Is the Impact of ECB Monetary Policy on EMU Stock Market Returns asymmetric?

This paper investigates whether monetary policy has asymmetric effects on stock returns of the EUM countries at aggregate levels and, for six industry portfolios in France, Italy, Germany, Belgium and Netherlands respectively. In this work, a different measures of monetary policy innovation is adopted. The empirical results, in line with results from previous studies, indicate that for the EUM stock markets there is statistically significant relationship between policy innovations and stock markets returns. This finding is consistent with the hypothesis that positive monetary policy shock (e.g. contractionary policy) is an event that decrease future cash flow. Moreover, the finding from country size and industry portfolios indicate that monetary policy have larger asymmetric effect in industry portfolios of big countries (Italy, France and Germany) compared to the same industry portfolios of small countries (Netherlands and Belgium). However, the sign of the impact is for both groups the same. The policy implications of the analysis can be summarized as follows: if the ECB follows a contractionary monetary policy then the effect on the stock market returns will be lengthier and larger in bear markets. On the other hand, following the same policy, the effect of the ECB actions on the EMU stock markets returns will be smaller in bull markets. The results suggest that monetary policy is not neutral, at least in the short run and, moreover, that there is some role for anticipated ECB monetary policy to affect the stock market but that this role will also have asymmetric impacts on each single EMU country’s stock market.Monetary Policy, Markov-switching, Stock returns.

The Role of Credibility and Fundamentals in a Funded Pension System: A Markov Switching Analysis for Australia and Iceland

Since the turn of the millennium the problem of credibility of the social security system has spread to the private pension funds sector. This is evident for those countries, like Australia and Iceland, that have very large funded pensions assets as a result of strong pension reforms. The problem of trust could prevent pension fund investment from continuing to grow, weakening the privatization of the social security system. The objective of this study is to obtain new insights into the determinants of pension funds. We focus our analysis on the Australian and Icelandic experiences to study the credibility of pension fund performance and, as a consequence, of pension reform. Our credibility indicator is derived from a CAPM time-varying model. It can be used to investigate, using a Markov switching model, the linkages between economic fundamentals and the credibility of pension fund investment and the asymmetric effects of the fundamentals in the two regimes of low and hight credibillity. Our findings make a contribution to modelling policy credibility as a non-linear process with two distinct regimes. We also found large differences in the value of the coefficients for all macroeconomic variables between the low and high credibility regimes. This evidence strongly supports the hypothesis that the effects of macroeconomic fundamental variables on the level of credibility are asymmetric in all countries.Credibility, pension funds, Kalman filter, Markov switching model

Testing for the stability of money demand in italy: has the euro influenced the monetary transmission mechanism?

Money demand, ARDL model, Kalman filter

FINANCIAL CONDITION INDEX AND INTEREST RATE SETTINGS: A COMPARATIVE ANALYSIS

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Determinants of different internal migration trends: the Italian experience

This paper investigates the determinants of interregional migration in Italy for the period 1985-2006, during which different migration trends took place. In so doing, in addition to the traditional variables of Harris and Todaro model, the impact of housing prices and externalities variables were studied. Our results, using a dynamic panel GMM, show that the H-T model, due to the complexity of the internal migration process, omits some important economic and non-economic variables and may not be representative of migration flow in Italy. Furthermore, our analysis confirms our intuition that for different periods we have to take into account different determinants.Interregional Migration, House prices, Income, Unemployment, Italy, Panel Data

Financial Condition Index and interest rate settings: a comparative analysis

In the last thirty years, there has been a widespread move towards financial liberalisation, both within and across national borders. This economic development brought researchers to investigate the link between asset prices, inflation and the conduct of monetary policy. Starting from the seminal work of Alchian and Klein (1973) it is often argued that the forward-looking nature of asset prices makes them good proxies for the information left out of conventional inflation measures. It is also widely accepted that asset price inflation developments are closely associated with general inflation trends. This paper investigates the role of asset prices in the conduct of monetary policy in United States, Canada, Euro Area and United Kingdom. It has two focal points. First, we construct Financial Condition Indexes for four countries using the Kalman Filter algorithm. This methodology allows us to capture the changes of the weights associated with each financial variable in explaining the output gap over time. Second, we proceed by estimating forward-looking Taylor rules augmented for FCI. Our results suggest that the Financial Condition Index enter positively and statistically significant into the FED, Bank of England and Bank of Canada interest rate setting. This gives a positive view for the use of the FCI as an important short term indicator to guide the conduct of monetary policy in three out of four countries analyzed.Financial Condition Index, Optimal Monetary Policy, Taylor rule.

The recessive attitude of EMU policies: reflections on the italian experience, 1998–2008

The EMU assigns a very marginal role to economic policy and relies on the leading idea that, if prices are kept constant, there will be an automatic convergence towards long-run equilibrium income. These beliefs represent the theoretical underpinnings of fiscal and monetary policy strategies in Europe. In order to highlight the weakness of these foundations, the paper evaluates empirically the effects of public expenditure and interest rate setting on equilibrium income in Italy from 1998 to 2008. The analysis supports the conclusions that government spending has a positive impact on national income while inflation targeting has a negative impact. Moreover the empirical evidence shows that a high level of debt does not produce negative effects on GDP. Finally, at a time of financial crisis, these results appear to be reinforced for fiscal policy, but weakened for monetary policy. The paper finally states that the EMU’s rigid rules for both fiscal and monetary policy have recessive attitudes, and limit the use of instruments to deal with high levels of unemployment, definitely undermining the future existence of the single-currency area.Fiscal policy, Monetary policy, EMU, Italy

The recessive attitude of EMU policies: reflections on the italian experience, 1998–2008

The EMU assigns a very marginal role to economic policy and relies on the leading idea that, if prices are kept constant, there will be an automatic convergence towards long-run equilibrium income. These beliefs represent the theoretical underpinnings of fiscal and monetary policy strategies in Europe. In order to highlight the weakness of these foundations, the paper evaluates empirically the effects of public expenditure and interest rate setting on equilibrium income in Italy from 1998 to 2008. The analysis supports the conclusions that government spending has a positive impact on national income while inflation targeting has a negative impact. Moreover the empirical evidence shows that a high level of debt does not produce negative effects on GDP. Finally, at a time of financial crisis, these results appear to be reinforced for fiscal policy, but weakened for monetary policy. The paper draws the conclusion that the EMU’s rigid rules for both fiscal and monetary policy have recessive attitudes, and limit the use of instruments to deal with high levels of unemployment, definitely undermining the future existence of the single-currency area.Fiscal policy, Monetary policy, EMU, Italy

IS THE IMPACT OF ECB MONETARY POLICY ON EMU STOCK MARKET RETURNS ASYMMETRIC?

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