Fiscal policy over the real business cycle: A positive theory

This paper explores the implications of the political economy model of Battaglini and Coate (2008) [8] for the behavior of fiscal policy over the business cycle. The model predicts that fiscal policy is counter-cyclical with debt increasing in recessions and decreasing in booms. Public spending increases in booms and decreases during recessions, while tax rates decrease during booms and increase in recessions. In both booms and recessions, fiscal policies are set so that the marginal cost of public funds obeys a submartingale. When calibrated to the US economy, the model broadly matches the empirical distribution of debt and also its negative correlation with output. However, the predictions of pro-cyclical spending and counter-cyclical taxation do not find empirical support. The calibrated model generates the same fit of the data as a benevolent government model in which the government faces an exogenous lower bound on debt. Nonetheless, the two models have very different comparative static implications.     

International Trade and Unemployment—the Worker‐selection Effect

This paper investigates the labor market effects of trade liberalization. We incorporate trade unions and heterogeneous workers into the Melitz framework. Workers differ with respect to their abilities. Our main findings are: (i) trade liberalization harms low‐ability workers, they lose their job and switch to long‐term unemployment (worker‐selection effect); (ii) high‐ability workers are better off in terms of both higher wages and higher employment; (iii) if a country is endowed with a large fraction of low‐ability workers, trade liberalization leads to a rise in aggregate unemployment—in this case, trade liberalization may harm a country's welfare; (iv) the overall employment and welfare effect crucially hinges on the characteristics of the wage bargain.     

Traveler segmentation strategy with nominal variables through correspondence analysis

Travel research is increasingly exploring the role of qualitative elements in mobility behaviors, beyond customarily considered factors such as the socioeconomic status of travelers or the characteristic and performances of transport systems. More recent travel surveys are thus increasingly collecting non-metric information through categorical variables such as opinions, which is difficult to exploit with the most widely used analytical tools. The present paper assesses the potential of a nonparametric analysis technique little used in transport research, namely correspondence analysis, in order to define a set of different customer profiles regarding stated mode choices. Data coming from an attitudinal travel survey administered to a representative sample of the population of the city of Novara (Italy) are used to this effect. The resulting clusters are quite informative and policy relevant, mainly because they are based on a variety of metric and nominal variables which would be less easy to consider when using more standard multivariate techniques such as cluster analysis, and also because not all the observation need to be forcedly classified. A simple modal choice modeling exercise illustrates how the derived market segments can provide guidance to improve the results of a standard quantitative analysis, while keeping a low computational complexity. Our study shows the usefulness of the proposed methodology in a transport policy decision-making context.     

An agent-based model of payment systems

We lay out and simulate a multi-agent, multi-period model of an RTGS payment system. At the beginning of the day, banks choose how much costly liquidity to allocate to the settlement process. Then, they use it to execute an exogenous, random stream of payment orders. If a bank's liquidity stock is depleted, payments are queued until new liquidity arrives from other banks, imposing costs on the delaying bank. We study the equilibrium level of liquidity posted in the system, performing some comparative statics and obtaining insights on the efficiency of alternative system configurations.     

After‐tax Valuation of Convertible Bonds and Participation Exemption

This paper studies the after‐tax valuation of convertible bonds in the light of Europe's participation exemption (PEX) rules and International Financial Reporting Standards (IFRS). The focus is on Italy's representative case. PEX rules exempt from company taxation capital gains realized by companies selling stocks. PEX rules raise the value of convertibles as investor companies can strategically convert the bond into stock to enjoy PEX. Historical cost‐based national accounting standards imply taxation upon realization and valuable tax timing options (TTOs). ‘Fair value’ based IFRS entail mark‐to‐market taxation, which ‘kills’ TTOs, but investor companies can convert the bond early in order to enjoy PEX. Early conversion can be valuable.     

Rising trends and variability of rice prices: Threats and opportunities for sub-Saharan Africa

Nearly 40% of the rice consumed in Africa is imported. That is about one third of all rice traded in world markets. With such high dependence on imports, Africa is highly exposed to international market shocks with sometimes grave consequences for its food security and political stability as attested by events during the 2008 food crisis. In this paper, it is argued that Africa can turn the rising trends in world markets to a historical opportunity to realize its large potential for rice production. After a review of the policy responses of African countries to the 2008 global rice crisis, the opportunities and challenges for enhancing domestic rice supply are discussed. The competitiveness of rice production in Africa is analyzed for selected countries and rice ecologies. The potential for increasing paddy production is illustrated using a spreadsheet simulation that considers alternative rice sector development scenarios. Reducing the yield gap and expanding cultivated rice areas under lowland and irrigated hold the greatest potential for substantially increasing paddy production in Africa.     

A Model of Commodity Differentiation with Indivisibilities and Production

This paper presents an existence theorem in a general equilibrium model of a production economy with commodity differentiation and indivisibilities. The model is motivated by the existence of markets with indivisible commodities, such as the markets for automobiles and computers. As is standard in the literature, the space of commodity characteristics is described by a compact metric space and a commodity vector is described by an integer-valued Borel measure on the space of commodity characteristics. An atomless measure space of producers and consumers is assumed to overcome the problem of non-convexity of the production and consumption sets induced by indivisibilities. This paper is based on a chapter from James Marton’s dissertation. We would like to thank Marcus Berliant, Wilhelm Neuefeind, and an anonymous referee for their valuable comments and suggestions.     

Financial and economic determinants of firm default

This paper investigates the relevance of financial and economic variables as determinants of firm default. Our analysis covers a large sample of medium-sized limited liability firms. Since default might lead, through bankruptcy or radical restructuring, to firm’s exit, our work also relates to previous contributions on industrial demography. Using non parametric tests we assess to what extent defaulting firms differ from the non-defaulting group. Bootstrap probit regressions confirm that economic variables, in addition to standard financial indicators, play both a long and short term effect. Our findings are robust with respect to the inclusion of Distance to Default and risk ratings among the regressors.     

A note on the sensitivity analysis of the internal rate of return

In this note we discuss the sensitivity analysis of the internal rates of return (IRR). We show that the use of partial derivatives can be misleading in the identification of key drivers of an investment project's performance. To remedy this shortcoming, we propose the use of an alternative sensitivity measure called the Differential Importance Measure. The analysis shows that, even if the theoretical conditions for using the Net Present Value or the IRR as valuation criteria apply, the sensitivity analysis results for the two indicators may differ.