Edoardo Gaffeo

On the size distribution of firms: additional evidence from the G7 countries

We analyze the average size distribution of a pool of the G7 groups firms over the period 1987–2000. In particular, firm sizes are measured employing different proxies, and after conditioning on business cycle phases. We find that: (i) the empirical distributions are all consistent with a power law; (ii) point estimates suggest that only in limited cases the exponent is equal to −1, i.e., the resulting size distribution generally is not Zipf; (iii) regardless of the variable employed to measure firm sizes, firms are distributed more equally during recessions than during expansions.

The Economics of HIV/AIDS: A Survey

This article surveys the main economic issues associated with the HIV/AIDS epidemic, paying special attention to sub-Saharan Africa. It explores the economic and behavioural determinants of HIV transmission, the microeconomics of market failures associated with high HIV prevalence, the prospects for regional development from a macroeconomic perspective and the efficient design of policies for coping with the epidemic. In line with the recent appeal by the UN Secretary General, the article argues that, without a decisive effort to halt HIV/AIDS, people living in the region are bound to experience a further fall in their standard of living in both relative and absolute terms. However, to be effective, anti-AIDS programmes must be rooted in sound economic principles. Copyright Overseas Development Institute, 2003.

A look at the relationship between industrial dynamics and aggregate fluctuations

Starting with the pioneering work of [23], the study of the determinants and the shape of the steady-state distribution of firms’ size has long fascinated economists. While the conventional view received from the seminal work of e.g. [29], [27] and [42] holds that the firms’ size distribution is significantly right-skewed and approximately log-normal, recent empirical research has lent support to the view suggested by H. Simon and his co-author ([32]), according to whom a Pareto-Levy (or power law) distribution seems to return a better fit to the data for the whole distribution ([3]), or at least for its upper tail (Ramsden and Kiss-Haypal, 2000; [18]).

The Apprentice Wizard: Montetary Policy, Complexity And Learning

This paper investigates some central issues of monetary policy by offering a model in which a central bank tries to stabilize fluctuations in aggregate output and inflation in an adaptive complex economy. We resort to evolutionary algorithms to model the central bank behaviour under discretion, and confront the efficiency of discretion with the choice of full commitment to a fixed rule.

Demand distribution dynamics in creative industries: The market for books in Italy☆

We study the distribution dynamics of the demand for books in Italy. We find that for each of three broad sub-markets in which the book publishing industry can be classified − Italian novels, foreign novels and essays − sales over a three-year sample can be adequately fitted by a power law distribution. Our results can be plausibly interpreted in terms of a model of interactions among buyers exchanging information on the books they buy.

Reflections on modern macroeconomics: Can we travel along a safer road?☆

In this paper we sketch some reflections on the pitfalls and inconsistencies of the research program—currently dominant among the profession—aimed at providing microfoundations to macroeconomics along a Walrasian perspective. We argue that such a methodological approach constitutes an unsatisfactory answer to a well-posed research question, and that alternative promising routes have been long mapped out but only recently explored. In particular, we discuss a recent agent-based, truly non-Walrasian macroeconomic model, and we use it to envisage new challenges for future research.

Power laws and macroeconomic fluctuations

We study the duration distribution of recessions and recoveries occurred in a pool of industrialized countries during the last 120 years. We find that for recessions the duration is distributed according to a power law, and that the power exponent is virtually invariant as we split up the time span into sub-periods. The evidence regarding the duration of recoveries is mixed, however.

Interbank Contagion and Resolution Procedures: Inspecting the Mechanism

This paper develops a network model of a stylized banking system in which banks are connected to one another through interbank claims, which allows us to study the diffusion of default avalanches triggered by an exogenous shock under a number of different assumptions on the degree of interconnectedness, level of capitalization, liquidity buffers, the size of the interbank market and fire-sales. We expand upon the existing literature by embedding two alternative resolution mechanisms. First, liquidations triggered by either illiquidity or insolvency-related distress implying asset sales and compensation of creditors. Second, a bail-in mechanism avoiding bank closure by forcing a recapitalization provided by bank creditors. Our model speaks to how contagion dynamics unravel via illiquidity-driven defaults in the first case and higher-order losses in the latter one. Within this framework, we show how counter-party liquidity risk externality can be resolved and put forward a macro-criterion to assess the adequacy of the liquidity ratio introduced with Basel III.

Competition in the banking sector and economic growth: panel-based international evidence

This paper employs panel techniques to empirically examine the link between the competitiveness of the banking sector and real economic growth, using data from a sample of OECD economies during 1997-2010. We employ a dynamic GMM model to find that an increase in the efficiency of banks driven by fiercer competition is robustly associated with higher real growth. The issue of Granger-causality is then explored by means of a panel- based testing procedure addressing heterogeneity. While there is a strong evidence of causality running from real growth to banking competitiveness, a bi-directional causality appears clearly only for lags higher than 1.

If the Financial System Is Complex, How Can We Regulate It?

The great financial crisis that erupted in 2007 has shaken not only the world economy but also the so-called mainstream of economics. As a major corollary, the issue of how financial markets are or should be regulated is in the eye of the storm. In this article, we discuss a new approach to economic analysis that is gradually emerging from the current debate, that of complexity, which is gaining ground especially in finance, particularly in the field of network analysis. We discuss the relationship between economic complexity and economic policy from the perspective of the search for new regulatory tools of financial systems. Our main point is that the complexity approach to financial markets by way of network analysis may represent a major stride in our understanding of these systems but also that we should be aware that this approach poses formidable challenges to policy design.