Financial Fragility in the Current European crisis

The paper argues that the European financial system in the years following the great financial crisis started in 2007 has become increasingly fragile. Minsky’s notion of fragility, on which it is based, is related to history, policy and institutions. In the current European environment, fragility depends on the rise of shadow banks’ assets, the expansion of derivatives and the changes in financial regulation. All these elements have jointly triggered several feedback loops. In Minsky’s opinion, policies should have the scope of thwarting self-enforcing feedback loops. Yet the policies that have been implemented so far seem to have produced the opposite effects. They have created new feedback loops that nurture fragility again. This outcome, however, is not surprising for policies may change initial conditions and have unintended consequences, as Minsky has taught us since a long time

Business Sector Debt, Capital Markets Expansion and Liberalization in South Korea: Evidence from National Accounts Data

In this work the�sources of investment financing in South Korea in the period 1970-1997 are calculated�following the same method used by Colin Mayer and Jenny Corbett in their influential works. An anomaly of the Korean case is stressed. In the period before the financial crisis of 1997 the gross share of loans in investment finacning does not decrease while the net one�instead does. The reason may be the accumulation of financial (bank and other institutions) assets on the assets side of the corporate sector. This in turn may be due to timing of the�liberalization of interest rates�in that country. Interest rates on banks liabilities were liberalized before interest rates on bank assets. As a consequence of this timing the latter increased to very high levels while the former stayed constant.Investment financing,Financial liberalization,Net proportions,National accounts

Income distribution, growth and financialization: the Italian case.

The paper investigates whether the current decline of the Italian economy could be traced back to financialization. In principle financialization could not be so important for an economy in which many firms are not quoted in the stock exchange and for which shareholders' interests should not matter. The author argues that financialization may have deep effects in such an environment by changing the perceived financial norm and the target return on capital. The author draws on a model by Lavoie (1995) extending it to an open economy. She uses this model by looking at the effects of an appreciation, thus replicating the appreciation of the euro in the last years and its possible effects on the Italian economy. The results of such an appreciation would be a fall in the rate of growth, accumulation and in the realized rate of profit. This picture, however, does not fit in well with some stylized facts. In Italy, the rate of growth and the capital accumulation have slowed down while the rate of profit and the profit share have clearly increased. The increase concerns the average profit share and the average profit rate while indeed the profit rate is declining in the manufacturing sectors, but rising in the services sector. At this point a different interpretation is presented, which is no more based on the financialization hypothesis but rather on the increase in the degree of monopoly power in the Italian industrial sectors, given the increase in the mark-up. This process would have been favoured by the privatization process of previously public enterprises. The author shows what might have happened by using a model by Dutt (1995) with two sectors. In this model in the long-run the accumulation of capital is still governed by aggregated utilization and profitability, but the allocation of capital among sectors and their growth depends on the profit rate differential. The profit rate differential might have shifted resources to the service sectors, which would have been favoured by the privatization process. In this case, financialization would be a consequence of the increase in monopolistic competition, which in turn could be responsible for the decline.

The monetary policy response to the financial crisis in the Euro area and in the United States: a comparison

The paper aims at drawing a comparison between the reactions to the recent financial crisis by the European Central Bank and by the Federal Reserve. Though the tools used have been largely the same, the quality and quantity of the interventions has been very different depending on the different structure of financial markets in the two areas. In particular, the ECB has not replaced private markets that did not work any more as the Federal Reserve did. The policy design behind those interventions is di�erent too. The Federal Reserve through the quantitative easing policy aims at lowering both short term and long term interest rates and has recently stated that this policy may continue in the future. The European Central Bank does not justify in this way its own interventions in the market and apparently seems not have given up its traditional goal, fighting inflation. The evolution of financial markets both in the U.S and in Europe after the crisis reflect different initial conditions and expectations for the future. Thus many differences in the structure of markets and in policy design exist. This, however, will not save Europe from the consequences of future disorders in the Us markets. The crisis spread to Europe largely because of the global dimension of the inter-bank market. Given that the interconnections between European and US banks have survived the financial crisis, nothing ensures that the same thing will not happen again.

