Financial Supervision: Integrated or Specialized?The case of Latin America and the Caribbean

This paper discusses the relative merits of the two approaches of financial regulation and supervision for the case of Latin America and the Caribbean (LAC). In doing so, it reviews the main arguments advanced in the specialized literature in pro and against of each approach. All the theoretical arguments are contrasted with available country experiences from around the world and discussed with a focus on the Latin American and Caribbean countries. A methodology to analyze the efficacy and the efficiency of each approach in meeting the main objectives of financial regulation is also provided. The paper concludes that in the present circumstances, the net benefits of adopting an integrated approach probably exceed the net benefits stemming from the adoption of a specialized approach for most of the countries in the region.     

The effects of privatization on corporate R&D units: evidence from Italy and France

Over the last two decades privatization programmes in a variety of different countries have radically reduced the role of the state as a major owner of productive assets. While there is empirical evidence to show that the switch in ownership generally improves productive efficiency and profitability at company level, its effects on research and development (R&D) activities, which can impact strongly on long–term performance, have been largely ignored in the literature.
In this paper we address this issue by analyzing seven cases of privatization that have recently occurred in Italy and France in order to gauge how R&D activities may be affected by privatization in terms of objectives and organization. The organizations studied show that R&D units within privatized companies are subject to profound restructuring actions, generally designed to boost efficiency and to strengthen integration with the goals of the business units and of the final customers. A new role for R&D thus emerges: the aim is no longer to generate new knowledge in the broad national interest, but rather more directly to create value for the company and its clients, by emphasizing the assessment and integration of external knowledge.     

Vacancies, unemployment, and the Phillips curve

The canonical new Keynesian Phillips curve has become a standard component of models designed for monetary policy analysis. However, in the basic new Keynesian model, there is no unemployment, all variation in labor input occurs along the intensive hours margin, and the driving variable for inflation depends on workers’ marginal rates of substitution between leisure and consumption. In this paper, we incorporate a theory of unemployment into the new Keynesian theory of inflation and empirically test its implications for inflation dynamics. We show how a traditional Phillips curve linking inflation and unemployment can be derived and how the elasticity of inflation with respect to unemployment depends on structural characteristics of the labor market such as the matching technology that pairs vacancies with unemployed workers. We estimate on US data the Phillips curve generated by the model. While we can reject the baseline new Keynesian Phillips curve in favor of the search-frictions specification, we show it is still too stylized to fully describe the dynamics of firms’ marginal costs.     

Structure and Location of Innovative Activity in the Italian Economy, 1981–85

An ‘innovative activity matrix’ is established from a recent ISTAT/CNR survey of innovation. After specifying the particularities of an innovative activity matrix in comparison with other flow matrices, we show that it is asymmetrical and clustered in parts of economic space. The structure of the innovative activity matrix is similar to that of the domestic and import requirement but not the capital flow matrix. Strong correlations indicate the following: that input–output analysis is useful for identifying the location of innovative activities in economic space; that it can be analyzed in an economically meaningful way; that its location is structured; and that, furthermore, it is structured in ways which are statistically related to economic activity. The paper ends with suggestions for the examination of possible causal relationships.     

On the relation between ownership dispersion and the firm's market value

Firms with widely-held ownership are relatively few. Shareholders controlling a firm are willing to forego the benefit of portfolio diversification because they can obtain a ‘rent from control’ at the expense of minority shareholders. This entails relevant conclusions for financial theory: (1) the total market value of a closely-held firm is lower, and its cost of capital higher than that of an identical widely-held firm is lower and its cost of capital higher than that of (3) different prices of control and minority shares and disconuities may impede evolution from closely to widely-held ownership.     

Autocorrelation and masked heterogeneity in panel data models estimated by maximum likelihood

In a panel data model with random effects, when autocorrelation in the error is considered, (Gaussian) maximum likelihood estimation produces a dramatically large number of corner solutions: the variance of the random effect appears (incorrectly) to be zero, and a larger autocorrelation is (incorrectly) assigned to the idiosyncratic component. Thus heterogeneity could (incorrectly) be lost in applications to panel data with customarily available time dimension, even in a correctly specified model. The problem occurs in linear as well as nonlinear models. This article aims at pointing out how serious this problem can be (largely neglected by the panel data literature). A set of Monte Carlo experiments is conducted to highlight its relevance, and we explain this unpleasant effect showing that, along a direction, the expected log-likelihood is nearly flat.