Learning from Japan: The European Central Bank and the European Sovereign Debt Crisis

What shapes central banks’ learning from the policy experiments of their peers? Both economic ideas and organizational interests play important roles. Thus, New Keynesian ideas led central banks to interpret Japan's experience with quantitative easing (2001–2006) through the impact on risk spreads, although the Japanese central bank never intended such effects. In turn, scholars and policy-makers alike ignored one critical lesson: successful policy innovations depend on banks’ funding models. It is argued here that this was a crucial omission because the shift to market-based funding impairs the effectiveness of the traditional crisis toolkit. Central banks must intervene directly in asset markets of systemic importance for funding conditions, as the Bank of Japan did by buying government bonds. Hence, market-based finance engenders a trade-off between financial stability and institutional stability defined through central bank independence. During critical periods, central banks cannot preserve both. The ECB illustrates this trade-off well. Early in the crisis, it outsourced financial stability to a (largely) market-dependent banking system to protect its independence. With the introduction of Outright Monetary Transactions in September 2012, the Bank recognized that the market-based nature of European banking required outright purchases of sovereign bonds. This new instrument gave the ECB additional powers to shape national fiscal decisions in the name of an independence that no longer has theoretical justifications.     

Adoption Dynamics in Buyer-Side Exchanges

The purpose of this paper is to understand buyer/seller adoption dynamics in independent, buyer-side B2B exchanges. In a stylized model, we assume that the main role of the exchange is to reduce search costs for buyers. Buyers and sellers enter or exit the exchange based on the relative economic surplus (loss) they receive inside vs. outside the exchange. We contrast two situations: one where participants' switching cost to join the institution is negligible and another, in which it is significant. In an extension, we also explore the impact of buyer/seller heterogeneity on adoption dynamics. We have three key findings with relevant implications for practice. First, we find that the general view that demand and supply (so-called liquidity) either grows or shrinks in the marketplace may not hold. In the presence of switching costs, the exchange can evolve to a stable state with only partial market participation. Second, our results suggest that the exchange is better off subsidizing buyers as opposed to sellers in order to achieve the so-called critical mass, beyond which there is full participation. Finally, we find that while in general, minor buyers of the industry have more incentive joining the exchange, when the fixed participation fee of the exchange is high, it is major buyers who are likely to join first. For sellers, this is not the case: minor sellers are always more keen in participating in a buyer-side exchange.     

Firms' price and wage adjustment in Europe: Survey evidence on nominal stickiness

This paper presents new evidence on the patterns of price and wage adjustment in European firms and on the extent of nominal rigidities. It uses a unique dataset collected through a firm-level survey conducted in 17 European countries and covering various sectors. Several conclusions are drawn from this evidence. Firms adjust wages less frequently than prices, on average every 15 and 10 months, respectively. Price and, especially, wage adjustment exhibit a substantial degree of time-dependence. In particular, wage changes tend to cluster at a specific time of the year, mostly January in the majority of countries. The results of a multivariate analysis indicate that prices are more flexible when competitive pressures in product markets are strong and when labor costs account for a lower fraction of firms' total costs, whereas wages are more flexible when bargaining is decentralized and when the coverage of collective bargaining and the stringency of employment protection legislation are low. Price rigidities are higher in firms with a larger share of high-skilled/white-collar workers.     

Market Structure and Broadband Internet Quality

This paper investigates the effects of the number of firms and their product‐type on broadband Internet quality. We estimate a model that relates the actual speeds delivered, in census block groups to the number of wireline and wireless internet service providers (ISP's), cost and demand conditions, and correction terms for the endogeneity of market structure. Model estimates show four main findings. Wireline speeds are often higher in markets with two or more wireline ISP's than with a single wireline ISP. Excluding the correction terms from the analysis understates this effect. Increases in wireline speeds are larger in the upstream direction, and there is no relationship between wireline speeds and the number of wireless ISP's.     

High-speed Internet access and housing values

A hedonic model is estimated that relates house values to high-speed Internet access while controlling for the potential endogeneity of Internet access. Results show that single-family homes with access to a 25 Mbps broadband connection have a price that is about $5,977, or 3%, more than similar homes in neighborhoods with 1 Mbps. The rural premium is lower at $5,099. A cost-benefit exercise on the viability of rural broadband shows that demand will generally not support private investment, but that the revenue gap from upgrading legacy networks could be readily covered by the Universal Service Fund and other public subsidies.