News Archive

Advances in total factor productivity (TFP) are important for sustaining economic growth in modern economies, in particular in the face of a declining working-age population. In this Policy Brief, we identify investment in research and development, good governance, the capital intensity, a high share of information technology in the total capital stock, and the number of industrial robots per employee as conducive for TFP growth. Based on the empirical results, policies that are beneficial for capital formation in general, investment in computer technology, research and development as well as the use of industrial robots could boost TFP in Europe.

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.

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.

Traditional retail banking (and, by default, shadow banking) is built on four pillars: SME lending, access to public liquidity, deposit insurance, and prudential supervision. But many shadow financial institutions (money market mutual funds, hedge funds and investment banks) gained access to public liquidity facilities during the 2008 crisis. In this working paper, EconPol expert Jean Tirole and his co-author Emmanuel Farhi, ask whether, in the light of recent developments, it is time to reconsider the time-honored SME lending/regulation/ public liquidity access/ deposit insurance quadrilogy?

Why are macroeconomic imbalances so important in the Eurozone and can the European Commission’s Macroeconomic Imbalances Procedure (MIP) address them? EconPol expert Roberto Tamborini examines critical and alternative views of this procedure. A common thread across alternative views is that the right approach to problems arising from capital movements across a monetary union is the so-called Banking Union, not the MIP. Overall, its critics all contend that the MIP, together with other Eurozone regulations, is conceived as a substitute for (good) federal government that we do not have (or want).