Common Currencies vs. Monetary Independence

We study the optimal monetary policy in a two-country open-economy model under two monetary arrangements: (a) multiple currencies controlled by independent policy makers; (b) common currencies with a centralized policy maker.
Our findings suggest that: (i) monetary policy competition leads to higher long-term inflation and interest rates with large welfare losses; (ii) the inflation bias and the consequent losses are larger when countries are unable to commit to future policies; (iii) the welfare losses from higher long-term inflation dominates the welfare costs of losing the ability to react optimally to shocks.     

Macroeconomic Effects of Asset‐Price Shocks in a Globalized Financial Market

In this paper, I study a model in which shocks to asset prices affect the real sector of the economy through a credit channel. As financial markets become internationally integrated, the economy becomes less vulnerable to domestic asset‐price shocks, but more vulnerable to foreign asset‐price shocks. To the extent that monetary policy stabilization is feasible and desirable, the globalization of financial markets shifts the focus of monetary policy from domestic asset prices to worldwide asset prices.     

INTERGENERATIONAL TRANSMISSION OF ABILITIES AND SELF‐SELECTION OF MEXICAN IMMIGRANTS*

This article presents an intergenerational self‐selection model of migration and education that is capable of explaining the evolution of earnings and education across three generations of immigrants. By structurally estimating the model, it is possible to quantify the sacrifices made by the first generation of Mexican immigrants for the benefits of future generations. In particular, the estimation results suggest that there is a significant one time loss of human capital of immigrants upon migration, that migrants are positively selected from the ability distribution, and that they transmit substantial human capital to their children. Finally, the model is used to evaluate the effects of social policies designed to reduce the “brain drain” from Mexico to the United States.     

A signalling model of school grades under different evaluation systems

We examine the role of school grades as a signal of worker productivity under different examination systems in relation to errors that may affect student performance. Firms use school grades as a signal of workers’ effective skills, taking into account that these evaluations are effected by stochastic shocks. We show that more precise evaluation systems, being associated with a higher reactivity of wages to school grades, induce students to provide more effort. Low ability students tend to react less than high ability students. Moreover, individuals with low abilities may prefer less accurate evaluation systems. Nevertheless, when productivity increases, these systems become less convenient and the number of individuals preferring them diminishes. Our analysis highlights an important trade-off between centralised and decentralised evaluation systems. On the one hand, frequent evaluations, typical of decentralised systems, weaken the impact on grades of those errors which influence student performance and, so, reduce signal noise, while, on the other hand, different teachers generally adopt different performance assessment standards, leading to noisier evaluations.     

Reflections on discriminant validity: Reexamining the Bove et al. (2009) findings

Bove, Pervan, Beatty and Shiu (2009) develop and test a latent variable model of the role of service workers in encouraging helpful behaviors by customers towards the service business (OCBs). Farrell (2010) questions these findings due to an incorrect application of the Fornell and Larcker (1981) discriminant validity test. The authors respond to Farrell's criticism by discussing the options available for assessing discriminant validity, the current use of these options in top journals, the underlying assumptions of these assessments, and the appropriateness of the alternative assessments under different types of situations. Finally, the authors address the specific concerns raised in Farrell (2010) in regard to Bove et al. (2009).     

On a variational formulation used in credit risk modeling

We consider the credit risk model of Collin-Dufresne and Goldstein (2001). According to this model, the price of a defaultable bond can be efficiently computed using a variational formulation that consists of an integral relation and a Volterra integral equation. In Collin-Dufresne and Goldstein (2001) this integral equation is justified by a probabilistic intuition, but is not proven formally. In this paper we analytically derive the variational formulation used in Collin-Dufresne and Goldstein (2001). This analysis allows to give a correct characterization of the solution of the integral equation. Furthermore the approach proposed in this paper could also be employed for other models of credit risk.     

Equality of opportunity and the expansion of higher education in the UK

Using nine waves of data from Understanding Society (UKHLS), we study the expansion of higher education in the UK and its consequences for levels of and inequalities in income, physical and mental health. University expansion was characterized by a large increase in the proportion of graduates, with higher rates of graduation among individuals from more advantaged socioeconomic backgrounds. Having controlled for birth cohort and lifecycle effects, there is evidence of significant inequality of opportunity (IOp) in the actual outcomes. However, comparing actual outcomes with counterfactual projections, that freeze the likelihood of university graduation and the joint distribution of graduation and circumstances to the pre-1963 levels, we do not detect an impact of the expansion of higher education on IOp in income and only small reductions in IOp in physical and mental health.     

Environmental,Social and Governance investing: Does rating matter?

In the last decade, the demand for sustainable and social investments has improved. The mutual funds industry has responded to market needs by offering a number of investment products focused on Environmental, Social and Governance (ESG) companies. The aim of this article is to understand if an ESG score can actually be considered a valid criterion that portfolio managers could adopt, along with traditional risk–return optimisation, in selecting asset portfolios. The paper analyses the link between the performance and the ESG score of different sectoral portfolios (one for each sector of the Global Industry Classification Standard), entirely composed of ESG assets, in the search for a clear and strong positive correlation that could suggest an overall advantage to focus on an ex ante choice of assets with high ESG scores.