Debt stabilisation and dynamic interaction between monetary and fiscal policy: In medio stat virtus

Recent literature has focused on studying how fiscal and monetary authorities in a monetary union can interact during a debt stabilisation process. This literature shows that only exogenous shocks or differences among countries determine deviations from the target level of macroeconomic variables in the steady state equilibrium. This paper aims to reformulate such modelling in a time setting, assuming that policy authorities do not coordinate and cannot perfectly predict the decisions made by their counterpart. This paper shows that simple decision processes driven by the best response mechanism or adaptive expectations do not guarantee convergence to steady-state equilibrium. Instead, persistent fluctuations in the level of macroeconomic variables and policy instruments may emerge if the relative weight given by the fiscal authority to the components of its objective function, namely, debt stability and output stability, is too unbalanced

Benefici, problemi e prospettive dell’integrazione monetaria in Europa

This article discusses European monetary integration, recalling the benefits and the costs of the euro for the Member States. It reviews the policies adopted in the wake of the financial crisis and discusses the associated challenges. An outlook on the possible long-term design of monetary policy is provided, mainly in terms of EU coordination processes

Quince años de integración monetaria en Europa

The experience of the euro-zone is evaluated after fifteen years of existence and of the debt crisis. There are highlighted both the benefits and the problems that the introduction of the Euro has brought to the countries participants and are considered to be the perspectives of the zone. Some historical precedents of the union are checked, his benefits are discussed, in terms of placement in the monetary international system and of implementation of the monetary politics, and the adopted solutions are analyzed and the perspectives distinguish themselves for the zone

The macroeconomic impact of organized crime: a neo-Kaleckian perspective

The paper analyzes how organized crime affects the economy through its impact on the effective demand, following the Neo-Kaleckian approach. From this perspective, the presence of organized crime, on the one hand, tends to reduce the effective demand draining resources through extortion, bribery of public officials and encouraging consumption of criminal goods (illegal goods and goods produced in the underground economy), on the other hand, tends to increase the effective demand using the proceeds of criminal activity in the purchase of legal consumption and investment goods. The model highlights the opposing action of these two forces and identifies the conditions for a negative impact on the degree of capacity utilization and the growth rate. For the latter, these conditions tend to be more stringent, due to the direct impact of organized crime on investment decisions. Overall, the operation of organized crime tends to negatively influence the economic activity to the extent that the income drained from the legal sector is not reused into the same sector

The macroeconomic impact of organized crime: a neo-Kaleckian perspective

The paper analyzes how organized crime affects the economy through its impact on the effective demand, following the Neo-Kaleckian approach. From this perspective, the presence of organized crime, on the one hand, tends to reduce the effective demand draining resources through extortion, bribery of public officials and encouraging consumption of criminal goods (illegal goods and goods produced in the underground economy), on the other hand, tends to increase the effective demand using the proceeds of criminal activity in the purchase of legal consumption and investment goods. The model highlights the opposing action of these two forces and identifies the conditions for a negative impact on the degree of capacity utilization and the growth rate. For the latter, these conditions tend to be more stringent, due to the direct impact of organized crime on investment decisions. Overall, the operation of organized crime tends to negatively influence the economic activity to the extent that the income drained from the legal sector is not reused into the same sector

TARGET2 imbalances and the need for a lender of last resort

This paper analyses the issue of the dynamics of the TARGET2 system balances during the sovereign debt crisis. The development of these balances reflects the change in the distribution of the monetary base among the EMU Member States. During the sovereign debt crisis, while some countries, among which Germany, registered a decisive inflow of monetary base, some others, as Italy, shown an outflow. The main conclusion of the paper is that the dynamics in TARGET2 is rather due to a fall in the level of confidence in the capacity of the EMU to survive than to disparities in the level of competitiveness among countries of the Eurozone as a part of the literature maintained. In turn, this crisis of confidence has to be considered as the consequence of the implicit refusal of the European institutions of creating a mechanism working as “lender of last resort” for the Eurozone Member States. Two elements, in particular, support this thesis. On the one hand, most of the monetary base outflow occurred in coincidence with those political decisions which determined deterioration in the expectation about the degree of solvency of the periphery countries. On the other hand, the fiscal consolidation that the periphery countries implemented destabilized the economy as a result of a negative conjuncture and a monetary policy ineffective in reducing the interest rate

Financial Development and Agglomeration

The New Economic Geography (NEG) literature has paid little attention to the role of the banking industry in affecting where firms decide to locate their business. Within the framework of the NEG, this paper aims to fill this gap by studying the impact of the degree of regional financial development on the spatial distribution of economic activity. In order to explore this issue, we modify the standard Footloose Entrepreneur (FE) model by introducing a banking sector, while preserving all the other usual assumptions. We show that the existence of a banking sector enhances the agglomeration forces; so that, when regions are symmetric, a Core-Periphery outcome is more likely. When regions are characterised by different levels of financial development this result is reinforced and entrepreneurs are more likely to migrate towards the region where the banking sector is characterized by a higher degree of competition / lower degree of concentration and the interest rate is lower

Causes and timing of the European debt crisis: An econometric evaluation

According to the literature, two main factors sparked the European debt crisis: (1) macroeconomic imbalances originated by national governments and (2) institutional design flaws leading to feeble response by European authorities; still, economists disagree on the factors' strength. Using Bai and Perron's technique, we contribute to the debate by identifying break dates in Greece, Italy and Spain daily values of 10-year public bonds’ interest rates and link them to key political and institutional events. Also, employing GARCH and EGARCH models, we investigate how interest rates spreads' volatility reacted to crucial and long-lasting events. Our results uncover the following facts about the crisis: a) it began in May 2010, while the first aid programme for Greece was approved; b) worsened after summer 2011, as the European authorities hastened restructuring the Greek sovereign debt; c) improved only during summer 2012, when the ECB Governing Council approved a programme for the purchase of sovereign bonds. On the whole, our results point at institutional failures as the main cause of the European debt crisis

Il conflitto politico tra capitalisti e lavoratori in un modello neokaleckiano di crescita e distribuzione del reddito

The Political Conflict between Capitalists and Workers in a Neokaleckian Model of Growth and Income Distribution (by Francesco Purificato) - The paper aims to analyse the impact on the economy of the fiscal policy affected by the political conflict between capitalists and workers. In the short run this conflict rises because the social classes compete for not bearing the costs connected with the public expenditure and for appropriate of its benefit. The paper shows the necessary conditions such that a fiscal policy aimed to promote the capitalists’ interest or the workers’ interest determines a positive or negative effect on the demand level and the capital accumulation

Monetary policy and financial stability in the euro area

Following the financial crisis, a new theoretical framework has emerged, in which monetary policy aims at price stability and macro-prudential policy aims at financial stability. In 2014, the European in-stitutions established the Single Supervisory Mechanism (SSM) to pursue the objective of financial sta-bility. The new institutional arrangement provides for micro-prudential policy under the direct control of the ECB and macro-prudential policy under the responsibility of NCAs and the supervision of the ECB. The essay presents a literature review and a simple analytical model to assess this new institu-tional design. Despite a still incomplete reform process, as the decision-making process lacks total transparency and the regulatory field is not levelled, the literature review supports the view that the SSM promotes financial stability in the Euro area. According to our model, we positively assess the new institutional framework: an increase in the efficiency of prudential policies to face financial risks allows the ECB to pursue the objective of financial stability without compromising the goal of output stability