Distribution of wealth and incomplete markets: Theory and empirical evidence

This paper analyses the equilibrium distribution of wealth in an economy where firms’ productivities are subject to idiosyncratic shocks, returns on factors are determined in competitive markets, households have linear consumption functions and government imposes taxes on capital and labour incomes and equally redistributes the collected resources to households. The equilibrium distribution of wealth is explicitly calculated and its shape crucially depends on market incompleteness. With incomplete markets it follows a Paretian law in the top tail and the Pareto exponent depends on the saving rate, on the net return on capital, on the growth rate of population, and on portfolio diversification. The characteristics of the labour market crucially affects the bottom tail, but not the upper tail of the distribution of wealth in the case of completely decentralized labour market. The analysis also suggests a positive relationship between growth and wealth inequality. The theoretical predictions find a corroboration in the empirical evidence of United States in the period 1989-2004.     

THE DRIVERS OF INCOME INEQUALITY IN RICH COUNTRIES

Rising income inequality has recently come centre‐stage as a core societal concern for rich countries. The diagnosis of the forces driving inequality upwards and their relative importance remain hotly contested, notably with respect to the roles of globalization versus technology and of market forces versus institutions and policy choices. This survey provides a critical review and synthesis of recent research. The focus is on income inequality across the entire distribution, rather than only on what has been happening at the very top. We pay particular attention to include what has been learned from the analysis of micro‐data, to ensure that the coverage is not unduly US‐centric and to analyses of the interrelations between the different drivers of inequality. The marked differences in inequality trends across countries and time periods reflect how global economic forces such as globalization and technological change have interacted with differing national contexts and institutions. Major analytical challenges stand in the way of a consensus emerging on the relative importance of different drivers in how income inequality has evolved in recent decades.     

On the Stability of Euro Area Money Demand and Its Implications for Monetary Policy

We employ a recent time‐varying cointegration test to revisit the usefulness of long‐run money demand equations for the ECB, addressing the issue of their instability by means of a model evaluation exercise. Building on the results, we make a twofold contribution. First, we propose a novel stable money demand equation relying on two crucial factors: a speculative motive, represented by domestic and foreign price‐earnings ratios, and a precautionary motive, measured by changes in unemployment. Second, we use the model to derive relevant policy implications for the ECB, since excess liquidity looks more useful for forecasting stock market busts than future inflation. Overall, this evidence points to (i) a possible evolution of the monetary pillar in the direction of pursuing financial stability and (ii) the exclusion of a sudden liquidity–driven inflationary burst after the exit from the prolonged period of unconventional monetary measures.     

Density forecast comparisons for stock prices,obtained from high‐frequency returns and daily option prices

This paper presents the first comparison of the accuracy of density forecasts for stock prices. Six sets of forecasts are evaluated for DJIA stocks, across four forecast horizons. Two forecasts are risk‐neutral densities implied by the Black–Scholes and Heston models. The third set are historical lognormal densities with dispersion determined by forecasts of realized variances obtained from 5‐min returns. Three further sets are defined by transforming risk‐neutral and historical densities into real‐world densities. The most accurate method applies the risk transformation to the Black–Scholes densities. This method outperforms all others for 87% of the comparisons made using the likelihood criterion.     

Practical wisdom: A virtue for leaders. Bringing together Aquinas and Authentic Leadership

This article analyzes in detail the virtue of practical wisdom as described by Thomas Aquinas, and on this basis it develops a comprehensive framework to enrich Authentic Leadership theory, establishing the virtue of practical wisdom as foundational for the authentic leader’s behavior and character development, and highlighting shortfalls that may stem from vices opposed to it. The goal of the article is two-fold: First, it seeks to fill a void on the role of virtues–and in particular practical wisdom–in leadership studies; second, it aims to show how cultivating the virtue of practical wisdom as described by Aquinas promotes the development of exactly those traits that are characteristic of an authentic leader, offering a set of propositions delineating these correlations.     

The money creation process: A theoretical and empirical analysis for the United States

The aim of this paper is to assess—on both theoretical and empirical grounds—the two main views regarding the money creation process, namely the endogenous and exogenous money approaches. After analysing the main issues and the related empirical literature, we will apply a vector autoregression model and a vector error‐correction model methodology to the United States for the period 1959–2017 to assess the causal relationship between a number of critical variables that are supposed to determine the money supply, that is, the monetary base, bank deposits, bank loans and the nominal level of economic activity. The empirical analysis supports several propositions related to the endogenous money approach. In particular, it shows that for the United States in the years 1959–2017 (a) bank loans determine bank deposits and (b) bank deposits in turn determine the monetary base. Our conclusion is that money supply is mainly determined endogenously by the lending activity of commercial banks and the nominal level of economic activity.     

The endogeneity of the natural rate of growth in the regions of Italy

Following León‐Ledesma and Thirlwall (2002a León‐Ledesma, M.A. and Thirlwall, A.P. 2002a. The endogeneity of the natural rate of growth. Cambridge Journal of Economics, 26: 441–59. [Crossref], [Web of Science ®] [Google Scholar]), this paper examines the hypothesis that the natural rate of growth of the Italian regions is endogenous to and positively affected by the actual growth rate. Relying on fixed‐effects and SUR estimation techniques and using annual data for the 20 Italian regions over the period 1977–2003, we find strong support for the endogeneity hypothesis suggesting that faster actual growth raises the natural rate of growth of the average Italian region by about 3–3.7 percentage points. Furthermore, in line with recent findings in the literature, our analysis provides evidence of asymmetries in Okun’s Law. In particular, the asymmetric Okun coefficient in the high‐growth regime turns out to be positive in several cases, implying the unemployment rate may become pro‐cyclical when actual growth rises above a certain threshold rate.     

The sibling effect on the consumption of phone services

The peer effect is a relevant issue in studies on consumption habits and consumers’ behaviour. Indeed, the extant literature shows that peers and siblings affect individual decisions and choices, as people generally follow peers’ and siblings’ examples. In other words, people imitate their peers. Starting from the existing theoretical models and empirical evidence that suggest a relevant impact of peers on one's decisions, this article analyses how the presence and the gender of siblings affects one's consumption of phone services. I consider a sample of 500 European undergraduate students. In order to isolate the peer effect, I restrict the analysis to the use of the phone for talking with friends. The results show highlight a strong sibling effect, whose magnitude and whose sign depend on both the gender of the siblings and on that of the interviewee.     

With a Little Help from My Enemy: Comparative Advertising as a Signal of Quality

We extend the theory of advertising as a quality signal   using a model where an entrant can choose to advertise by comparing its product to that of an established incumbent. Comparative advertising, comparing quality of one's own product to that of a rival's, empowers the latter to file for court intervention if it believes the comparison to be false or misleading. We show that comparative advertising can be a signal in instances where generic advertising is not viable.     

Measuring contagion and interdependence with a Bayesian time-varying coefficient model: An application to the Chilean FX market during the Argentine crisis

We use a Bayesian time-varying coefficient model to measurecontagion and interdependence, and we apply it to the ChileanFX market during the 2001 Argentine crisis. The proposed frameworkworks in the joint presence of heteroskedasticity and omittedvariables, without knowledge of the crisis timing prior to theempirical analysis. It can distinguish between contagion andinterdependence, as well as between unusually strong or weakmarket comovements. In a "natural" experiment based on our application,we find that the proposed framework works well in practice.In the application, we find evidence of some contagion fromArgentina and some interdependence with Brazil.