The innovation–trade nexus: Italy in historical perspective (1861–1939)

This work investigates the relationship between trade and technological specialisation in Italy, during the long time span ranging from Unification to the eve of the Second World War. To do this, new series of Italy’s indices of specialisation in trade and technology are calculated based on official data. Empirical analysis, based on Spearman rank correlation coefficients and fixed-effects regression, shows the emergence of a positive relationship between specialisation in technology and specialisation in trade after the start of the country’s modern economic growth, around the turn of the twentieth century. This, however, was uniquely driven by a negative relationship between technological specialisation and import shares, while no significant relationship between the former and export shares emerges. Furthermore, this finding excludes the most important sector, leading Italian industrialisation, that is, textiles, the outstanding performance of which can be seen as largely determined by its being particularly suited to the country’s factor endowment.     

What lies beneath the euro's effect on financial integration? Currency risk, legal harmonization, or trade?

Although recent research shows that the euro has spurred cross-border financial integration, the exact mechanisms remain unknown. We investigate the underlying channels of the euro's effect on financial integration using data on bilateral banking linkages among twenty industrial countries in the past thirty years. We also construct a dataset that records the timing of legislative-regulatory harmonization policies in financial services across the European Union. We find that the euro's impact on financial integration is primarily driven by eliminating the currency risk. Legislative-regulatory convergence has also contributed to the spur of cross-border financial transactions. Trade in goods, while highly correlated with bilateral financial activities, does not play a key role in explaining the euro's positive effect on financial integration.     

Authors’ Reply: On the Time Value of Ruin - Discussion by F. Etienne De Vylder; Marc J. Goovaerts; David C.M. Dickson; Vladimir Kalashnikov; Gérard Pafumi

Abstract

The qualitative behavior of the optimal premium strategy is determined for an insurer in a finite and an infinite market using a deterministic general insurance model. The optimization problem leads to a system of forward-backward differential equations obtained from Pontryagin’s Maximum Principle. The focus of the modelling is on how this optimization problem can be simplified by the choice of demand function and the insurer’s objective. Phase diagrams are used to characterize the optimal control. When the demand is linear in the relative premium, the structure of the phase diagram can be determined analytically. Two types of premium strategy are identified for an insurer in an infinite market, and which is optimal depends on the existence of equilibrium points in the phase diagram. In a finite market there are four more types of premium strategy, and optimality depends on the initial exposure of the insurer and the position of a saddle point in the phase diagram. The effect of a nonlinear demand function is examined by perturbing the linear price function. An analytical optimal premium strategy is also found using inverse methods when the price function is nonlinear.     

The Theory and Practice of Regulation with Multinational Enterprises

The ability of firms to operate in several markets at the same time is changing regulators' tasks. Regulatory bodies are now having to deal with multinational firms which spread their business activities all over the world. This paper analyzes the theory and practice of regulation in terms of the multinational dimensions of regulated firms. We show that the perceived theory of regulation is indeed affected, and that new issues arise both from a positive and normative point of view.     

Aggregation of exponential smoothing processes with an application to portfolio risk evaluation

In this paper we propose a unified framework to analyse contemporaneous and temporal aggregation of a widely employed class of integrated moving average (IMA) models. We obtain a closed-form representation for the parameters of the contemporaneously and temporally aggregated process as a function of the parameters of the original one. These results are useful due to the close analogy between the integrated GARCH (1, 1) model for conditional volatility and the IMA (1, 1) model for squared returns, which share the same autocorrelation function. In this framework, we present an application dealing with Value-at-Risk (VaR) prediction at different sampling frequencies for an equally weighted portfolio composed of multiple indices. We apply the aggregation results by inferring the aggregate parameter in the portfolio volatility equation from the estimated vector IMA (1, 1) model of squared returns. Empirical results show that VaR predictions delivered using this suggested approach are at least as accurate as those obtained by applying standard univariate methodologies, such as RiskMetrics.     

Modelling systemic price cojumps with Hawkes factor models

Instabilities in the price dynamics of a large number of financial assets are a clear sign of systemic events. By investigating portfolios of highly liquid stocks, we find that there are a large number of high-frequency cojumps. We show that the dynamics of these jumps is described neither by a multivariate Poisson nor by a multivariate Hawkes model. We introduce a Hawkes one-factor model which is able to capture simultaneously the time clustering of jumps and the high synchronization of jumps across assets.     

Tyranny of kindness: Dismantling the welfare system to end poverty in America Theresa Funiciello

The Comment on Wrenn’s article “What is Heterodox Economics?” suggests that the inability of heterodox economists to define their field arises from an as yet unrecognized and different metaphysical foundation than that of orthodox economics.