Interest rate determination in the interbank market

The purpose of this paper is to study the determinants of equilibrium in the market for daily funds. We use the EONIA panel database which includes daily information on the lending rates applied by contributing commercial banks. The data clearly shows an increase in both the time series volatility and the cross section dispersion of rates towards the end of the reserve maintenance period. These increases are highly correlated. With respect to quantities, we find that the volume of trade as well as the use of the standing facilities are also larger at the end of the maintenance period. Our theoretical model shows how the operational framework of monetary policy causes a reduction in the elasticity of the supply of funds by banks throughout the reserve maintenance period. This reduction in the elasticity together with market segmentation and heterogeneity are able to generate distributions for the interest rates and quantities traded with the same properties as in the data.

The daily market for funds in Europe: what has changed with the EMU?

This paper presents evidence that the existence of deposit and lending facilities combined with an averaging provision for the reserve requirement are powerful tools to stabilize the overnight rate. We reach this conclusion by comparing the behavior of this rate in Germany before and after the start of the EMU. The analysis of the German experience is useful because it allows to isolate the effects on the overnight rate of these particular instruments of monetary policy. To show that this outcome is a general conclusion and not a particular result of the German market, we develop a theoretical model of reserve management which is able to reproduce our empirical findings.

Can competition in the credit market be excessive?

We study how market power affects investment and welfare when banks choose between restricting loan sizes and monitoring, in order to alleviate an underlying moral hazard problem. The impact of market power on aggregate welfare is the result of two countervailing effects. An increase in banks' market power results in: (i) higher lending rates, which worsens the borrower's incentive problem and reduces investment by unmonitored firms, (ii) higher monitoring effort, which reduces the proportion of credit-constrained firms. Whenever the second effect dominates, it is optimal to provide banks with some degree of market power.

Privatization and competition in the delivery of local services: An empirical examination of the dual market hypothesis

This paper empirically analyses the hypothesis of the existence of a dual market for contracts in local services. Large firms that operate on a national basis control the contracts for delivery in the most populated and/or urban municipalities, whereas small firms that operate at a local level have the contracts in the least populated and/or rural municipalities. The dual market implies the high concentration and dominance of major firms in large municipalities, and local monopolies in the smaller ones. This market structure is harmful to competition for the market as the effective number of competitors is low across all municipalities. Thus, it damages the likelihood of obtaining cost savings from privatization.

The Macroeconomics of the labor market: three fundamental views

We distinguish and assess three fundamental views of the labor market regarding the movements in unempoyment: (i) the frictionless equilibrium view; (ii) the chain reaction theory, or prolonged adjustment view; and (iii) the hysteresis view. While the frictionless view implies a clear compartmentalization between the short- and long-run, the hysteresis view implies that all the short-run fluctuations automatically turn into long-run changes in the unemployment rate. We assert the problems faced by these conceptions in explaining the diversity of labor market experiences across the OECD labor markets. We argue that the prolonged adjustment view can overcome these problems since it implies that the short, medium, and long runs are interrelated, merging with one another along an intertemporal continuum.

Do Legal Immigrants and Natives Compete in the Labour Market? Evidence from Catalonia

The precondition for labour-market competition between immigrants and natives is that both are willing to accept jobs that do not differ in quality. To test this hypothesis, in this paper we compare the working conditions between immigrants and natives in Catalonia. Comparing immigrants’ working conditions in relation to their native counterparts is not only a useful analysis for studying the extent to which immigrants and low-skilled native workers are direct competitors in the labour market, but also allows us to contribute to the literature on this issue by moving away from the conventional approach used in previous studies. Our results indicate that: i) natives and immigrants display a different taste for job (dis)amenities; ii) Catalan-born workers might be in direct competition with EU15 immigrants, while non-Catalan Spanish workers might be competing with Latin American immigrants, and; iii) African-born immigrants are the group in the Catalan workforce that by far face the worst working conditions.

Informality and overeducation in the labor market of a developing country

In this paper, we explore the connection between labor market segmentation in two sectors, a modern protected formal sector and a traditional- unprotected-informal sector, and overeducation in a developing country. Informality is thought to have negative consequences, primarily through poorer working conditions, lack of social security, as well as low levels of productivity throughout the economy. This paper considers an aspect that has not been previously addressed, namely the fact that informality might also affect the way workers match their actual education with that required performing their job. We use micro-data from Colombia to test the relationship between overeducation and informality. Empirical results suggest that, once the endogeneity of employment choice has been accounted for, formal male workers are less likely to be overeducated. Interestingly, the propensity of being overeducated among women does not seem to be closely related to the employment choice.

Do women in female-dominated occupations exit the labour market more? Evidence from Italy, Spain, Denmark and the UK

Literature on sex occupational segregation has typically focused on the micro and macro determinants of it, on mobility patterns over the life course, on implications of segregation and mobility for gender inequalities. Rarely the link between sex-type occupations and women’s risk of labour market interruptions over family formation has been explored. In this piece of work we shall analyse whether women who are working in the female-dominated, male-dominated or integrated occupations have more or less chances to remain attached to the labour market, controlling for qualifications, class, sector and contract positions. By drawing from ECHP, and comparing Italy, Spain, Denmark and the UK, we shall in particular see whether such connection varies across countries with different institutional and cultural configurations.We find that, ceteris paribus, only in the UK the sex-composition of an occupation matters: women in female occupations are more likely to move to inactivity than women in mixed or male occupations. In the other countries considered the main cleavages lie elsewhere. In Italy what matters most is the sector of employment (public vs. private). In Spain the sector is relevant too, but also social class and the type of contract held (permanent vs. temporary). In Denmark women’s transitions to inactivity are largely independent of human capital and job characteristics.

