What is this thing called confidence? A comparative analysis of consumer confidence indices in eight major countries

The paper examines the evolution of consumer confidence indices in Australia, Canada, France, Germany, Italy, Japan, the United Kingdom and the United States of America since the 1970s, by modelling them in a multivariate framework of common macroeconomic variables for each country. Results suggest that: (a) the main economic determinants of consumer confidence cannot be summarized only on the basis of some macroeconomic variables; (b) consumer confidence indices have some ability to forecast economic activity, provided that both their coincident nature is taken into account and that a number of data-coherent parameter restrictions are imposed. A number of analyses (both insample and out-of-sample) are devoted to assessing the robustness of previous findings.consumer confidence determinants, GDP indicator, in-sample and out-of-sample forecasting ability

An Investment-Function-Based Measure of Capacity Utilisation. Potential Output and Utilised Capacity in the Bank of Italy's Quarterly Model

Measures of potential output and the output gap are increasingly being developed and used to concisely quantify and monitor the risk of price accelerations stemming from rises in aggregate demand that are not met by a corresponding increase in supply. They often play a prominent role in the price determination mechanisms of macroeconometric models. In this paper we build a measure of potential private-sector value added for the Italian economy that is consistent with the capital accumulation process in the Banca d’Italia’s Quarterly Model — and more generally with the rest of the supply-side block of that model. More specifically, we exploit the fact that the investment function can be thought of as a relationship transforming desired gross additions to capacity output into capital accumulation by means of a conversion factor (the optimal capital/output ratio). Thus, if one removes the component of investment decisions that stems from changes in the relative price of the production factors (i.e., in the optimal capital/output ratio), then a measure of the desired gross addition to capacity may be constructed.The results draw a cyclical picture of the degree of capacity utilisation for the period 1970-1997 that is roughly in line with those produced by the Wharton and Hodrick-Prescott filter approaches, as well as with the pictures resulting from the ISAE, IMF, European Commission and OECD measures of the output gap. Our investment-function-based measure appears to be a promising indicator of the pressure exerted on prices by demand accelerations. Its empirical properties are, on the whole, acceptable and plausible.

Some Further Evidence about Magnification and Shape in Neural Gas

Neural gas (NG) is a robust vector quantization algorithm with a well-known mathematical model. According to this, the neural gas samples the underlying data distribution following a power law with a magnification exponent that depends on data dimensionality only. The effects of shape in the input data distribution, however, are not entirely covered by the NG model above, due to the technical difficulties involved. The experimental work described here shows that shape is indeed relevant in determining the overall NG behavior; in particular, some experiments reveal richer and complex behaviors induced by shape that cannot be explained by the power law alone. Although a more comprehensive analytical model remains to be defined, the evidence collected in these experiments suggests that the NG algorithm has an interesting potential for detecting complex shapes in noisy datasets

The Evolution of Confidence for European Consumers and Businesses in France, Germany and Italy

The paper examines the evolution of consumer and business confidence indexes in France, Germany and Italy since the mid-eighties, using regressions of the indexes on a set of common macroeconomic variables for each country. Comparison of the results across agents (i.e. consumers and entrepreneurs in the same country) and across countries highlights some differences in behaviour that have emerged in the last fifteen years. In particular, the paper inquires into the causes of the recent break in the relationship between the consumer and business confidence indexes.firms and consumers confidence index

Lender of Last Resort and Bank Closure Policy

During the last decades a consensus has emerged that it is impossible to disentangle liquidity shocks from solvency shocks. As a consequence the classical lender of last resort rules, as defined by Thornton and Bagehot, based on lending to solvent illiquid institutions appear ill-suited to this environment. We summarize here the main contributions that have developed considering this new paradigm and discuss how institutional features relating to bank closure policy influences lender of last resort and other safety net issues. We devote particular emphasis to the analysis of systemic risk and contagion in banking and the role of the lender of last resort to prevent it.lender of last resort, systemic risk, contagion, bank closure, liquidity, discount window

Diversification and Ownership Concentration

We consider a mean-variance general equilibrium economy where the expected returns for controlling and non-controlling shareholders are different because the former are able to divert a fraction of the profits. We find that when investor protection is poor, asset return correlation affects ownership structure in a positive way. Higher return correlation lowers the benefits of diversification which causes a higher investment by the controlling shareholder in his asset and a lower investment by the non-controlling shareholders. The empirical analysis supports the predictions of the model. In particular, controlling for measures of the quality of the investor protection, the legal origin of the countries, and other structural variables as in a previous study by La Porta et al. (1998) we find that equity ownership is significantly more concentrated in countries where stock return correlation is higher, and that the magnitude of this effect is larger in countries where investor protection is poorer.corporate governance, investor protection, private benefits, diversification opportunities

Banking Regulation and Prompt Corrective Action

We explore the rationale for regulatory rules that prohibit banks from developing some of their natural activities when their capital level is low, as epitomized by the US Prompt Corrective Action (PCA). This paper is built on two insights. First, in a moral hazard setting, capital requirement regulation may force banks to hold a large fraction of safe assets which, in turn, may lower their incentives to monitor risky assets. Second, agency problems may be more severe in certain asset classes than in others. Taken together, these two ideas explain why, surprisingly, capital regulation, which may cope with risk and adverse selection, is unable to address issues related to moral hazard. Hence, instead of forcing banks to hold a large fraction of safe assets, prohibiting some types of investment and allowing ample scope of investment on others may be the only way to preserve incentives and guarantee funding. In particular, providing incentives to monitor investments in the most opaque asset classes may prove to be excessively costly in terms of the required capital and thus inefficient. We show that the optimal capital regulation consists of a rule that a) allows well capitalized banks to freely invest any amount in any risky asset, b) prohibits banks with intermediate levels of capital to invest in the most opaque risky assets, and c) prohibits undercapitalized banks to invest in any risky asset.banking, prudential regulation, moral hazard

Energy Consumption, Survey Data and the Prediction of Industrial Production in Italy

We investigate the prediction of Italian industrial production. We first specify a model based on electricity consumption; we show that the cubic trend in such a model mostly captures the evolution over time of the electricity coefficient, which can be well approximated by a smooth transition model à la Terasvirta, with no gains in predictive power, though. We also analyze the performance of models based on data of different business surveys. According to basic statistics of forecasting accuracy, the linear energy-based model is not outperformed by any other single model, neither by a combination of forecasts. However, a more comprehensive set of evaluation criteria sheds light on the advantages of using the whole information available. Overall, the best forecasting performance is achieved by estimating a combined model which includes among regressors both energy consumption and survey data.Italy, industrial production, energy

Diversification and Ownership Concentration

In a mean-variance economy where controlling shareholders can divert profits, equity ownership is more concentrated the higher the stock returns correlation. A higher returns correlation reduces the benefits of diversification, giving rise to both a higher investment by the controlling shareholder in the asset that he controls and a lower investment by the non-controlling shareholders. The empirical analysis supports the predictions of the model. In particular, controlling for measures of the quality of investor protection, and other structural variables, we find that equity ownership is significantly more concentrated in countries where the stock returns correlation is higher. Moreover the intensity of the relationship between the stock returns correlation and ownership concentration is amplified by poor investor protection.Ownership concentration,Diversificationopportunities,Investor protection.