Gustavo Piga

Dependent and Accountable: Evidence from the Modern Theory of Central Banking

In this paper we take another look at the literature on central bank independence. We show that the representative-agent approach to monetary policy is seriously flawed and does not provide a sound basis for deriving institutional solutions to the inflationary-bias. We then argue that the political approach to monetary policy provides a better account of the inflationary-bias and that this has important implications for the set-up of institutional arrangements, like central-bank independence, and the role of contractual arrangements, like indexation. Central bank independence, if appropriately modeled, can fail to reduce inflationary pressures in plausible circumstances. We then identify some issues in the theory of central banking that have not been clearly resolved and we offer some intuition as to the way they could be studied. We conclude by showing some potentially worrisome implications for the future of the European Monetary Union. Copyright 2000 by Blackwell Publishers Ltd

The Variety of Procurement Practice: Evidence from Public Procurement

na al v ve er rs si ion n t to ap pp pe ea ar in n t th he e Ha an nd db bo oo ok k of Pr rocu ur rem men nt t ABSTRACT Procurement procedures are made of many distinct parts, on which the buyer can intervene to adapt the process to the product, service or work that he wants to procure. This paper analyses differences and similarities among public procurement practices adopted worldwide. Results are based on data provided by a survey conducted in 2004, among a group of European and American Public Procurement Entities. Through detailed questionnaires we enquired about the most relevant aspects that public procurers should bear in mind when designing a competitive tendering. From the survey emerges that procurements vary quite sensibly across different public institutions.

Distributive Equity and Economic Efficiency: Trade-off and Synergy

The issue of equity and efficiency is once again gaining the attention of economists. There has not been such a volume of theoretical and empirical works since the 1950s, when the debate was introduced as part of the critical appraisal of the various economic doctrines by Kaldor and subsequendy in an empirical context by Kutznets. This paper aims to critically re-examine these new contributions, indicate their limits and common elements and, lasdy, put forward a more general theory that allows one to precisly place the problems raised between equity and efficiency.

OVERCROWDING VERSUS LIQUIDITY IN THE EURO SOVEREIGN BOND MARKETS

With the adoption of a common currency the degree of substitution between financial instruments supplied by EMU Member States to finance their national debts has risen. Providing the market for euro-denominated government securities with a large volume of similar financial instruments is likely to increase liquidity and lower yields. By contrast, providing an excessive volume of the same instrument might increase the return demanded by investors. This paper aims at empirically assessing the balance between liquidity and overcrowding effects by EMU countries’ issuance plans. Our results document a significant relationship between bunching in issues and bond yields.

ON THE SOURCES OF THE INFLATION BIAS AND OUTPUT VARIABILITY

Why do dynamic inconsistencies in monetary policy exist? In this paper, a traditional model with output inefficiencies is introduced, but monetary policy is allowed to be influenced by the various constituencies in the economy that pressure Congress in turn to pressure the Central Bank to adopt a particular policy stance. This paper shows that in this economy an inflation bias arises because of the lobbying pressures of outsiders. Furthermore, it shows that if lobbying pressures are high enough, an inflation bias cannot be avoided for any finite level of Central Bank independence. It also shows that introducing the realistic feature of lobbying pressures has an impact on the stabilization properties of monetary policy. When a supply shock occurs, the shock is totally absorbed by a non-myopic trade union, which has no lobbying costs. This is independent of any finite degree of conservativeness of the central banker, who has to accept an extreme increase in price instability. It is shown that monetary policy delegation is therefore sub-optimal in achieving price stability compared with labor-market reforms meant to remove monopsonistic elements. However, the same structural policies will induce greater output instability by strengthening the power of conservative central bankers. Copyright (c) Scottish Economic Society 2005.

The Term Structure of Interest Rates and the Public Debt Issuance Policy: A Note

We estimate, using a previously unexploited set of data for the Italian public debt, quarterly yield curves over the period 1970-1996 to test the main implications of the expectations hypothesis theory (EH). Our empirical results show that short-term interest rates move according to the prediction of the EH, though the same cannot be found for long-term interest rates. In addition, using a probit model, we investigate the public debt issuance policy. We find and interpret a significant relationship between the slope of the yield curve and the probability of an increase in the aggregate duration of the outstanding debt.

The Role of Monitoring of Corruption in a Simple Endogenous Growth Model

This article analyzes the relationship between economic growth and the monitoring of corruption. In our theoretical model, we derive a nonlinear relationship between the level of monitoring and economic growth, as well as between corruption and economic growth. At low monitoring levels, the economy experiences widespread corruption and medium growth rates, whereas no corruption occurs at intermediate monitoring levels, but low growth rates are recorded. At high monitoring levels, no corruption takes place and high growth rates are observed. The model is estimated using a dynamic panel data approach for Italy. Empirical results support the theoretical model.

On the Sources of the Inflationary Bias

Why do dynamic inconsistencies in monetary policy exist? In this paper we present a traditional model with output inefficiencies, but we allow for monetary policy to be influenced by the various constituencies in the economy, that pressure the Congress to in turn pressure the central bank to adopt a particular policy stance. We show that in this economy an inflationary-bias arises due to the lobbying pressures of outsiders. Furthermore, we show that if lobbying pressures are high enough, an inflationary-bias cannot be avoided for any finite level of central bank independence. We also show that introducing the realistic feature of lobbying pressures has an impact on the stabilization properties of monetary policy. When a supply shock occurs, the shock is totally absorbed by a forward-looking trade-union which has no costs of lobbying, independently of any finite degree of conservativeness and independence of the central banker, who has to accept an extreme increase in price instability. We show that monetary policy delegation is therefore sub-optimal in achieving price-stability compared to labor-market reforms meant to remove monopsonistic elements. However, the same structural policies will induce greater output instability by strengthening the power of conservative central bankers.

Capture, Politics and Antitrust Effectiveness

We study the ex-ante budget devoted by a Political Principal to a Competition Authority in charge of collecting evidence on the Industrys behavior. The Industry can capture both the Principal (lobbying) for a reduced budget, and the Authority (side-contracting) so as to avoid fines. Authoritys capture is costly to the Principal when side-contracting is sufficiently efficient. Collusion proofness induces high-powered incentives for the Authority, hence fostering the Authoritys willingness to spend the allocated budget. For intermediate values of side-contractings efficiency, in this moral hazard setting we find that the optimal budget increases as side-contracting gets more efficient. Only when side-contractings efficiency reaches high enough values the budget decreases, thus generating a discrepancy between the Authoritys and the Principals desired level of information gathering. Finally, a complementarity between lobbying of the Principal and capture of the Authority arises.

What would Keynes have said about the challenges of the 21st century

Using the detailed picture painted by the economist Keynes, Lorenzo Pecchi and Gustavo Piga illustrate the differences between what was imagined years ago and what is the reality of the financial world today. They note that although his forecast on growth was remarkable, Keynes failed to depict important developments in modern-day work and leisure. Furthermore, they note that in today’s society, higher wages have led to higher consumption yet happiness levels remain unchanged. While this may sound like too harsh a reality, Pecchi and Piga stress the need to understand and learn from past mistakes.