Graziella Bertocchi

Learning, experimentation, and monetary policy☆

We present a model of monetary policy where the policymaker faces uncertainty about wich he is learning in a Bayesian fashion. A fixed money supply levels. A fixed money supply rule is not optimal in this context since the learning leads to constant adjustments in money supply levels. We present cases in which it is optimal to bear some cost in terms of current output performance in order to gain information that can be used in the formulation of future monetary policy : experimentation therefore pays. We also show that even passive learning without experimentation still leads to an activist monetary policy, i.e. one that is constantly changing in response to new information.

Marriage and other risky assets: a portfolio approach

We study the joint impact of gender and marital status on financial decisions. First, we test the hypothesis that marriage represents - in a portfolio framework - a sort of safe asset, and that this effect is stronger for women. Controlling for a number of observable characteristics, we show that single women have a lower propensity to invest in risky assets than married females and males. Second, we show that the differential behavior of single women evolves over time, reflecting the increasing incidence of divorce and the expansion of female labor market participation. In particular, towards the end of our sample period, we observe a reduction in the gap between women with different family status, which can be attributed to the gradual erosion of the perception of marriage as a sort of safe asset. Our results therefore suggest that the differential behavior of single vs. married women can be explained by the evolution of gender roles in society, even after controlling for differential risk attitudes. Our empirical investigation is based on a dataset drawn from the 1989-2006 Bank of Italy Survey of Household Income and Wealth.

The Vanishing Bequest Tax: The Comparative Evolution of Bequest Taxation in Historical Perspective

Several countries have recently abolished or significantly reduced their taxes on bequests. Bequest taxes, on the other hand, were among the first to be introduced when modern systems of taxation were developed at the end of the nineteenth century. We propose an explanation for these facts which is based on a dynamic political economy model where redistribution is determined not only by wealth inequality but also by sectoral reallocation from agriculture to manufacturing. The model shows that the dynamics of capital accumulation induce a reduction of wealth inequality, which is further accelerated by the redistributive impact of the bequest tax. Through a standard politico-economic mechanism, wealth equalization pushes toward a reduced role of the bequest tax. At the same time, however, a second mechanism is at work, with structural reallocation from agriculture to manufacturing shifting the tax base from hard-to-avoid taxes on land toward easy-to-avoid taxes on capital. The differential treatment of land and capital introduces a source of asymmetry in the tax system which interferes with the determination of the dynamic political equilibrium of the model. Its effect is to compress bequest taxation but also to delay its gradual reduction due to declining wealth inequality. A number of extensions to the basic model allow to match our theory with the long-term evolution of bequest taxation in modern democracies and with the drastic discrepancies currently observed between tax systems in developed and underdeveloped countries.

Growth under uncertainty with experimentation

Abstract We introduce Bayesian learning into a stochastic growth model and study the effect of experimentation on the optimal level of the investment decision and on the amount of information gathering. When more investment produces more information, experimentation can push towards a lower level of investment, thus reducing information acquisition. Symmetrically, when more investment reduces information, experimentation can increase investment and again decrease information gathering. These results run contrary to intuitions generated by the standard literature on experimentation.

Labor market institutions, international capital mobility, and the persistence of underdevelopment

We show that the impact of globalization on growth and wages crucially depends on the labor market structures of the countries involved. We contrast bargaining and perfect competition. Under perfect capital markets, convergence of capital and income per capita always occurs despite different labor market structures. However, different labor market structures prevent convergence of the income shares, with unionized countries showing a lower wage rate and consequent capital inflows. Therefore unionization, not globalization, is the cause of discrepancies in the within-country income-distribution patterns. Openness is always preferable to autarky for a small developing economy, independently of its labor market structure. (Copyright: Elsevier)

Is it Money or Brains? The Determinants of Intra-Family Decision Power

We empirically study the determinants of intra-household decision power with respect to economic and financial choices using a suitable direct measure provided in the 1989-2010 Bank of Italy Survey of Household Income and Wealth. Focusing on a sample of couples, we evaluate the effect of each spouses characteristics, household characteristics, and background variables. We find that the probability that the wife is in charge is affected by household characteristics such as family size and total income and wealth, but more importantly that it increases with the difference between hers and her husbands characteristics in terms of age, education, and income. The main conclusion is that decision-making power over family economics is not only determined by strictly economic differences, as suggested by previous studies, but also by differences in human capital and experience. Finally, exploiting the time dimension of our dataset, we show that this pattern is increasing over time.

Safe Debt, Risky Capital

The author extends the Diamond (1965) model of national debt in two directions. She first introduces technological uncertainty and then she allows the stock of debt to vary. The author studies the dynamical equilibria of the resulting stochastic system and she establishes conditions for the existence of stationary states that are expressed in terms of invariant distributions. Since conditions that ensure the existence of a stochastic stationary state with positive debt are very restrictive, in this model financial instability is a pervasive phenomenon and allocations are in general dynamically inefficient. Copyright 1994 by The London School of Economics and Political Science.

Structural uncertainty and subsidy removal for economies in transition

Abstract Economies in transition are faced with a high degree of ‘structural uncertainty’ i.e., uncertainty about which it is possible to learn through experience. We study structural uncertaintys effects on a subsidy removal program. Subsidy removal causes unemployment, but yields fiscal benefits and facilitates private sector growth. When the policymaker does not know the speed with which the private sector absorbs the unemployed, he will be driven toward a more decisive, and therefore more informative, policy. The model also rationalizes policy reversals and implies that irreversibility constraints and political instability dampen the learning effect making policy more gradualist.

Bubbles and inefficiencies

Abstract We study speculative behavior in a stochastic overlapping-generations model and we show how the link between the existence of bubbles and dynamic inefficiency, which has been established for the deterministic case, is broken when risk-related factors, such as risk premia and capital gains, are explicitly taken into account.

Efficiency and optimality in stochastic models with production

Abstract We consider a discrete-time, infinite-horizon, one-good stochastic growth model and we solve the central planners optimization problem by developing a stochastic version of Pontryagins maximum principle for Markov controls. An approximation method is used in order to extend to an infinite horizon the stochastic maximum principle derived by Arkin and Evstigneev (1987) for the finite-horizon case. We obtain efficiency conditions which are expressed in terms of stochastic multipliers, for which we provide an economic interpretation. We also apply the mathematical tool we develop to a central planners problem in an overlapping-generations model.