Giuliana Passamani

Monetary Policy with Firms’ Bank Dependence and Default Risk

Among Keynes’s undeveloped, or underground, ideas that are being resurrected in a new guise are those of the ‘monetary theory of production’ (1933) and firms’ ‘finance motive’ in the demand for money (1937). With variable acknowledgement and faithfulness, these ideas are detectable in the modern macroeconomics of imperfect capital markets.

Fiscal and monetary policy, unfortunate events, and the SGP arithmetics Evidence from a growth-gaps model

The recent revision (March 2005) of the Stability and Growth Pact (SGP) has confirmed the 3% deficit/GDP ratio as the pillar of the excessive deficits procedure envisaged by the Maastricht Treaty for member countries of the EMU. Since the deficit/GDP ceiling is still in place, research on its implications for fiscal discipline and macroeconomic stabilization has to be pushed further. We argue that the agenda largely involves empirical matters. In particular, this paper presents an econometric estimate and simulations of a macroeconomic model of Italy and Germany aimed at addressing three issues. First, monetary and fiscal rules intercations are explictly modelled and examined in dynamic setting. Second, consistently with common perception and the new formulation of the SGP, the business cycle and the responses of policy variables are cast in terms of growth gaps, not gaps in levels, with respect to potential. Third, budgetary components (primary expenditure and total tax revenue) are examined as separate fiscal rules, which allows us to track the reaction of the fiscal stance to growth shocks more precisely, to point out several pitfalls in current measures of fiscal ratios to GDP, and suggest more accurate assessment of fiscal stances.

Air Pollution and Health Risks: A Statistical Analysis Aiming at Improving Air Quality in an Alpine Italian Province

This paper analyses air pollution levels in an Italian mountain province in order to understand how they can affect air quality and therefore have significant negative effects on health. The analysis considers intra e inter-annual variability in air quality in the province of Trento, after taking into account meteorological conditions. The main purpose is the proposal of an analytical procedure that, starting from the statistical properties of the observed time-series for each of the seven monitoring sites, controls for that part of air pollution that is explained by the meteorological variables using a panel data model, and then moves to analyse its unexplained part and how it is affected by the three main pollutants.

Sustainability vs credibility of fiscal consolidation: A principal components factor analysis for the Euro Zone

Purpose - – The purpose of this paper is to explain why some countries in the eurozone between 2010 and 2012 experienced a dramatic vicious circle between hard austerity plans and rising default risk premia. Were such plans too small, and hence non-credible, or too large, and hence non-sustainable? These questions have prompted theoretical and empirical investigations in the line of the so-called “self-fulfilling beliefs”, where beliefs of unsustainability of fiscal adjustments, and hence default on debt, feed higher risk premia which indeed make fiscal adjustments less sustainable. Design/methodology/approach - – Detecting the sustainability factor in the evolution of spreads is uneasy because it is largely non-observable and may be proxied by different variables. In this paper, the authors present the results of a dynamic principal components factor analysis (PCFA) applied to a panel data set of the 11 major EZ countries from 2000 to 2013, consisting of each country’s spread of long-term interest rate over Germany as dependent variable, and an array of leading fiscal and macroeconomic indicators of solvency fiscal effort and its sustainability. Findings - – The authors have been able to identify the role of these indicators that combine themselves as significant latent variables in boosting spreads. Moreover, the large joint deterioration of these variables is identifiably located between 2009 and 2012 and particularly for the group of countries under most severe default risk (with Italy and France as borderline cases). The authors also find evidence that the announcement of the European Central Bank Outright Monetary Transactions program has improved the sustainability assessment of sovereign debts. Originality/value - – Dynamic PCFA is a rather unusual technique with respect to standard econometric tests of models, which is particularly well-suited to reduce the number of variables in a data set by extracting meaningful linear combinations from the observed variables that may concur to explain a given phenomenon (the dependent variable). These combinations, called “common factors”, can be interpreted as latent, non-observable variables.

Time Series Convergence within I(2) Models: the Case of Weekly Long Term Bond Yields in the Four Largest Euro Area Countries

The purpose of the paper is to suggest a modelling strategy that can be used to study the process of pairwise convergence within time series analysis. Moving from the works of Bernard (1992) and Bernard and Durlauf (1995), we specify an I(1) cointegrated model characterized by broken linear trends, and we identify the driving force leading to convergence as a common stochastic trend, but the results are unsatisfactory. Then we deal the same question of time series convergence within I(2) cointegration analysis, allowing for broken linear trends and an I(2) common stochastic trend as the driving force. The results obtained with this second specification are encouraging and satisfactory. The suggested modelling strategy is applied to the convergence of long-term bond markets in the Economic and Monetary Union (EMU), that we observe during the years covering the second stage, that is the period from 1993 to the end of 1998, before the introduction of euro. During the third stage, started in 1999 and continuing, the markets show a tendency to move together and to behave similarly.