News Archive

Over the past decade major regulatory changes in the US and Europe to promote competition among trading venues have made today’s financial markets more fragmented and complex than ever. Information technology, infrastructure enhancement, and arbitrage strategies all help to link trading venues. This EconPol Working Paper, co-authored by EconPol researcher Sophie Moinas, uses a two-venue duopoly model involving strategic risk-averse market-makers to explore a new cross-market linking channel: the interdependence of liquidity providers' inventory costs.

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.

Did economic factors associated with globalization influence electoral dynamics in Italy over the 1994-2008 period? And if so, to what extent? Using the intensity of import competition from China and the presence of immigrants as their main units of analysis, EconPol research-ers Mauro Caselli, Andrea Fracasso, and Silvio Traverso explore this question. They find that both immigration intensity and exposure to import competition from China contributed posi-tively to the electoral outcomes of far-right parties. But only immigration intensity positively impacted votes for right-wing and traditionalist/authoritarian/nationalist parties. They also find that a higher presence of immigrants lowered electoral turnout.

Italy’s new Minister for EU affairs Paolo Savona is the main author of an eight-point plan for Italy’s exit from the euro. In this opinion piece EconPol expert Daniel Gros sheds some light on the Italian government’s strategy. In his view, the Plan seems designed to confirm Germany’s worst fears: exit would be accompanied by a massive default on public debt, including foreign official debt like Target2 balances. But the Plan would also enable rich Italians who have considerable assets abroad to hold onto their euros tax-free.

This EconPol Policy Brief reassesses the relationship between inequality and growth. In their empirical analysis network members Clemens Fuest, Florian Neumeier and Daniel Stöhlker show that there is no robust negative correlation between inequality and growth. For OECD countries, they find that higher inequality coincides with higher, not lower economic growth. The authors also caution against giving the observed correlation between inequality and economic growth a causal interpretation. Both inequality and economic growth are influenced by many policy variables, including education and redistributive taxation. In their view, portraying one of these outcomes as being ‘caused’ by the other is unconvincing.