Common Currencies and FDI Flows

The paper investigates the impact of EMU on foreign direct investment flows. Using the option value approach to investment decisions, it is possible to show how exchange rate uncertainty hinders cross-border investment flows. By permanassume trading to take place in discrete time inside an endogenous price formation setting. Traders demand for the risky asset is expressed as a fraction of their individual wealth and is based on future prices forecast obtained on the basis of past market history. The general case is studied in which an arbitrary large number of heterogeneous traders operates in the market and any smooth function which maps the infinite information set to the present investment choice is allowed as agent's trading behavior. A complete characterization of equilibria is given and their stability conditions are derived. We find that this economy can only possess isolated generic equilibria where a single agent dominates the market and continuous manifolds of non-generic equilibria where many agents hold finite wealth shares. We show that irrespectively of agents number and of their behavior, all possible equilibria belong to a one dimensional "Equilibria Market Line". Finally we discuss the relative performances of different strategies and the selection principle governing market dynamics.EMU, Currency Union, FDI, Uncertainty, Investment.

Financial integration, GDP correlation and the endogeneity of optimum currency areas

The paper analyzes the relationship between trade, financial integration and business cycle synchronization in the euro area. The introduction of the euro has had a noticeable impact on European financial markets: we find evidence that capital markets integration exerts a positive effect on output correlation. This in turn has two major implications. First, it corroborates the hypothesis of the endogeneity of optimum currency areas, whereby after joining a monetary union countries fit better standard OCA criteria; second, it provides European policymakers with yet another reason to purse financial integration in the euro area (and in prospective members as well).business cycle; EMU; endogeneity; integration; optimum currency areas;

Stochastic Trade Networks

This paper develops a simple network model to describe the dynamic of the intensive and extensive margin of international trade flows. The result is achieved by means of the combination of two mechanisms of proportional growth: the first (discrete) determines the formation of trade links, the second (continuous) governs trade intensity. We show that our setup is able to simultaneously match a large number of empirical regularities, such as the fraction of zero trade flows across pairs of countries or the high concentration of trade with respect to both products and destinations. Our findings suggest that stylized facts are strongly interconnected across different levels of aggregation of trade data , so that a unifying explanation is called for. By incorporating stochastic elements into standard trade models we can improve their ability to explain relevant facts about world trade

Nonparametric and semiparametric evidence on the long-run effects of inflation on growth

Two major findings of the empirical literature on the connec tion between inflation and output growth is that their relationship is non linear and that there exists a threshold inflation level be low which inflation has a positive impact on growth and above which inflation has a negative impact on growth. In this paper we adopt both a nonparametric estimator and a semiparametric IV one to show that the first finding holds true even dropping the specification assumptions typical of parametric models. We also show that a threshold level does exist and it is around 12% for developed countries. Below this level inflation does not appear to have any substantial effect on growth.Inflation, Growth

Exchange rate exposure under liquidity constraints

Export,exchange rate,exposure,financial constraints, heterogeneity,productivity .

The Impact of Financial Constaints on Firm Survival and Growth

We propose a new approach for identifying and measuring the degree of financial constraint faced by firms and use it to investigate the effect of financial constraints on firm survival and development. Using panel data on French manufacturing firms over the 1996-2004 period, we find that (i) financial constraints significantly increase the probability of exiting the market, (ii) access to external financial resources has a positive effect on the growth of firms in terms of sales, capital stock and employment, (iii) financial constraints are positively related with productivity growth in the short-run. We interpret this last result as the sign that constrained firms need to cut costs in order to generate the resources they cannot raise on financial markets.Financial constraints; Firm growth; Firm survival

The Structure and Growth of International Trade

The paper develops a model of proportionate growth to describe the dynamics of international trade flows. We show that a large number of the empirical regularities characterizing international trade -such as the fraction of zero trade flows across pairs of countries, the positive relationship between inten- sive and extensive margins, the high concentration of trade with respect to both products and destinations, the core-periphery structure of exchanges- are well explained by this simple stochastic setup. This helps us to distinguish among economically relevant regularities and those simply resulting from the mechanical interactions among agents. Furthermore, our model can be used to describe the process of `self-discovery' that lie at the foundations of suc- cessful export-led growth and is thought to play a crucial role in the process of economic development. Our model correctly predicts that large export flows are rare events, as pointed out in the empirical literature: yet, countries char- acterized by large `discovery' efforts are much more likely to draw a `big hit' due to the (very skewed) shape of the distribution of bilateral export flows.international trade, development, weighted networks, proportionate growth, industrial policy

Trade-imbalances networks and exchange rate adjustments: The paradox of a new Plaza

Global imbalances are not new as much as the effort to address them. In the mid 1980s the phenomenon led the most industrialised countries to orchestrate a devaluation of the US dollar so as to reduce the US trade deficit. Some economists have called for a similar "New Plaza" agreement to tackle the present situation. The feasibility of such a plan has not been thoroughly assessed so far. In this paper we apply complex network analysis to characterise the properties of the web of international bilateral trade imbalances. We study its evolution over time and the position of key players within it. We find that the complexity of the network has increased in several dimensions, and this casts doubts on the usefulness of a coordinated solution among industrialised countries only. In addition, we propose new effective exchange rate measures based on bilateral trade imbalances, and study their dynamics in the 1980s and in the 2000s. By distinguishing exchange rate movements against debtor and creditor countries we show that, so far, they have not been consistent with the simultaneous reduction in all trade bilateral imbalances. A paradox therefore emerges: the growing difficulty to orchestrate a plan involving a large number of partners is matched by the inability of so far uncoordinated exchange rate adjustments to close global imbalances.Plaza agreement, exchange rates, global imbalances, network analysis