Barbara Chizzolini

The Impact of Mergers on the Degree of Competition in the Banking Industry

We propose a new test to evaluate the impact of horizontal mergers on competition in the banking industry. The test is designed to be applied ex-ante to potential mergers while being parsimonious in terms of data, as it only uses information on branches in local markets. The test is a counterfactual exercise based on a two-stage model where banks compete in branching and interest rates and consists in comparing the estimated degree of competition in the status- quo, where branching networks by banks are those actually observed, with a counterfactual scenario, where the branching network of the new entity is the sum of the branches of the banks involved in the horizontal merger. The statistical difference between the two estimated measures of competition quantifies the impact of the merger. We apply our test to French and Italian mergers.

Modelling Regional Scenarios for the Enlarged Europe European Competitiveness and Global Strategies

From Forecasts to Quantitative Foresights: Territorial Scenarios for an Enlarged Europe.- From Forecasts to Quantitative Foresights: Territorial Scenarios for an Enlarged Europe.- Theoretical and Empirical Underpinnings.- Space and Theoretical Approaches to Regional Growth.- Regional Competitiveness: Towards a Concept of Territorial Capital.- Space and Empirical Approaches to Regional Growth.- National and Regional Econometric Models.- Conceptual and Methodological Specifications.- The MASST Model: A Generative Forecasting Model of Regional Growth.- The Estimation Procedure: Data and Results.- The Simulation Procedure: The Algorithm, the Target Variables and the Stability of the Model.- Scenarios for the Enlarged Europe: Regional Quantitative Foresights.- Driving Forces of Change: The Baseline Scenario.- Global Challenges and European Strategies: Alternative Scenarios.- Territorial Images of the Future: The Quantitative Foresights Results.- Towards a Conclusion: Regional and Territorial Policy Recommendations.

The Estimation Procedure: Data and Results

Previous chapters have concentrated on the theoretical and empirical underpinnings of regional modelling, thus preparing the ground for presentation of our regional growth model. The structure and the logic behind the MASST model have been highlighted in Chap. 5.

Fiscal and Monetary Policies after the Crises

Abstract We review the recent literature on macroeconomic stabilization policy, with a particular focus on two major challenges that are particular to the post-crisis landscape. These are, first, how to provide meaningful economic stimulus when the zero lower bound on nominal interest rates is binding. Second, how to design a stabilization policy for the Eurozone that will remedy the large macroeconomic imbalances among member states. Introduction European policy-makers are currently facing formidable policy challenges. First, while many other economic regions in the world have shown tangible signs of economic recovery already in 2014, the Eurozone as a whole slipped into a downturn with high unemployment and current and expected inflation falling well below the 2 per cent target. Monetary policy will be constrained by the zero lower bound for the foreseeable future, giving the European Central Bank (ECB) little alternative to engaging in policy experimentation such as quantitative easing. Second, the progress towards the correction of internal imbalances has been very slow, with the questionable exception of the reversal of previous current account deficits, essentially driven by large and costly recessions in the high debt countries. Reform efforts have been frustrated by low economic activity and financial fragility, forcing governments in need of change to implement costly initiatives with scarce tax and financial resources. The inward-looking precautionary approach to fiscal policy adopted by surplus countries has ensured that the overall fiscal stance of the currency area is contractionary, at an inappropriately tight level for the Eurozone as a whole. Third, the Eurozone as an incomplete monetary union needs to ensure its sustainability via institutional development that requires strong political cohesion. Lack of sufficient institutional development has undermined timely and intense policy responses to the crisis, and created mistrust and conflict over viable solutions, as policy-makers are having to design stabilization mechanisms, at the same time as reaching agreement on the fundamental contracts and mutual insurance rules governing banking union, monetary backstops for public debt, and the credibility of the no-bailout principle. The process of overcoming the insufficient institutional development during a severe crisis has exacerbated policy credibility problems at country and union-wide level, and arguably created room for destabilizing speculative behaviour.

The Simulation Procedure: The Algorithm, the Target Variables and the Stability of the Model

The previous two chapters have illustrated the theoretical underpinnings of MASST (Chap. 5) and presented the econometric components of the model (Chap. 6). The MASST model, however, also comprises an intrinsic simulative component which is a necessary part of it. The first aim of this chapter is hence to explain technically how all the assumed and estimated causality links among the relevant variables and between national and regional economies work, and how one can obtain predicted values of both national and regional income and population growth from MASST.

