FINANCIAL MARKET IMPERFECTIONS AND IRREGULAR GROWTH CYCLES

In this paper we analyze the generation of endogenous growth and irregular fluctuations in a simple New Keynesian model whose background assumptions are borrowed from a class of asymmetric information models popularized by Greenwald and Stiglitz. We extend the framework put forward by Greenwald and stiglitz taking explicitly into account technological progress as the engine of growth. We show how irregular endogenous fluctuations can arise around an endogenous trend: the traditional view of fluctuations as 'short run' phenomena must be abandoned in favour of models of fluctuating growth.     

Forecasting macroeconomic risks

We construct risks around consensus forecasts of real GDP growth, unemployment, and inflation. We find that risks are time-varying, asymmetric, and partly predictable. Tight financial conditions forecast downside growth risk, upside unemployment risk, and increased uncertainty around the inflation forecast. Growth vulnerability arises as the conditional mean and conditional variance of GDP growth are negatively correlated: downside risks are driven by lower mean and higher variance when financial conditions tighten. Similarly, employment vulnerability arises as the conditional mean and conditional variance of unemployment are positively correlated, with tighter financial conditions corresponding to higher forecasted unemployment and higher variance around the consensus forecast.     

When is the optimal lending contract in microfinance state non-contingent?

Whether a microfinance institution should use a state-contingent repayment or not is very important since a state-contingent loan can provide insurance for borrowers. However, the classic Grameen bank used state non-contingent repayment, which is puzzling since it forces poor borrowers to make their payments even under hard circumstances. This paper provides an explanation to this puzzle. We consider two modes of lending, group and individual lending, and for each mode we characterize the optimal lending and supervisory contracts when a staff member (a supervisor) can embezzle borrowers’ repayments by misrepresenting realized returns. We identify the main trade-off between the insurance gain and the cost of controlling the supervisor's misbehavior. We also find that group lending dominates individual lending either by providing more insurance or by saving audit costs.     

Three decades of money demand studies: differences and similarities

Recent empirical contributions on procyclical productivity have focused on the dynamic implications of persistent aggregate fluctuations on sectoral productivity. Given a permanent innovation in aggregate output, unobserved variations of labour (or capital) utilization may have only a transitory effect on measured productivity, whereas external effects should produce permanent effects. It is found that persistent aggregate fluctuations have a permanent effect on productivity of four-digit US manufacturing industries. While a number of alternative explanations of this evidence are discussed and ruled out, the findings are consistent with a simple model with external or thick market effects.     

Does dependence on internal finance help explain the prevailing pattern of manufacturing? The case of the Italian Mezzogiorno

The purpose of the paper is to ascertain a possible relationship between sectorial financial dependence and the regional industrialization pattern in the backward areas of Southern Italy, the so-called Italian Mezzogiorno. The analysis is based on a definition of financial dependence different to that of Rajan-Zingales in that it is determined as the contribution of internal resources to the financing of firm growth and is measured through the estimation of the LPE standard model augmented by the cash flow variable on a large sample of Italian SMEs observed from 2001–2008. The relationship between sectorial measures of financial dependence and composition of manufacturing in Italian Southern regions is then tested; the analysis shows that firms’ shares of the low financial dependence sectors tend to prevail in manufacturing in the Southern regions.     

Does skilled migration reduce investment in human capital? An investigation on educational choices in Italian regions (2001–2016)

This paper investigates the effects of prospective migration on students’ investment in tertiary education. A simple theoretical model is presented in which individual educational choices, different across potential students because of heterogeneity in migration costs, are driven by expected returns and costs of tertiary education. In this framework, a larger probability of after-graduation migration is shown to affect educational choices by both reducing the rate of enrollment at home and favoring pre-graduation migration (i.e., enrollment at universities outside the residence region). The theoretical predictions are confirmed by the empirical investigation carried out on Italian interregional graduate migration in 2001–2016. In the lagging regions of Southern Italy, out-migration of students and graduates, and weak incentives to acquire tertiary education turn out to bring about depletion of local human capital.