Working papers results

This article provides an overview of long-term changes in the relative conditions of the rich in preindustrial Europe. It covers four pre-unification Italian states (Sabaudian State, Florentine State, Kingdom of Naples and Republic of Venice) as well as other areas of Europe (Low Countries, Catalonia) during the period 1300-1800. Three different kinds of indicators are measured systematically and combined in the analysis: headcount indexes, the share of the top rich, and richness indexes. Taken together, they suggest that overall, during the entirety of the early modern period the rich tended to become both more prevalent and more distanced from the other strata of society. The only period during which the opposite process took place was the late Middle Ages, following the Black Death epidemic of the mid-fourteenth century. In the period from ca. 1300 to 1800, the prevalence of the rich doubled. In the Sabaudian State, the Florentine State and the Kingdom of Naples, for which reconstructions of regional wealth distributions exist, in about the same period the share of the top 10% grew from 45-55% to 70-80% - reaching almost exactly the same level which has recently been suggested as the European average at 1810. Consequently, the time series presented here might be used to add about five centuries of wealth inequality trends to current debates on very long-term changes in the relative position of the rich.

In this paper we study alternative methods to construct a daily indicator of growth for the euro area. We aim for an indicator that (i) provides reliable predictions, (ii) can be easily updated at the daily frequency, (iii) gives interpretable signals, and (iv) it is linear. Using a large panel of daily and monthly data for the euro area we explore the performance of two classes of models: bridge and U-MIDAS models, and different forecast combination strategies. Forecasts obtained from U-MIDAS models, combined with the inverse MSE weights, best satisfy the required criteria.

Do elderly workers retire early voluntarily, or are they induced (or even forced) by their employees? To establish the relevance of the labor demand component in retirement decisions, we consider a trade liberalization between Switzerland and the EU – the Mutual Recognition Agreement (MRA). A vast literature suggests that these trade liberalizations induce firms to relocate and to restructure, with large compositional effects on the labor market particularly for the elderly workers, who face higher mobility costs. Using Swiss Labor Force Survey data, we use a difference in differences approach to compareearly retirement behavior in three periods (pre-liberalization, announcement, and implementation) for three groups of industries. MRA industries represent our treatment group; control groups are non-MRA manufacturing industries, and services. Our empirical results show that elderly workers are more likely to retire early in the MRA sector during the announcement period, and that the employment of young (30-years old) male workers increases. The distribution of wages by age is instead unaffected. Additional empirical evidence using Swiss Business Census and UN Comtrade data suggests that the increase in early retirement in MRA is not explained by more firms' exits, nor by more early retirement among the exiting firms. It is rather the surviving MRA firms, which react to the increase in competition by adjusting their labor force and use more early retirement.

We study the competitive equilibria in a market with adverse selection and search frictions. Uninformed buyers post general direct mechanisms and informed sellers choose where to direct their search. We demonstrate that there exists a unique equilibrium allocation and characterize its properties: all buyers post the same mechanism and a low quality object is traded whenever such object is present in a meeting. Sellers are thus pooled at the search stage and screened at the mechanism stage. If adverse selection is sufficiently severe, this equilibrium is constrained inefficient. Furthermore, the properties of the equilibrium differ starkly from the case where meetings are restricted to be bilateral, in which case in equilibrium sellers sort themselves at the search stage across different mechanisms. Compared to such sorting equilibria, our equilibriumyields a higher surplus for most, but not all, parameter specifications.

We propose a flexible Bayesian model averaging method to estimate a factor pricing model characterized by structural uncertainty and instability in factor loadings and idiosyncratic risks. We use such a framework to investigate key differences in the pricing mechanism that applies to residential vs. non-residential real estate investment trusts (REITs). An analysis of cross-sectional mispricings reveals no evidence of a pure hous- ing/residential real estate bubble inflating between 1999 and 2007, to subsequently burst. In fact, all REITs sectors record increasing alphas during this period, and show important differences in the dynamic evolution of risk factor exposures.

Hansen and Richard (1987) prove a classic representation theorem for prices of payoffs in a conditional asset market. In this note we study the portfolio formation and portfolio pricing rules that ensure that the prices of payoffs generated by portfolios actually satisfy the assumptions of their representation theorem. In this way, we obtain a fundamental theorem of finance for conditional asset pricing.

We develop a general equilibrium asset pricing model under incomplete information and rational learning in order to understand the unexplained predictability of option prices. In our model, the fundamental dividend growth rate is unknown and subject to breaks. Immediately after a break, there is insufficient information to price option contracts accurately. However, as new information arrives, a representative Bayesian agent recursively learns about the parameters of the process followed by fundamentals. We show that learning makes beliefs time-varying and generates predictability patterns across option contracts with different strike prices and maturities; as a result, the implied movements in the implied volatility surface resemble those observed empirically.

This paper explores the potential use of entertainment media programs for achieving development goals. I propose a simple framework for interpreting media effects that hinges on three channels: (i) information provision, (ii) role modeling and preference change, and (iii) time use. I then review the existing evidence on how exposure to commercial television and radio affects outcomes such as fertility preferences, gender norms, education, migration and social capital. I complement these individual country studies with cross-country evidence from Africa and with a more in-depth analysis for Nigeria, using the Demographic Health Surveys. I then consider the potential educational role of entertainment media, starting with a discussion of the psychological underpinnings and then reviewing recent rigorous evaluations of edutainment programs. I conclude by highlighting open questions and avenues for future research.

We empirically identify the lending standards applied by banks to small and medium firms over the cycle. We exploit an institutional feature of the Italian credit market that generates a sharp discontinuity in the allocation of comparable firms into credit risk categories. Using loan-level data, we show that during the expansionary phase of the cycle, banks relax lending standards by narrowing the interest rate spreads between substandard and performing firms. During the contractionary phase of the cycle, the abrupt tightening of lending standards leads to the exclusion of substandard firms from credit. These firms then report significantly lower production, investment, and employment. Finally, we find that the drying up of the interbank market is an important factor determining the change in bank lending standards.

We study the effects of a conventional monetary expansion, quantitative easing, and of the maturity extension program on corporate bond yields using impulse response functions to shocks obtained from flexible models with regimes. We construct weekly bond portfolios sorting individual bond trades by rating and maturity from TRACE. A standard single-state VAR model is inadequate to capture the dynamics of the data. On the contrary, under a three-state Markov switching model with time-homogeneous VAR coefficients, we find that unconventional policies may have been generally expected to decrease corporate yields. However, even though the sign of the responses is the one expected by policy-makers, the size of the estimated effects depends on the assumptions regarding the decline in long-term Treasury yields caused by unconventional policies, on which considerable uncertainty remains.