of CO₂ prices in a univariate Generalized Autoregressive Conditional Heteroscedasticity (GARCH) econometric framework (Alberola et al., 2008; Oberndorfer, 2009). By contrast, we argue in this article that the interrelationships between energy and emissions markets shall be modelled in a Vector Autoregressive (VAR) and Multivariate GARCH (MGARCH) framework, so as to reflect the dynamics of the correlations between the oil, gas and CO₂ variables overtime. Using the Baba–Engle–Kraft–Kroner (BEKK), Constant Conditional Correlation (CCC) and Dynamic Conditional Correlation MGARCH (DCC-MGARCH) models on daily data from April 2005 to December 2008, we highlight significant own-volatility, cross-volatility spillovers, and own persistent volatility effects for nearly all markets, indicating the presence of strong Autoregressive Conditional Heteroscedasticity (ARCH) and GARCH effects. Besides, we provide strong empirical evidence of time-varying correlations in the range of [?0.3;?0.3] between oil and gas, [?0.05;?0.05] between oil and CO₂, and [?0.2;?0.2] between gas and CO₂, that have not been considered by previous studies. These findings are of interest for traders and utilities in the energy sector, but also for a broader applied economics audience.     

Conjectural variations, symmetric equilibria and economic policy

In this paper, we consider conjectural variations in a simple static general equilibrium model under oligopolistic competition. The modeling of conjectures captures the role played by beliefs in a micro-founded model. So, the economy may have three kinds of symmetric general equilibria. Furthermore, these equilibria can be Pareto-ranked by the conjectural variation parameter. Finally, we consider the implementation of a tax on the strategic behaviors in case of balanced-budget rule. The comparative statics illustrates the idea according to which the effectiveness of the multiplier mechanism to mitigate the market distortions depends on the symmetric equilibrium considered. Therefore, the effect of the tax on the prices and economic activity depends on the degree of market power which is conjectured by the agents.