Uncertainty and the Cost of Reversal

For standard irreversibility theory the prospect of acquiring better information in the future should induce more flexible decisions: the “irreversibility effect”. This result relies on the definition of an irreversible position as one that would be technically or economically impossible to reverse. In practice, many positions can be reversed at an affordable cost. In this case an increase in informativeness alone is not enough to bias decisions in favour of more flexibility. We look for restrictions on decision sets, information structures and preferences that make possible to study the effect of information on flexibility. JEL Classification No: D81, D9     

VRP revisited: The impact of behavioural costs in balancing standardisation and variety

The objective of this paper is to bring a new element to the academic (and industrial) debate concerning the optimum level of variety in component design in mass production companies. Many authors have explored the trade-off between functional and variety costs, and this could be considered as a well-acknowledged management issue, at least from an engineering perspective. Nevertheless, while defining the theoretically optimal level of component variety, there are other elements, more related to operators’ attitude or to operative conditions, which may intervene and prevent effective exploitation of the existing variety. These elements have been given scant attention in literature, while they may play a relevant role in real organisations.In this paper, we will present a case study and an analytic model for these “behavioural costs” in manufacturing environments, so as to show how the theoretically optimal amount of variety changes if one takes into account these aspects. Researchers (and practitioners) might leverage on this contribution in order to rejuvenate the Variety Reduction paradigm, and to increase their awareness in designing and managing mass production manufacturing processes.     

Fitting dynamic factor models to non-stationary time series

Factor modelling of a large time series panel has widely proven useful to reduce its cross-sectional dimensionality. This is done by explaining common co-movements in the panel through the existence of a small number of common components, up to some idiosyncratic behaviour of each individual series. To capture serial correlation in the common components, a dynamic structure is used as in traditional (uni- or multivariate) time series analysis of second order structure, i.e. allowing for infinite-length filtering of the factors via dynamic loadings. In this paper, motivated from economic data observed over long time periods which show smooth transitions over time in their covariance structure, we allow the dynamic structure of the factor model to be non-stationary over time by proposing a deterministic time variation of its loadings. In this respect we generalize the existing recent work on static factor models with time-varying loadings as well as the classical, i.e. stationary, dynamic approximate factor model. Motivated from the stationary case, we estimate the common components of our dynamic factor model by the eigenvectors of a consistent estimator of the now time-varying spectral density matrix of the underlying data-generating process. This can be seen as a time-varying principal components approach in the frequency domain. We derive consistency of this estimator in a “double-asymptotic” framework of both cross-section and time dimension tending to infinity. The performance of the estimators is illustrated by a simulation study and an application to a macroeconomic data set.     

Nutrition and growth in Italy, 1861-1911: What macroeconomic data hide

We investigate how nutritional status responded to economic growth in Italy during 1861-1911. By combining household-level data on food consumption with population censuses, we estimate that the incidence of undernutrition decreased by at least 15% between 1881 and 1901. Income elasticity of calories in 1901 was in the range of 0.3-0.6, varying inversely with the level income. Overall, our findings do not support the pessimists’ view, ubiquitous in the Italian literature. On the contrary, the early phase of Italian industrialization was beneficial to the bulk of the population, and even more so for the poorest among the poor.     

Revisiting the European Monetary System Experience: Were Some Members More Equal than Others?

Difficulties in implementing effective liquidity support – to counter speculative attacks – may partly explain why regional exchange rate agreements crawl regional trade integration. Our novel analysis of the European Monetary System confirms that liquidity support was provided under the discretion of the anchor country (Germany), and was indeed asymmetric across member countries and/or periods. In particular, it was less forthcoming (i) to countries further away from Germany (less politically influential there), (ii) to larger countries (interfering more with the Bundesbank's monetary control) and (iii) during periods when German inflation accelerated (and the Bundesbank needed a firmer grip on liquidity).     

Monetary Union, institutions and financial market integration: Italy, 1862–1905

Years into the single currency, EMU financial markets are not fully integrated. We argue that the phenomenon can be better understood by looking at financial markets’ behavior in the wake of Italy’s monetary unification (1862). Variables such as the spread of the telegraph, trade volumes, and the diffusion of the ‘single currency’ fail to explain why it took 25 years for prices across regional stock exchanges to converge. A single Italian financial market appeared only when the State prevailed upon local vested interests by enforcing nation-wide financial market legislation.     

Competition among regulators and credit market integration

We analyze the incentives for independent bank regulators with financially integrated jurisdictions to form a regulatory union. Externalities lead competing regulators to choose suboptimally low standards. Centralized regulation, however, entails a loss of flexibility if equal standards must be applied across jurisdictions. We find that, first, centralized regulation will more likely emerge among relatively homogeneous jurisdictions/countries. Second, centralized regulation will be unanimously preferred to independence only if it entails standards higher than those of the country with the highest individual standards. Third, financial integration among more than two jurisdictions may prevent partial unions, which, in turn, may prevent more comprehensive agreements.     

A survey of cross-sectional and time-series literature on factors affecting child welfare

This paper reviews the literature on the socio-economic determinants of child welfare. Cross-sectional evidence is first analysed. The relevant literature is subdivided into four groups of studies depending on the main factors influencing child welfare: demographic; related to family circumstances; related to health care and sanitation; and economic. The very few time-series studies on this subject are then examined. While the existing literature does not allow definitive conclusions to be drawn on the predominance or relative importance of these four sets of factors, this paper identifies three related research areas for which particularly severe gaps seem to emerge and for which additional investigation appears necessary. These are: over-time studies, studies for low-income, high-mortality countries of Africa, for middle-income countries and for high-income, high-mortality countries, and studies measuring impact on the basis of indicators of welfare other than infant mortality rates.     

Determinants of systematic volatility of corporate bonds

This paper examines the association between betas of corporate bonds and their duration, coupon, maturity, agency rating, and other attributes. The data consist of monthly returns of 386 bonds, from January 1973 to June 1976. Betas are generated with the S&P 500 Index, a corporate bond index, and a U.S. bond index. The chief conclusions are the following: 1) Systematic volatility and its determinants differ according to the index; 2) betas formed with an equity or corporate bond index are negatively related to rating; and 3) duration is superior to coupon and term in explaining beta.