External Imbalances and Fiscal Fragility in the Euro Area

This paper presents two views of the European sovereign debt crisis. The first is that countries in the South of the Eurozone were fiscally irresponsible and failed to implement pro-competitive supply side policies. The second view holds that the crisis reflects a deep divide between the external surpluses of the North and external deficits of the South. Basic stylized facts cast doubt on the explanation based on the first thesis alone. A relatively simple model shows how poor fundamentals can create a debt problem independently of fiscal responsibility. The empirical analysis of the determinants of government bond yield spreads relative to Germany suggests that both views in fact provide useful insights into the roots of the current sovereign crisis. However, differences in growth and competitiveness and capital flows between North and South have assumed a much more dominant role since the onset of the global crisis.     

Trade credit in SMEs: a quantile regression approach

This article analyses the determinants of the trade credit in Spanish manufacturing small and medium-sized enterprises (SMEs) from a new perspective. Specifically, we focus on the relationship between trade credit and other relevance financial resources: bank credit and self-financing. For the first time in the literature, a quantile regression approach is used, which takes into account the heterogeneity of firms in different quantiles of trade credit distribution. Our results show that the relationship between trade credit and other financial sources presents dissimilarities, including differences in sign, on SMEs with different degrees of trade credit. Our findings help to clarify the confusing results achieved in previous research on this topic.     

Is allowing trading enough? Making secondary markets in spectrum work

The debate on spectrum reforms has mostly focused on the choice between a property rights and a commons regime. This article argues that moving to a property right system requires careful attention to details in order to avoid that “micro” rather than “macro” factors may prevent efficient trades from taking place. It provides a framework to conduct this assessment, identifies a number of possible concerns and puts forward some solutions.     

Beyond Eurosclerosis

Europe no longer suffers from Eurosclerosis; unemployment, notably long-term unemployment, had decreased substantially for more than a decade. Mobility across labour market states increased in those countries where unemployment has been falling the most. Institutional reforms -- such as declining employment protection for new entrants in the labour market and less generous unemployment benefits -- account for this increase in mobility. Focusing on these reforms, we rationalize why EU workers, including those with permanent contracts, are increasingly unhappy about labour market conditions in spite of the disappearance of mass unemployment in Europe. Due to these perceptions, policy reversals cannot be ruled out. Governments wishing to minimize the risk of going back to Eurosclerosis should move towards flexicurity configurations, compensating workers for higher risks of job loss, and introduce tenure tracks to the labour market, preventing the development of dual labour market structures. This would avoid dissipating the employment gains of the last decade during this recession.
--- Tito Boeri and Pietro Garibaldi     

Resources, innovation and growth in the global economy

The relative performance of open economies is analyzed in an endogenous growth model with asymmetric trade. A resource-rich country trades resource-based intermediates for final goods produced by a resource-poor economy. The effects of an increase in the resource endowment depend on the elasticity of substitution between resources and labor in intermediates' production. Under substitution (complementarity), the resource boom generates higher (lower) income, lower (higher) employment in the primary sector and faster (slower) growth in the resource-rich economy. In the resource-poor economy, the shock induces a higher (lower) relative wage and positive (negative) growth effects that are exclusively due to trade.     

Net Neutrality in Europe: Desperately seeking a market failure

Net Neutrality has become the focus of attention in the regulatory debate on the Internet. This article attempts to strip down the debate to its bare essential. It identifies two main types of Net Neutrality obligations that have been put forward and assesses what type of potential concerns they may be designed to address. It concludes that while some of these concerns may be important it remains doubtful (at least in Europe) that an ex ante per se rule, such as those proposed under the Net Neutrality term, is the best way to address them.     

Market makers as information providers: The natural experiment of STAR

Market makers are financial intermediaries who are supposed to provide additional liquidity, but do not have any information-related obligation. This paper studies the unique case of the Italian Stock Exchange, where market makers are also obliged to facilitate information disclosure about the firms they cover. We focus on a group of small/medium capitalization stocks (STAR) that are assigned a designated market maker (DMM) starting from 2001. We show that their liquidity requirements are not binding during the sample periods and that the main impact of DMMs' introduction is due to their obligations on information provision. We find that DMMs' activity as information providers reduces spread and price volatility, the probability of informed trading (PIN), and the adverse selection component of the spread. An event study provides evidence that the information released through DMMs is perceived as useful by market participants.     

Factor-eliminating technical change

Perpetual growth requires offsetting diminishing returns to reproducible factors of production. In this article we present a theory of factor elimination. For simplicity and clarity, there is no augmentation of non-reproducible factors, thus excluding the standard engine of growth. By spending resources on R&D, agents learn to change the exponents of a Cobb–Douglas production function. We obtain the economy's balanced growth path and complete transition dynamics. The theory provides a mechanism for the transition from an initial technology incapable of supporting perpetual growth to one with constant returns to reproducible factors that supports it.     

The influence of the institutional context on corporate illegality

This paper examines the relationship between the institutional environment and sustained corporate illegality. We find that cognitive assumptions generate expectations that can, under specific circumstances, induce organizations to amplify illegal actions and that serve to lessen regulatory scrutiny. We also find that, once initiated, illegal actions can become hidden because of institutionalized practices that enable their concealment and that weaken the prospect of detection. These processes and effects are particularly noticeable in networks of professional regulators who become mutually over-confident and over-influenced by each other to the extent that their independent critical assessments and judgements are compromised. Mechanisms of mimetic herding and social humiliation compromise independence of judgement. Networks of interacting professionals are thus vulnerable to a collectively induced lowering of regulatory vigilance.     

Rational panics and stock market crashes

This paper offers an explanation for stock market crashes which focuses on the role of rational but uninformed traders. We show that uninformed traders can precipitate a price crash because as prices decline, they surmise that informed traders received negative information, which leads them to reduce their demand for assets and drive the price of stocks even lower. The model yields several implications, such as that crashes can occur even when the fundamentals are strong, and that the magnitude of the crash depends on the fraction of uninformed investors and the amount of unsophisticated passive investing present in the market.