Paolo Mattana

A SVECM Analysis of the Relationship between International Tourism Arrivals, GDP and Trade in Italy

This article provides an SVECM investigation of long-run, short-run and contemporaneous relationships across per capita international tourism arrivals (ar), real GDP (y), and total international commercial transactions (tr) for the Italian economy. We find that variables span a bidimensional cointegrating space, which we normalize as long-run relationships between y and ar and between ar and tr. Signs and magnitudes of the estimated elasticities are as expected and compare well with the literature. The causation mechanism shows that none of the variables are weakly exogenous. What we find is that, whereas there appears to be unidirectional long-run causality running from y to tr and from tr to ar, bidirectional causality is detected between y and ar. Structural estimation and a study of the Impulse-Response functions of “meaningful” shocks hitting the economy are used to provide valuable insights for policy and business strategy design.

Global indeterminacy of the equilibrium in the Chamley model of endogenous growth in the vicinity of a Bogdanov–Takens bifurcation

This paper studies the dynamics implied by the Chamley (1993) model, a variant of the two-sector model with an implicit characterization of the learning function. We first show that under some “regularity” conditions regarding the learning function, the model has (a) one steady state, (b) no steady states or (c) two steady states (one saddle and one non-saddle). Moreover, via the Bogdanov–Takens theorem, we prove that for critical regions of the parameters space, the dynamics undergoes a particular global phenomenon, namely the homoclinic bifurcation. Because these findings imply the existence of a continuum of equilibrium trajectories, all departing from the same initial value of the predetermined variable, the model exhibits global indeterminacy.

A test for the too-big-to-fail hypothesis for European banks during the financial crisis

Motivated by the theoretical prediction of the opportunistic behaviour of large banks that face expected public intervention, we test a full and a partial form of the too-big-to-fail (TBTF) hypothesis. The full form of the hypothesis implies the increase in the risk undertakings and profitability of banks that exceed a certain dimension; the partial form of the hypothesis implies only an augmented risk appetite of large banks compared to their smaller counterparts. The examined area is the European banking industry, whose behaviour is observed over the first wave of the present financial crisis (2007/09). The estimation of a quadratic fit that links change in a bank’s credit risk profile and profitability retention rates with a bank’s size suggests the existence of a partial form of the TBTF hypothesis. However, a more precise, local rolling windows estimation of the size sensitivities reveals that large banks – those whose liabilities exceed approximately 2% of the country of origin’s GDP (15% of our sample) – show an increase in credit risk profile and a superior capability of retaining higher ROA scores, vis-à-vis their smaller counterparts. With the caveats of our investigation, we interpret these results as evidence of a full form of the TBTF hypothesis.

The double scroll chaotic attractor in the dynamics of a fixed-price IS-LM model

With the aim of exploring the conditions which determine a chaotic behavior in the long-run properties of an economic model, this paper innovates the existing Keynesian macroeconomic literature by showing that the dynamics of the well-known IS-LM model may generate a double-scroll strange attractor, for a particular set of structural parameters.

Shilnikov chaos in the Lucas model of endogenous growth

This paper shows that chaotic dynamics and global indeterminacy may characterize the Lucas (1988) endogenous growth model in its local determinacy region of the parameter space. This is achieved by means of the Shilnikov (1965) theorem, which exploits the existence of a family of homoclinic orbits doubly asymptotic to the balanced growth path, when it is a saddle-focus. The economic implications of these results are also discussed.

Sovereign and Bank CDS Spreads During the European Debt Crisis: Laying the Foundation for SMEs’ Financial Distress

Using a sample of 14,910 daily credit default swap (CDS) observations related to 24 banks chartered in seven countries in the Euro area, we assess the existence of a causal relation between sovereign and bank credit risk during 2010–2014. Our results show that CDS spreads of the observed banks are highly influenced by the price dynamics of sovereign CDSs.

Moral-Hazard Conduct in the European Banks During the First Wave of the Global Financial Crisis

This paper investigates the extent to which public interventions, largely implemented to countervail the effects of the 2007–2009 financial crisis, have generated moral hazard behaviour in large European banks, twisting their risk-taking and profitability profiles according to the so-called “too-big-to-fail” hypothesis. To this end, we devise an empirical framework linking credit risk and profitability changes to bank dimension. By applying a Quantile Regression Approach to a sample of 1476 European financial institutions, and considering the combination of risk and profit size sensitivities at quantile level, we observe that the theoretical hypothesis behind the too big to fail is confirmed when the change in ROA proxies for the risk undertaking. We obtain a different picture—much less consistent with our moral hazard hypothesis—when the change in ROE is employed instead. We also provide a possible explanation for this contradictory pattern by discussing the role of managers versus shareholders in the bank strategic design.

Kaldorian Assumptions and Endogenous Fluctuations in the Dynamic Fixed-Price IS-LM Model

With the aim of better understanding the conditions which determine endogenous fluctuations at business cycle frequencies, recent literature has revived interest in the Schinasi’s variant of the dynamic, intermediate-run, IS-LM model (Schinasi 1981, 1982). Results, however, remain confined to Kaldorian-type economies, namely to those economies which present a greater-than-unity marginal propensity to spend out of income. This paper contributes to the debate by showing that, in the case of a negative interest rate sensitivity of savings, stable endogenous cycles can actually emerge as equilibrium solutions of the model also in the case of non Kaldorian-type economies. To this end, we combine the instruments of the global analysis, specifically the homoclinic bifurcation Theorem of Kopell and Howard (1975), with numerical methods.

The Equilibrium Slopes of the Policy Functions in the Lucas Model

The optimal policy functions in the Lucas model are locally downward (upward) sloping if the coefficient of risk aversion is large (small) with respect to the share of physical capital. This paper shows that this property extends to the equilibrium dynamics.

The Global Characterization of the Optimal Dynamics in the Uzawa-Lucas Model

The Pareto-optimal Hamiltonian dynamics generated by the Uzawa-Lucas model contains not-yet-exploited information which can be used to obtain the explicit trajectories of the variables if we simply fix the distance between the share of physical capital and the coefficient of risk aversion. Numerical simulations conducted in all regions of the parameter space allow to retrieve a number of interesting details on the properties of an efficient economy in transition. A crucial result shows that an efficient economy gets rid faster of a relative excess of human capital than of a relative excess of physical capital or, conversely, recovers more slowly from a shock lowering the relative endowment of human capital than from a shock lowering the relative endowment of physical capital.