On Monetary Analysis of Derivatives

Financial derivatives are products whose price is linked with that of an underlying asset. The relationship between these two prices has been studied in depth, and the following conclusions have been reached: (1) the volatility of underlying asset's price decreases after the introduction of derivatives, (2) the price discovery effect improves, (3) the liquidity of the underlying asset's market increases, (4) the bid-ask spread decreases together, and (5) the noise component of prices decreases. Those results are microeconomic and are not coherent with a macroeconomic analysis of derivatives. Derivatives tend to change the effectiveness of monetary policy actions by modifying the instruments that can be used. Derivatives have a monetary nature that has not been yet recognized by central banks and international organizations such as the International Monetary Fund and the Bank for International Settlements. This monetary nature can be evident by testing the relationship between derivatives and the interest rate. The consciousness of the monetary nature of derivatives would impose the quantification of transactions at least by the institutions that hold them, such as banks and other financial operators, and consequently by national authorities.     

Modeling the Reforms of the Common Agricultural Policy for Arable Crops under Uncertainty

The size of the insurance and wealth effects of a change in the Common Agricultural Policy (CAP) for arable crops is estimated. The impact of price uncertainty is accounted for in the specific decision-making structure of the European Union (EU) arable crop producers under nonlinear mean-variance risk preferences. A system of output supply, input demand, and land allocation equations is estimated on a sample of Italian specialized arable crop farms. The simulation of the impact of the recent reforms confirms that farmers' output responses are consistently affected by the size of the insurance and wealth effects.     

A Short Overview of a Methodology for the Ex-Post Review of Merger Control Decisions

Summary  This paper is based on a study commissioned by the European Commission, in which we proposed a detailed methodological approach for the ex-post assessment of decisions reached by the European Commission in the field of merger control. The methodology focuses on how to establish whether the market structure arising from the decision is apt to protect consumer welfare better than the market structures that could have arisen from alternative decisions. It provides suggestions on how assess the impact of the decision relative to the possible counterfactuals and discusses the empirical techniques that can be used to perform this evaluation.     

Testing the Links between Institutional Integration and Trade Deepening: Clues from Europe

This paper investigates the interaction between institutional integration and trade deepening in the EU over the last 50 years. It uses Granger causality tests, a VECM and variance decompositions to further the understanding of this interaction. The evidence indicates two-way endogeneity. But the link from institution building to trade dominates. Yet, this link has weakened over time, possibly due to globalisation sidestepping institutions. Moreover, the sensitivity of institutional integration to trade deepening has risen, which suggests that economic forces have gained more strength in determining institutional steps.

Homoclinic bifurcation and global indeterminacy of equilibrium in a two-sector endogenous growth model

This paper considers an endogenous growth model that belongs to the same family as the Lucas model. In the Lucas model an external effect appears in the physical-goods sector, whereas in our model, it appears in the educational sector. In our model, this external effect yields multiple balanced growth paths. Our model undergoes a homoclinic bifurcation and exhibits global indeterminacy of equilibrium.