National and Regional Econometric Models

In the past few years, very little effort has been made to specify and estimate fullfledged econometric models of regional growth. There were many examples of such modelling in the 1970s and 1980s, but not much has been produced since. This has been partly due to the decline in multiequational models of macro economies that characterized the end of the last century. Regional and urban econometric analyses have more recently focused on the specification and estimation of single equation models or of small systems of equations dealing with partial equilibrium issues independently from the other markets that characterize a regional economy.

European Union Dual Labour Markets: Consequences and Potential Reforms

Abstract This chapter provides an overview of a growing literature on the emergence of dual labour markets and their persistence in some EU countries, as well as the impact that dualism has on a large range of labour market dimensions including, among others, job and worker flows, (overall and youth) unemployment, wage setting, training, labour mobility, household formation, and technology adoption. A distinctive feature of the chapter is that it places the accumulated evidence on these issues in a general equilibrium framework, which helps understand why dual labour markets have performed so poorly since 2008, and also to identify promising avenues of research for the near future. The chapter also evaluates recent reforms and reform proposals (single and unified labour contracts) to eliminate the undesirable consequences of excessive dualism in the labour market. Introduction This COEURE Survey deals with the consequences of dual labour markets, namely labour markets where workers are entitled to different employment protection depending on the contract they hold, and where these differences are large. The effect of dualism on several labour-market dimensions has been widely analysed in the literature but many of these issues have strongly reemerged during the recent crisis due to the poor performance of countries subject to strong dualism. In this survey we review the main lessons drawn from past experience with these labour market regimes, where they originate from, why they are so difficult to change, why they have failed during the Great Recession and the subsequent sovereign crisis, what reform proposals have been posed and which ones are more likely to work. In addition to reviewing the accumulated stock of knowledge on these issues, we place them in a general equilibrium framework to understand which ones constitute the most promising avenues of research for the near future. The rest of the survey is organized as follows. Section 2.2 deals with the historical origins of dual labour markets. Section 2.3 considers conditions under which labour contracts become too different, leading to optimal versus nonoptimal arrangements of stability and flexibility in the labour market. Section 2.4 looks at the performance of dual labour markets since the onset of the Great Recession. Section 2.5 documents the case of Spain, as an epitome of a dual labour market.

FEATURES AND DETERMINANTS OF RISK IN INVESTMENT CHOICES BY PRIVATE EQUITY FUNDS

In this paper we propose a measure of riskiness of PE assets alternative to the CAPM derived beta coefficient usually suggested in the literature on performance of PE Funds. We assumption that at any given point in time there exist alternative investment opportunities that can be classified into a limited number of types, and that Funds manage their Portfolio “optimally”, within the range of investments allowed by their Placement Memorandum. We first estimate a discrete choice model of the Fund Managers’ investment decisions by type of PE investment, as a function of the observed characteristics of the Fund, of the Deal and of the Portfolio Company, as well as of the year when the deal is closed. Given the chosen type of investment, we then estimate the probability of negative returns of each deal in each investment class. These predicted probabilities together with the historical expected shortfalls by investment type, yield the Expected Loss by deal, the measure of pure risk we propose in this paper. We find that it is possible to identify the idiosyncratic features of each investment type and that the patterns and degrees of riskiness differ quite significantly among them.

Mergers in Banking from an Antitrust Perspective

This paper analyses the relation between competition and concentration in a monopolistic competition model where banks compete in branching and interest rates and where M&As as well as the overall market structure are endogenously determined. The model is tested on data on Bank Groups, collected in 2007 when several mergers occurred in Italy. The estimates of the empirical model yield measures of the degree of competition in local markets in Italy, as well as measures of the implicit value of a branch traded in M&A operations both by bank involved in the merger and by local market. The paper finds that competition did decrease following two mergers among the biggest Italian Banks, but that with later mergers competition was more or less returned to the 2006 degree of toughness. In addition it results that the acquisition cost of a traded branch tends to be lower than the profit it can generate. These measures may be relevant in antitrust analyses and for competition policy purposes, and they are extremely parsimonious in terms of data requirements.

Impact of Mergers on the Degree of Competition: Application to the Banking Industry

This paper analyses the relation between competition and concentration in a monopolistic competition model where banks compete in branching and interest rates and market structure is endogenous. The model is applied on individual bank data in Italy and France using a maximum likelihood approach to derive a measure of the degree of competition in each local market. We propose an empirical test to evaluate ex-ante the impact of horizontal mergers on this measure. Depending on the pre-merger market structure and geographic distribution of branches, we find either cases where the merger is pro-competitive or anti-competitive. It proves its relevance as a tool for competition policy analysis. In addition, thanks to its theoretical foundation, it encompasses more information than traditional measures of competition while it is parsimonious in terms of data requirements.