Order Dynamics in the Italian Treasury Security Wholesale Secondary Market

MTS markets are an example of quote driven electronic order book markets for Government securities. Proposals are firm, immediately executable and aggregated in a limit order book. In this paper we analyse the evolution of the interaction between the order book and order flow by exploring the determinants of the flows of limit and market orders over three years. We are able to test several hypotheses coming from theoretical models. This is, to our knowledge, one of the first empirical test of these hypotheses based on Government bond data. We find that market and limit orders show positive autocorrelation and clustering as in Biais et al. (1995). No activity is clustered as well. This diagonal effect could also explain the positive impact of book depth near the quote on the flows of new limit orders. On the contrary, depth beyond the second best price seems to play no role in book dynamics. Furthermore, increasing competition, measured as an increase in the number of operators, has a negative effect on orders. In addition, we find mild support to the theoretical prediction of a positive effect of book depth on order aggressiveness. Best spread, instead, behaves consistently with theoretical models: a larger best spread encourages new limit orders inside-thequote.limit order, market order, order flow, liquidity, Government bonds

Measuring and Analyzing the Liquidity of the Italian Treasury Security Wholesale Secondary Market

Although its importance, only recently the issue of liquidity in Treasury markets has received greater attention. We survey the literature about market liquidity and liquidity measures, and we put forward new measures. The aim is to provide a description of the liquidity of the Italian wholesale secondary market, which we describe thoroughly. We apply a large set of measures on a unique dataset, which gives us a complete view of the market. Even though the market provides an amount of liquidity that fits the market needs, the quality of the order book is low, and despite the presence of a large number of market makers, the degree of competition among them is not very high. Moreover, no clear and general relationship emerges between trading and order book measures. Indeed, even though trading activity is higher for on-the-run securities with respect to the off-the-run securities, there is not a sharp difference in terms of liquidity of the order book between them. In this case market regulation plays an important role. Finally, we investigate how long it takes for a new issue to become the benchmark for its segment. Our evidence shows that some modifications of the issuance policy in order to have a larger outstanding since the first auction could help securities in gaining earlier their benchmark status, especially in case of 10-year BTPs.Liquidity, liquidity measures, Government securities, market microstructure, benchmark status.

Political support to public debt repudiation in a Monetary Union - the role of the geographical allocation of debt.

The main arguments for the Stability and Growth Pact turn on the need to protect the European Central Bank against inflationary pressures from the fiscally prodigal countries (repudiation through inflation). Taking a political economy approach, in this paper we inquire into the conditions under which national governments may reach the decision for a partial or total repudiation of their debt. The main result produced by our model is that a debt management policy of lowering effective yields might be the dominant option for a self-interested government whose creditors consist in part of non-residents. On the basis of such result we argue that the impact of the fiscal position of the various member countries on the stability of EMU does not depend on the stock of debt but on the proportion of it that is held abroad.Monetary union; Public debt; Government default; Political economy; Political support; Special interests; Common agency.

Inequality, redistribution and the allocation of public spending in education. A political-economy approach.

The incidence of public expenditure in education appears to be skewed in favour of the middle and upper classes. This paper inquires into the determinants of this bias using a political economy approach. We develop a model with two time periods with an election occurring between the two. In the first period, agents differ in their initial wealth. In the second period, differences in wealth are combined with differences in income. In the first period, the incumbent government issues debt to finance public spending in education and decides how to allocate available resources between primary and tertiary education. Both increase aggregate income, but while investment in primary education reduces income inequality, investment in tertiary education increases it. At the beginning of the second period, a two-party electoral competition is held and probabilistic voting decides the winner. By varying the parameters of the linear income tax, the elected policy-maker can redistribute resources between low and high income individuals, while by choosing a debt default rate she can renege on the promise to fully repay public obligations, redistributing resources from bond-holders to tax-payers. We show that the investment in primary education might not be (politically) viable. Intuitively, investment in primary education, by reducing income inequality with respect to wealth inequality, might increase the desired debt default rate of future policy makers, making issuing debt to finance primary education unfeasible.policy choices in representative democracies, public investment in education, redistribution, government debt repayment.

Italian fiscal policy review 2015

The macroeconomic and distributive impact of the Italian budget policy implemented in year 2015 is the book focus. On one hand, we argue that fiscal consolidation policies jeopardize GDP growth, already very low, and end up delaying the decrease of public debt/GDP ratio. On the other hand, we argue that implemented policies did not bring about any improvement in Italian distributive inequality, which is one of the highest in Europe. Furthermore, two salient issues regarding fiscal policies are addressed: first, the relationship among tax design, growth and employment. Given the total amount of tax revenues, an increase in tax progressivity is shown to boost employment, and a tax shift from income to consumption to raise growth and employment. The second focus is on the measurement of potential output, which is one of the building blocks of European fiscal governance. Two sections show that the European commission methodology is not only scarcely robust or but also inadequate

Le differenze sociali nelle attese di vita. La necessità di un universalismo proporzionale

Italian public pension system will be automatically adjusted to the future variations of life expectancies at late adult age. But will people be healthy enough to work longer? The difference between life expectancy and healthy life expectancy should be considered. Furthermore, the difference between life expectancy and the actual life duration depends not only on random but also on social factors. Taking into account such features of the ageing process implies a reform of pension policies and a reformulation of the same universalism principle

Softer eligibility requirements for the retirement of vulnerable workers and increased smaller amount pensions: income inequality, actuarial fairness

La legge di bilancio per il 2017 ha introdotto varie innovazioni nella normativa pensionistica. I provvedimenti adottati si concentrano su due principali questioni: l’adeguamento delle importo delle pensioni più basse, il requisito di età per il pensionamento. Nel testo si sostiene che la riduzione del reddito non sembra essere il principale obiettivo delle nuove misure. Tuttavia, l’introduzione di requisiti di pensionamento meno severi per i lavoratori impegnati in occupazioni pesanti, difficoltose o usuranti, oppure in condizioni sociali di vulnerabilità rappresenta una innovazione importante nell’ambito delle politiche mirate al contrasto delle disuguaglianze sociali, di fatto il primo tentativo di tenere conto delle diseguaglianze nelle aspettative di vita nell’ambito delle politiche pensionistiche, e di prevedere requisiti di pensionamento più favorevoli per i lavoratori che hanno minore longevità.The Budget Law for 2017 introduced a wide list of innovations in pension rules. The policy measures were focused on two main areas: the value of annuities of smaller amount; the age requirement for retirement. The paper argues that the reduction of income does not seem to be the main aim of the new measures introduced by Budget Law for 2017. However, the measures which apply softer eligibility requirements to workers in harsh occupations and in vulnerable social conditions can be considered innovative measures among the policies aimed at contrasting social inequalities. In fact, they represent the first attempt to take into account the inequalities in life expectancy in social security policy and reserve favourable eligibility requirements to groups of workers who have shorter longevity