The macroeconomic impact of Basel III on the Italian economy

This paper provides an assessment of the costs of complying with Basel III for the Italian economy. The main findings are the following. For each percentage point increase in the capital ratio implemented over an eight-year horizon, the level of GDP would decline by 0.00-0.33% (0.03-0.39% if credit rationing is also accounted for), corresponding to a reduction of annual output growth in the transition period of 0.00-0.04 percentage points (0.00-0.05 percentage points if credit rationing is considered as well). Compliance with the new liquidity standards causes an additional slowdown of annual GDP growth of at most 0.02 percentage points. If banks felt forced to speed up the transition to the new capital rules by the beginning of 2013, the fall in output would be larger and would take place beforehand. Long-run costs of achieving the new capital standards are even lower, slightly less than 0.2%; those needed to comply with the target liquidity ratio are of a similar size. The above estimates suggest that the economic costs of Basel III are not huge and become negligible if compared with the potential benefits that can be reaped from reducing the frequency of systemic crises and the amplitude of boom-bust cycles.Basel III, Modigliani-Miller theorem, flow/stock costs of equity finance, capital/liquidity requirements

Is money informative? Evidence form a large model used for policy analysis

In this paper we assess whether monetary variables, which are observed with little delay, conveyed marginal information on the state of the Italian economy in the 1990s, taking as a benchmark the forecasting errors generated by the quarterly model used by the Bank of Italy. We follow two approaches. First we map monetary surprises into estimates of the structural disturbances using a Kalman filter approach, in order to improve the forecasts. Then we look at the sample correlations among forecasting errors in monetary and real variables, thereby taking into account links that may not be accounted for by the modelÂ’s structure. We find that bank interest rates have a strong information content. Monetary aggregates play no role according to the first approach; according to the second approach they do, but the economic interpretation of this finding is not straightforward. All in all, the results highlight the role of financial prices and quantities as indicators of the state of the economy. However, they do not imply a mechanical policy reaction to this information, as both the strength and the sign of the relationship between the surprises in monetary and real variables depend on the source of the shocks.monetary aggregates, information variables, Kalman filtering, forecasting

Is money informative? Evidence from a large model used for policy analysis

In this paper we assess whether monetary variables convey marginal information on the state of the Italian economy, taking as a benchmark the forecasting errors generated by the quarterly model used by the Bank of Italy in the 1990s. We follow two alternative approaches. First we map monetary surprises into estimates of the structural disturbances using a Kalman filter approach, in order to improve the forecasts. Then we look at the sample correlations among forecasting errors in monetary and real variables. We find that bank interest rates have a strong information content. Monetary aggregates play no role according to the first approach; according to the second approach they do, but the sign of their effect is counterintuitive. All in all, the results highlight the role of financial prices and quantities as indicators of the state of the economy but they do not imply a mechanical policy reaction to this information, as both the strength and the sign of the relationship between the surprises in monetary and real variables depend on the source of the shocks.monetary aggregates, information variables, Kalman filter, forecasting

Modelling Italian potential output and the output gap

The aim of the paper is to estimate a reliable quarterly time-series of potential output for the Italian economy, exploiting four alternative approaches: a Bayesian unobserved component method, a univariate time-varying autoregressive model, a production function approach and a structural VAR. Based on a wide range of evaluation criteria, all methods generate output gaps that accurately describe the Italian business cycle over the past three decades. All output gap measures are subject to non-negligible revisions when new data become available. Nonetheless they still prove to be informative about the current cyclical phase and, unlike the evidence reported in most of the literature, helpful at predicting inflation compared with simple benchmarks. We assess also the performance of output gap estimates obtained by combining the four original indicators, using either equal weights or Bayesian averaging, showing that the resulting measures (i) are less sensitive to revisions; (ii) are at least as good as the originals at tracking business cycle fluctuations; (iii) are more accurate as inflation predictors.potential output, business cycle, Phillips curve, output gap

Neuromodulated plasticity of the connectivity between the Prefrontal Cortex and the noradrenergic Locus Coeruleus