Leaving the labour market: event-history analysis of the female workers' transition to housework in Denmark, Germany, Great Britain and Spain

This paper is aimed at exploring the determinants of female activity from a dynamic perspective. An event-history analysis of the transition form employment to housework has been made resorting to data from the European Household Panel Survey. Four countries representing different welfare regimes and, more specifically, different family policies, have been selected for the analysis: Britain, Denmark, Germany and Spain. The results confirm the importance of individual-level factors, which is consistent with an economic approach to female labour supply. Nonetheless, there are significant cross-national differences in how these factors act over the risk of abandoning the labour market. First, the number of trnasitions is much lower among Danish working women than among British, German or Spanish ones, revealing the relative importance of universal provision of childcare services, vis-à-vis other elements of the family policy, as time or money.

Adverse Selection, Credit, and Efficiency: the Case of the Missing Market

We analyze a standard environment of adverse selection in credit markets. In our envi- ronment, entrepreneurs who are privately informed about the quality of their projects need to borrow from banks. As is generally the case in economies with adverse selection, the competitive equilibrium of our economy is shown to be ine¢ cient. Under adverse selection, the choices made by one type of agents limit what can be o¤ered to other types in an incentive-compatible manner. This gives rise to an externality, which cannot be internalized in a competitive equilibrium. We show that, in this type of environment, the ine¢ ciency associated to adverse selection is the consequence of one implicit assumption: entrepreneurs can only borrow from banks. If an additional market is added (say, a .security market.), in which entrepreneurs can obtain funds beyond those o¤ered by banks, we show that the e¢ cient allocation is an equilibrium of the economy. In such an equilibrium, all entrepreneurs borrow at a pooling rate in the security market. When they apply to bank loans, though, only entrepreneurs with good projects pledge these additional funds as collateral. This equilibrium thus simultaneously entails cross- subsidization and separation between di¤erent types of entrepreneurs.

Adverse selection, credit, and efficiency: the case of the missing market

We analyze a standard environment of adverse selection in credit markets. In our environment, entrepreneurs who are privately informed about the quality of their projects need to borrow in order to invest. Conventional wisdom says that, in this class of economies, the competitive equilibrium is typically inefficient. We show that this conventional wisdom rests on one implicit assumption: entrepreneurs can only access monitored lending. If a new set of markets is added to provide entrepreneurs with additional funds, efficiency can be attained in equilibrium. An important characteristic of these additional markets is that lending in them must be unmonitored, in the sense that it does not condition total borrowing or investment by entrepreneurs. This makes it possible to attain efficiency by pooling all entrepreneurs in the new markets while separating them in the markets for monitored loans.

The Labor Market Effects of Technology Shocks

We analyze the labor market effects of neutral and investment-specific technology shocks along the intensive margin (hours worked) and the extensive margin (unemployment). We characterize the dynamic response of unemployment in terms of the job separation and the job finding rate. Labor market adjustments occur along the extensive margin in response to neutral shocks, along the intensive margin in response to investment specific shocks. The job separation rate accounts for a major portion of the impact response of unemployment. Neutral shocks prompt a contemporaneous increase in unemployment because of a sharp rise in the separation rate. This is prolonged by a persistent fall in the job finding rate. Investment specific shocks rise employment and hours worked. Neutral shocks explain a substantial portion of the volatility of unemployment and output; investment specific shocks mainly explain hours worked volatility. This suggests that neutral progress is consistent with Schumpeterian creative destruction, while investment-specific progress operates as in a neoclassical growth model.

Monetary policy with signal extraction from the bond market

Monetary policy is conducted in an environment of uncertainty. This paper sets upa model where the central bank uses real-time data from the bond market togetherwith standard macroeconomic indicators to estimate the current state of theeconomy more efficiently, while taking into account that its own actions influencewhat it observes. The timeliness of bond market data allows for quicker responsesof monetary policy to disturbances compared to the case when the central bankhas to rely solely on collected aggregate data. The information content of theterm structure creates a link between the bond market and the macroeconomythat is novel to the literature. To quantify the importance of the bond market asa source of information, the model is estimated on data for the United Statesand Australia using Bayesian methods. The empirical exercise suggests that thereis some information in the US term structure that helps the Federal Reserve toidentify shocks to the economy on a timely basis. Australian bond prices seemto be less informative than their US counterparts, perhaps because Australia is arelatively small and open economy.

The impact of the reference price system on the pharmaceutical market: A theoretical approach

This article analyses the impact of the reference pricesystem on the price-setting strategies of thepharmaceutical firms and on the level of generic usage.This model is the first to take explicitly into accountthe impact of the reference price mechanism on the levelof competition between brand-name and generic drugs andnational pharmaceutical spending. We consider aduopolistic model with one firm producing the brand-namedrug, whose patent has already expired, and the otherproducing the corresponding generic version. We work ina partial equilibrium framework where firms set pricessequentially and consumers face heterogeneous switchingcosts.We show that brand producers compensate thedecline of profits by selling greater quantities insteadof charging higher prices, thus fostering pricecompetition in the pharmaceutical market. This result isa consequence of both the assumption of a verticallydifferentiated model and the introduction of thereference price system.