Do Institutions and Culture Matter for Business Cycles?

We examine the relationship between cyclical fluctuations and macroeconomic, institutional, and cultural indicators for 46 countries from Europe and the Mediterranean basin. In the Mediterranean cycles are different: the duration of expansions is shorter; the amplitude of recessions is larger; and cyclical synchronization is smaller than elsewhere. Differences in cultural indicators have strong and significant associations with differences in the persistence and volatility of cyclical fluctuations and their synchronization.     

A Methodological Note on Long-Period Positions

This brief paper seeks to overcome a number of methodologicaldisagreements among economists who use the long-period methodof analysis. In particular, it attempts to clarify the key distinctionsbetween convergence and stability, convergence and gravitationand chronological and theoretical persistence. The conclusionis that the theoretical soundness of the long-period methoddepends on the convergence of actual magnitudes towards theirlong-period counterparts, an empirical issue to which theoreticalconsiderations of stability are irrelevant.     

One‐Way Compatibility,Two‐Way Compatibility and Entry in Network Industries

We study the strategic choice of compatibility between two initially incompatible network goods in a two‐stage game played by an incumbent and an entrant firm. Compatibility may be achieved by means of a converter. We derive a number of results under different assumptions about the nature of the converter (one‐way vs two‐way), the existence of property rights and the possibility of side payments. With incompatibility, entry deterrence occurs for sufficiently strong network effects. In the case of a two‐way converter, which can only be supplied by the incumbent, incompatibility will result in equilibrium unless side payments are allowed and the network externalities are sufficiently low. When both firms can build a one‐way converter and there are no property rights on the necessary technical specifications, the unique equilibrium involves full compatibility. Finally, when each firm has property rights on its technical specifications, full incompatibility is observed at the equilibrium with no side payments; when these are allowed the entrant sells access to its network to the incumbent which refuses to do the same and asymmetric one‐way compatibility results in equilibrium.     

Risk measures with the CxLS property

In the present contribution, we characterise law determined convex risk measures that have convex level sets at the level of distributions. By relaxing the assumptions in Weber (Math. Finance 16:419–441, 2006), we show that these risk measures can be identified with a class of generalised shortfall risk measures. As a direct consequence, we are able to extend the results in Ziegel (Math. Finance, 2014, http://onlinelibrary.wiley.com/doi/10.1111/mafi.12080/abstract) and Bellini and Bignozzi (Quant. Finance 15:725–733, 2014) on convex elicitable risk measures and confirm that expectiles are the only elicitable coherent risk measures. Further, we provide a simple characterisation of robustness for convex risk measures in terms of a weak notion of mixture continuity.     

Optimal liquidation strategies regularize portfolio selection

We consider the problem of portfolio optimization in the presence of market impact, and derive optimal liquidation strategies. We discuss in detail the problem of finding the optimal portfolio under expected shortfall (ES) in the case of linear market impact. We show that, once market impact is taken into account, a regularized version of the usual optimization problem naturally emerges. We characterize the typical behavior of the optimal liquidation strategies, in the limit of large portfolio sizes, and show how the market impact removes the instability of ES in this context.     

Patterns and determinants of international fragmentation of production: Evidence from outward processing trade between the EU and Central Eastern European countries

Patterns and Determinants of International Fragmentation of Production: Evidence from Outward Processing Trade between the EU and Central Eastern European Countries. — In this paper we investigate a specific form of international fragmentation of production, that is, the form giving rise to international trade for reasons of processing. Data on textile and apparel trade between EU countries and Central European countries show that the magnitude of trade for reasons of processing greatly overshadows that of final trade. The industry appears to be affected by a process of international fragmentation whose understanding requires a new definition of the concept of comparative advantage. Our analysis suggests that this fragmentation is activated by labor cost differentials as well as by reasons of geographic and cultural proximity.     

On Lipschitz continuity of the iterated function system in a stochastic optimal growth model

This paper provides qualitative properties of the iterated function system (IFS) generated by the optimal policy function for a class of stochastic one-sector optimal growth models. We obtain, explicitly in terms of the primitives of the model (i) a compact interval (not including the zero stock) in which the support of the invariant distribution of output must lie, and (ii) a Lipschitz property of the iterated function system on this interval. As applications, we are able to present parameter configurations under which (a) the support of the invariant distribution of the IFS is a generalized Cantor set, and (b) the invariant distribution is singular.     

Back to square one: Identification issues in DSGE models

We investigate identification issues in DSGE models and their consequences for parameter estimation and model evaluation when the objective function measures the distance between estimated and model-based impulse responses. Observational equivalence, partial and weak identification problems are widespread and typically produced by an ill-behaved mapping between the structural parameters and the coefficients of the solution. Different objective functions affect identification and small samples interact with parameters identification. Diagnostics to detect identification deficiencies are provided and applied to a widely used model.     

Is the emperor wearing new clothes? A social assessment of the European Union 2007–2013 financial framework

ABSTRACT

Over the years, European leaders have proudly waved a social flag as one of the European Union’s (EU) constituent and differentiating elements. This commitment is assessed here through the social footprint of the European 2007–2013 multiannual financial framework among the EU countries and, worldwide, using an extended multiregional input–output model. The focus is on the quantity and the quality of income and jobs generated. We find that well-known differences among its northern, southern and eastern regions threaten the EU’s intentions for high social standards, enabling first- and second-class winners. Core EU countries account for the most of the Funds and, thus, most of the positive economic and social impacts, mainly through spillovers from peripheral regions. Beyond the EU borders, Funds expenditures induce capital compensation boosts in emerging countries not balanced by a similar labor compensation impulse. Indeed, China captures the bulk of low-skilled and temporary employment.