Understanding the Global Demand Collapse: Empirical Analysis and Optimal Policy Response

The goal of this project is to deeply investigate on the main causes of the global economic and financial crises and, based on a theoretical framework, to describe a suitable optimal monetary policy. According to our empirical analysis (basically based on US data) we will prove that a mix of extraordinary conditions have been crucial for the origin, develop and growth of the recent crisis. In finding what has been the main cause of such collapse we will prove that the credit crunch has played a crucial role, especially as a sort of contractionary monetary policy. We will also discuss the quantitative easing policies implemented by the Central Banks. Finally, we will seek to establish, by using an existing theoretical model and given extraordinary market conditions, in what central banks were wrong, and if so, where they made mistakes.Economic and Financial Crisis, Credit Crunch, Optimal Monetary Policy

Endogenous Business Cycles and Dynamic Inefficiency

This paper explores how the occurrence of local indeterminacy and endogenous business cycles relates to dynamic inefficiency, as defined by Malinvaud (1953), Phelps (1965) and Cass (1972). We follow Reichlin (1986) and Grandmont (1993) by considering a two-period OLG model of capital accumulation with labor-leisure choice into the first-period of agents’ life and consumption in both periods. We first show that local indeterminacy and Hopf bifurcation are necessarily associated with a capital-labor ratio that is, at steady state, larger than the Golden Rule level. Consequently, paths converging asymptotically towards the steady state are shown to be dynamically inefficient, as there always exists another trajectory that starts with the same initial conditions and produces more aggregate consumption at all future dates. More surprising, however, is our main result showing that stable orbits, generated around a dynamically inefficient steady state through a supercritical Hopf bifurcation, may, in contrast, be dynamically efficient.Overlapping generations, endogenous labor supply, multiple equilibria, endogenous fluctuations, dynamic inefficiency

The Dynamics of Parallel Economies. Measuring the Informal Sector in México

The existence of parallel economies that operate in the shadows of informality within most Latin American countries is widely recognized by the economic literature. However, its composition, size and effects on economic growth are still open questions. In this paper, we estimate the size and the evolution of the Mexican informal economy in the last three decades using a vector error correction model. In addition to the standard explanatory variables traditionally used in the currency demand approach, we include remittances given their relevance in the Mexican economic system. The results indicate that informality prior to the late 1980’s accounted for at least two thirds of GDP, while stabilizing around one third of GDP in the last decade. Furthermore, our estimates provide evidence of a positive long run relationship between informality and economic growth.Informal Sector, currency demand, VEC, Remittances

Skill-biased technological change and endogenous labor supply in EU Transition Economies and the US

In this paper skill-biased technological change is linked with endogenous labor supply which allows for unemployment. This is a novel approach, as the literature on skill-biased technological change considers inelastic labor supply. Elastic labor supply allows us to explain how the observed increasing unemployment of unskilled workers is caused by skill-biased technological change. Our numerical analysis shows that if the skill-biased technological change is not followed by the growth of total factor productivity, then output, physical capital stock and consumption decline. Using empirical data on wages and education, we construct a time series for skill-biased technological change for Poland and the US. The empirical relevance of the model is tested by calibrating it to empirical data for Poland over the period 1996-2006 and US over the period 1992-2008. With only two necessary inputs, share of skilled workers in total population and the technology adopted by firms, this model allows to simulate the future behaviour of the labor market.Skill-biased technological change, Endogenous labor supply, Transition Economies

Modelling the Informal Economy in Mexico. A Structural Equation Approach

This paper uses annual data for the period 1970-2006 in order to estimate and investigate the evolution of the Mexican informal economy. In order to do so, we model the informal economy as a latent variable and try to explain it through relationships between possible cause and indicator variables using structural equation modeling (SEM). The model uses tax burden, salary levels, inflation, unemployment and excessive regulation as potential incentives or deterrents for the informal economy. Our results indicate that the Mexican informal sector at the beginning of the 1970’s accounted for 40 percent of GDP, and then it slightly decreased to stabilize around 30 percent of GDP from the late 1980’s onwards. The results also confirm the importance of salaries and excessive regulation as causes of the informal economy in Mexico and the existence of a positive relationship between informality and GDP.Informal Economy, Economic Growth, Structural Equations

