Current publications

Cover EconPol Working Paper 15

Fragmentation and Strategic Market-Making

Laurence Daures Lescourret and Sophie Moinas

Information technology, infrastructure enhancement, and arbitrage strategies all contributeto link trading venues in fragmented markets. Our paper highlights a new cross-market linking channel: the interdependence of liquidity providers' inventory costs. We use a two-venue duopoly model involving strategic risk-averse market-makers. Costs to provide immediacy depend on market-makers' inventory aggregated across venues, implying that absorbing a shock in one venue simultaneously changes marginal costs in all other venues. Moreover, market-makers strategically choose which shock(s) to absorb. These two forces may lead to competitive prices and enhanced liquidity. Using Euronext proprietary data, we uncover evidence for these crossmarket inventory cost linkages.

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Cover EconPol Working Paper 14

Macroeconomic Imbalances and the Euro Zone. Alternative Views

Roberto Tamborini

Macroeconomic imbalances (MI) play a prominent role in the "consensus narrative" of the crisis of the Euro Zone (EZ). Accordingly, the package of governance reforms undertaken by the EZ countries amid the crisis includes the Macroeconomic Imbalances Procedure (MIP) to be enacted by the Commission. The whole approach has raised various critical and alternative views. These are examined distinguishing between the "domestic" and "external" dimension of MI, and the controversial issues are identified with reference to the MI relevance, their causes and connections with the crisis, and their policy implications.

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Cover EconPol Working Paper 13

Funding Constraints and Market Illiquidity in the European Treasury Bond Market

Sophie Moinas, Minh Nguyen and Giorgio Valente

Financial markets routinely experience a variety of frictions that hinder their efficient functioning by impacting price formation. These frictions are usually due to how trading is organized in a market, regulatory constraints, or trading capital. EconPol expert Sophie Moinas (TSE) and her co-authors propose an empirical investigation of the dynamic relationships between funding and market illiquidity measures in the European Treasury bond market. They find that funding illiquidity shocks affect bond market illiquidity and of a weaker, but significant, reverse feedback effect. Their analysis also shows that the responses of individual bonds' market illiquidity to funding illiquidity shocks increase with bond duration, the credit risk of the issuer, and with haircuts.

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Cover EconPol Working Paper 12 2018

The Role of Pre-Opening Mechanisms in Fragmented Markets

Selma Boussetta, Laurance Lescourret and Sophie Moinas

Liquidity issues in financial markets arise because of two main factors: asymmetric information and cost of market participation. To alleviate these frictions, several exchanges start with a pre-opening period characterized by the accumulation of orders and the absence of trading. What is the role of Euronext’s pre-opening mechanism in the price discovery and liquidity formation of the exchange itself versus two other competing venues deprived of such a mechanism, namely BATS and Chi-X? EconPol expert Sophie Moinas (TSE) and her co-authors find evidence that tentative clearing prices set during the pre-opening period contribute to discover opening price; and that tentative clearing volume is positively correlated with liquidity across all three platforms.

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Cover EconPol Working Paper 11 2018

Attitudes towards Euro Area Reforms: Evidence from a Randomized Survey Experiment

Mathias Dolls and Nils Wehrhofer

How do German voters feel about euro area reforms? In this working paper EconPol expert Mathias Dolls and co-author Nils Wehrhöfer find that few Germans are willing to accept fiscal risk-sharing through common unemployment insurance. But a majority supports a sovereign insolvency procedure aimed at strengthening market discipline. In their randomized surveys the authors also confronted survey participants with the potentially adverse effects of reforms, which lowered approval rates considerably. The survey results also revealed broad-based acceptance of inner German transfers, but low levels of support for transfers to other euro area member states.

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Illustration EconPol Opinion 8

How to exit the euro in a nutshell – ‘Il Piano Savona’

Daniel Gros

Paolo Savona will now become Minister for EU affairs in the new Lega/5 stars government. He has been the main author of a plan for Italy’s exit from the euro. This Plan, which has now been made public, is briefly analysed here to shed some light on the strategy that has apparently been adopted by the Lega Party which has insisted on his participation in the government.

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Cover of EconPol Policy Report 7

On the EU-US Current Account

Gabriel Felbermayr and Martin Braml

The first part of this short report uses the newest available data from the Bureau of Economic Analysis (BEA), an agency of the US Department of Commerce, to analyse economic relations between the US and the EU. The data is used to decompose the components of the US current account balance, and to analyse the bilateral balance of payments with the European Union, the Euro Zone and Germany. In the second part, we use data provided by Eurostat to mirror US figures. We find  enormous discrepancies between what the EU and the US report, particularly with respect to primary income.

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Cover of EconPol Policy Report 6

Which Role for a European Minister of Economy and Finance in a European Fiscal Union?

Zareh Asatryan, Xavier Debrun, Annika Havlik, Friedrich Heinemann, Martin G. Kocher and Roberto Tamborini

The European Commission has proposed to inaugurate a European Minister of Economy and Finance with the broad purpose of streamlining the complex and fragmented decision-making processes within the European Monetary Union. This policy report discusses the potential role the Minister could play in the development of the European Fiscal Union. The report lays out the main challenges along the current institutional solutions facing several dimensions of the Fiscal Union, in particular related to fiscal sustainability, macroeconomic shocks, incentives of structural reforms, and the optimum provision of European public goods. The report then discusses whether and to what degree the new European Minister of Economy and Finance can provide appropriate solutions to these challenges for the Fiscal Union.

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Cover EconPol Working Paper 10 2018

Globalization and Electoral Outcomes: Evidence from Italy

Mauro Caselli, Andrea Fracasso and Silvio Traverso

We study whether and to what extent the electoral dynamics in Italy over the 1994-2008 period can be explained by the development of economic factors associated with globalization. To measure the level of exposure to globalization for local labor markets, our main unit of analysis, we use the intensity of import competition from China and the presence of immigrants.

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Cover of EconPol Policy Brief 7

Why the IMF and OECD are Wrong about Inequality and Growth

Clemens Fuest, Florian Neumeier and Daniel Stöhlker

In recent studies the IMF and the OECD claim that inequality has a negative impact on economic growth and conclude that redistribution policies have no adverse growth effects. We argue that this claim is misleading. We show that, for developed countries, the correlation between inequality and growth is positive, not negative. But this correlation cannot be given a causal interpretation.

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