Incentive stimuli and environmental stressors are encoded at the level of the prefrontal cortex (PFC) circuits, which send their glutamatergic excitatory projections to several neuromodulatory regions, including the Locus Coeruleus (LC), the major source of noradrenaline (NA) for the entire forebrain. Despite the potential implications for NA-mediated regulation of action control and for the etiology of stress-related neuropsychiatric conditions, it remains to be established how LC neuronal activity is shaped by impinging PFC inputs (PFC\uf0e0LC) to affect behavior, and whether these inputs are modulated by in-vivo experience. By combining neurophysiological and optogenetic approaches together with behavioral paradigms in mice, we found that PFC \uf0e0LC stimulation supports learning and retrieval of contextual memory associations. Consistent with the occurrence of plasticity processes at LC synapses, long-lasting modulation of PFC\uf0e0LC projections relies on the endocannabinoid (eCB)-mediated signaling capacity, which is dynamically shaped by context adaptations and stress salience experiences. We also found that eCB-plasticity at PFC \u2192 LC synapses is regulated during the adolescence to adulthood transition. In summary, our results not only dissect the behavioral implications of neuromodulated plasticity at PFC inputs to the LC, but also unveil divergent synaptic substrates during postnatal development, which might be relevant to explain some of the different noradrenergic-mediated response in adolescents and adults. \u200

Characterization of the neocortical network excitability with multielectrode arrays: alterations in migraine and epilepsy mouse models.

missin

Learning, monetary policy and asset prices

The dissertation examines several policy-related implications of relaxing the assumption that economic agents are guided by rational expectations. A first, introductory chapter presents the main technical issues related to adaptive learning. The second chapter studies the implications for monetary policy of positing that both the private sector and the central bank form their expectations through adaptive learning and that the central bank has private information on shocks to the economy but cannot credibly commit. The main finding of this chapter is that when agents learn adaptively a bias against activist policy arises. The following chapter focuses on large, non-linear models, where no unambiguous linear approximation eligible as perceived law of motion exists. Accordingly, there are heterogeneous expectations and the system converges to a misspecification equilibrium, affected by the communication strategies of the central bank. The main results are: (1) the heterogeneity of expectations persists even when a large number of observations are available; (2) the monetary policymaker has no incentive to be an inflation hawk; (3) partial transparency enhances welfare somewhat but full transparency does not. The final chapter adopts a model in which agents are fully informed and use Bayesian techniques to estimate the hidden states of the economy. The monetary policy stance is unobservable and state-independent, generating uncertainty among agents, who try to gauge it from inflation: a change in consumer prices that confirms beliefs reduces stock risk premia, while a change that contradicts beliefs drives the risk premia upward. This may generate a negative correlation between returns and inflation that explains the Fisher puzzle. The model is tested on US data. The econometric evidence suggests: (1) that a mimickingportfolio proxying for monetary policy uncertainty is a risk factor priced by financial markets; and (2) that conditioning on monetary uncertainty and fundamentals eliminates the Fisher puzzle

Dealing with forward-looking expectations and policy rules in quantifying the channels of transmission of monetary policy

The issue of appraising the transmission process through which monetary policy affects the economy is receiving wider and increasing attention. In Europe, much of the interest in the effects of monetary policy is arguably a reflection of the introduction of the single currency: to the extent that transmission mechanism differ significantly across euro area countries, heterogenous responses of economic activity and prices to the policy instrument should be expected, an occurrence whose policy implications are of major relevance. To gain some insight into the likely causes of those differences recent studies have attempted to identify and assess separately the channels of transmission of monetary policy. This paper proposes a simple methodology to quantify separately the different parts of the overall impulse response that are transmitted through the various mechanisms at play in a model of the economy. It is shown that, under the maintained assumption of linearity, the decomposition of the effects of monetary policy into a number of channels delivered by our approach is exact (i.e., it leaves no unexplained residual). This conclusion holds regardless of the nature of the expectation formation mechanism and the way in which policy decisions are modelled. The features of the proposed approach are illustrated with an empirical application, using a model that features two distinct transmission channels and assumes rational expectations and a monetary policy reaction rule. We show that our approach produces an exact decomposition of the effects of a monetary policy shock. Moreover, and perhaps more interestingly, our approach gives a deeper insight than do standard impulse responses into the specific features of the model that are most relevant in shaping its observed reaction to the shock.Monetary policy transmission channels, decomposition

Characterization of the neocortical network excitability with multielectrode arrays: alterations in migraine and epilepsy mouse models.

missin