Dating EU15 Monthly Business Cycle Jointly Using GDP and IPI

This paper aims at the production of a chronology for the EU15 business cycle by comparing parametric and non-parametric procedures on monthly and quarterly data as well in a combined approach. The main innovation is the joint use of the monthly series for the EU15 Gross Domestic Product (GDP) and the EU15 Industrial Production Index (IPI) from 1970 to 2003. The monthly IPI and the quarterly GDP at the EU15 level have been reconstructed starting from the available national series. The monthly GDP has then been computed using temporal disaggregation techniques. The obtained chronology is directly comparable to ones produced by several authors for the euro area.Business cycle, Chronology, Historical reconstruction, Monthly GDP

Skill-biased technological change, endogenous labor supply and growth: A model and calibration to Poland and the US

In this paper skill-biased technological change is linked with endogenous labor supply in a growth model. Elastic labor supply allows us to explain how the observed increasing unemployment of unskilled workers is caused by skill-biased technological change. Using empirical data on wages and education, we construct the time series for the skill-biased technology for Poland and the US. The empirical relevance of the model is tested by calibrating it to empirical data for Poland over the period 1996-2006 and for the US over the period 1992-2008. Our numerical analysis shows that if the skill-biased technological change is not followed by the growth of total factor productivity, then output, physical capital stock and consumption decline. With only two necessary inputs, namely the share of skilled workers in total population and the technology adopted by firms, this model allows to simulate the future behavior of the labor market

Interaction between foreing financial services and foreign direct investment in transition economies: an empirical analysis with focus on the manufacturing sector

This paper studies the nexus between financial and non-financial foreign direct investment in Transition Economies, which are members of the EU. Three questions, which are pointed out in the theoretical literature, are discussed in the paper. We use a dataset for nine Transition Economies over the period 1996-2007, for most regressions we apply GMM and for one regression 2SLS. The empirical results lead to three important statements: non-financial FDI is positively affected by financial services FDI and by market potential. Foreign banks in the EU Transition Economies are mainly driven by non-financial FDI and the capital intensity of a country. FDI crowds out domestic investment in the manufacturing sector. © 2012 University of Venice

Economic growth and poverty traps in sub-Saharan Africa: The role of education and TFP shocks

SFX Get it!(opens in a new window)|Entitled full text(opens in a new window)|View at Publisher| Export | Download | More... Research in Economics Volume 67, Issue 3, September 2013, Pages 226-242 Economic growth and poverty traps in sub-Saharan Africa: The role of education and TFP shocks (Article) Cazzavillan, G.a , Donadelli, M.b , Persha, L.c a Department of Economics, Ca' Foscari University of Venice, Venice, Italy b Department of Economics and Finance, LUISS Guido Carli, Viale Romania 32, 00197 Rome, Italy c Department of Geography, University of North Carolina at Chapel Hill, NC, United States View references (37) Abstract This paper investigates the ". education-total factor productivity trade-off" in explaining income per worker differences between sub-Saharan (unlucky) and G7 (lucky) economies. First, we examine the dynamics of average years of schooling (i.e. education), capital per worker, income per worker, and total factor productivity (TFP) across sub-Saharan and G7 countries. We confirm that physical capital and education levels partially explain income per worker differences between lucky and unlucky economies. Second, we undertake a novel examination of the impact of technology shocks on income per worker, with the goal of understanding the role of technology variation in causing cross-country income per worker differences, and as a potential contributor to overall slow growth in the sub-Saharan region. In a vector autoregressive (VAR) framework, we show that the impact of ". ad hoc" TFP shocks on income per worker is larger in unlucky economies than in lucky ones. We observe that average TFP volatility in the "unlucky world" is eight times higher than in the "G7 world". We argue that the order of magnitude of the impact heavily depends on the level of the TFP volatility. Last, we suggest that the documented differences in the amount of physical capital and in the productivity of human capital between these two regions add conceptual support for the existence of poverty traps for sub-Saharan Africa