On the impact of labor market matching on regional disparities (CORE Discussion Paper 2008/46)

We propose a model where imperfect matching between firms and workers on local labor markets leads to incentives for spatial agglomeration. We show that the occurence of spatial agglomeration depends on initial size differences in terms of both number of workers and firms. Allowing for dynamics of workers' and firms' location choices, we show that the spatial outcome depends crucially on different dimensions of agents' mobility. The effect of a higher level of human capital on regional disparities depends on whether it makes workers more mobile or more specialized on the labor market.

Exchange rate policy and income distribution in an open developing economy

In this work we are going to deal with the issue of the distribution of income in an open economy within a simplified macroeconomic model with constant prices. This type of model could apply to middle-income developing countries, which have succeeded in fighting inflation through a policy of high interest rates. It will be assumed that the implicit target of monetary policy now becomes the exchange rate and interest rates are set at a high level to lower the exchange rate (defined as the price of the foreign currency in terms of the domestic one). Even if this strategy may work it may produce negative effects on output growth and the distribution of income. The lowering of the exchange rate target would have the following effects on distribution. It would cause a reduction in the growth of output, it would lower the wage rate. Domestically-produced income distributed abroad should increase instead. The domestic interest rate would rise only for suitable small values of the parameter, which links imports to income. The effect on the profit share is indeed uncertain.Exchange rate target,Administrative incentive pricing,Income distribution

Exchange rate policy and income distribution in an open developing economy

In this work we are going to deal with the issue of distribution of income in an open economy within a simplified macroeconomic model with constant prices.this type of model could apply to middle-income developing countries, which have succeeded in fighting inflation through a policy of high interest rates.It will be assumed that the implicit target of monetary policy now becomes the exchange rate and interest rates are set to a high level to lower the exchange rate. Even if this strategy may work it may produce negative effects on output growth and the distribution of income.The lowering of the exchange rate target would have the following effects on distribution.It would cause a reduction in the growth of output,it would lower the wage rate.Domestically-produced income distributed abroad should increase instead.The domestic interst rate would rise only for suitable small values of the parameter which links imports to income.The effect on the profit share is indeed uncertain.exchange rate policy balance of payments income distribution developing countries

Negotiating remedies : revealing the merger efficiency gains

This paper contributes to the economic analysis of merger control by taking into account the efficiency gains for the design of structural merger remedies when the competition authorities do not observe the magnitude of efficiency gains. We show that whenever divestitures are necessary, the Competition Authority will need to extract from the merging partners their private information on the merger’s efficiency gains. For this we propose a revelation mechanism combining divestitures with two additional tools, the regulation of the divestitures sale price and a merger fee. We show that an optimal combination of both instruments is effective: the most efficient merged firms are claimed to pay a merger fee while the less efficient divest asets at an upwards distorted sale price.MERGER CONTROL;STRUCTURAL MERGER;REMEDIES;ASYMETRIC INFORMATION

On the Impact of Labor Market Matching on Regional Disparities

We propose a model where imperfect matching between firms and workers on local labor markets leads to spatial agglomeration. We show that the occurrence of spatial agglomeration depends on initial size differences in terms of both number of workers and firms. We analyse the effect of different public policies. In our setting, the effect of a higher level of human capital on regional disparities depends on whether it makes workers more mobile on the labour market or more specialised. Policies that increase workers’ interregional mobility, increase the likelihood that regions diverge. Finally, competition policy is shown to reduce regional disparities.Economic geography, local labor market, regional disparities, human capital

On the Effective Design of the Efficiency Defence

The efficiency defence was long delayed in the European merger control due to costly implementation issues. In this paper we argue that the upstream consequences of the efficiency defence should equally be considered, namely the improvement of the distribution of notified mergers through the incentives it provides towards more efficient mergers. First of all, we show that even if the Competition Authority may not tell apart the mergers that rightfully invoke the efficiency defence from those that do not, allowing such a procedure can lead to a lower post-merger price. Secondly, we study the impact of merger remedies on the incentives conveyed by the efficiency defence, and conclude on the optimal design of the efficiency defence procedure.Merger control, efficiency defence, merger remedies.