On the international transmission of technology shocks

Using vector autoregressions on U.S. time series and an aggregate of industrialized countries, we find that technology shocks appreciate the terms of trade and lower the trade balance; they induce an ‘S’-shaped cross-correlation function for both variables (the S-curve). In calibrating a prototypical international business cycle model under complete and incomplete financial markets, we find two distinct sets of parameter values. While both model specifications deliver the S-curve, the underlying transmission mechanism of technology shocks is fundamentally different. Most importantly, only in the incomplete markets economy the terms of trade appreciate and thus amplify the relative wealth effects of technology shocks—as suggested by the evidence.     

Monetary policy and financial stability: What role for the futures market?

This paper examines interactions between monetary policy and financial stability. There is a general view that central banks smooth interest rate changes to enhance the stability of financial markets. But might this induce a moral hazard problem, and induce financial institutions to maintain riskier portfolios, the presence of which would further inhibit active monetary policy? Hedging activities of financial institutions, such as the use of interest rate futures and swap markets to reduce risk, should further protect markets against consequences of unforeseen interest rate changes. Thus, smoothing may be both unnecessary and undesirable. The paper shows by a theoretical argument that smoothing interest rates may lead to indeterminacy of the economy's rational expectations equilibrium. Nevertheless, our empirical analysis supports the view that the Federal Reserve smoothes interest rates and reacts to interest rate futures. We add new evidence on the importance for policy of alternative indicators of financial markets stress.     

Bank support and export: evidence from small Italian firms

The ability of a country and its businesses to grow is tightly related to the possibility of exporting and penetrating into foreign markets. The aim of this article is to study whether bank support can help small businesses (SBs) exporting at the extensive as well as the intensive margin. We address this issue by using a large database on small Italian firms. We provide an empirical analysis of the role of bank support in affecting the firms’ export decisions. Our results show that among the exporting SBs those using bank services to support their exports have a higher probability of being better placed in both the intensive and the extensive margin. Moreover, these positive impacts on export are statistically significant only when the main bank of the firm is an internationalized bank. These results have relevant policy implications as well as consequences for the business models of internationalized banks.