Research & Policy Work
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Policy Papers:
Policy Papers:
2024:
Notes on Financial Stability and Supervision, 41, November 2024. ISSN 2284-4198
(joint with L. Moller)[Abstract: Last April, the Bank of Italy activated the systemic risk buffer (SyRB) for the first time, to strengthen the resilience of the banking system. The decision was taken in a context of favourable economic conditions for the banking sector, reducing the risk of pro-cyclical effects and maximising the expected net benefits associated with the decision. Nevertheless, in the short term, the increase in capital requirements may be a cost for banks, especially those with less capital in excess of regulatory requirements. This note provides evidence on the possible impact of the SyRB activation announcements on the share prices of Italian banks. To this end, it assesses: (i) whether there was a significant deterioration in the performance of Italian banks' shares in the days immediately following the announcements of the measure and (ii) whether or not this deterioration is related to the level of their excess capital. The results of the analysis suggest that the introduction of the SyRB did not have a negative impact on the share prices of banks, including those with less excess capital available.]
Strengthening releasable macroprudential buffers in European Economic Area countries [available in Italian only]
Strengthening releasable macroprudential buffers in European Economic Area countries [available in Italian only]
Notes on Financial Stability and Supervision, 36, Marzo 2024. ISSN 2284-4198
(Joint with L. Bonato)[Abstract: This note analyses the recent use of the countercyclical capital buffer and the systemic risk buffer in European Economic Area member states. When a crisis occurs, national macroprudential authorities can release these buffers to support the banking system, as was done during the pandemic outbreak in the countries where these buffers had been activated. More and more authorities have decided to increase the use of releasable macroprudential buffers in recent years, taking advantage of the banking system's solid capital position and high profitability. Only four member states, including Italy, have not activated either buffer.]
Articles In Refereed Journals:
Articles In Refereed Journals:
2025:
Temi di discussione (Economic working papers) 1490, Bank of Italy.
(Joint with F. Ciocchetta, R. Gallo, and S. Magri)Abstract: This paper analyzes whether the deposits of high digital banks (ie banks whose customers mainly use online money transfers), are more sensitive to changes in interest rates following the monetary tightening phase started in 2022. By relying on a difference-in-difference model estimated for the period from January 2021 to December 2023, we show that there are no significant differences between high digital and other banks in sight deposits and their rate dynamics. In the same period, in contrast, household term deposits and the related interest rates increased at a greater rate for high digital intermediaries, compared with other banks. This larger increase in household term deposits is not correlated with the main indicators of bank vulnerabilities, but it is driven by the results of ex-ante larger and more profitable high digital banks and of intermediaries with a lower initial share of household term deposits. Overall, the stronger sensitivity of high-digital bank deposits seems limited to household term deposits with no negative impact on their profitability.
2019:
ECONOMICS BULLETIN, 39(4), 2572-2579
(Joint with E. Gaffeo and L. Gobbi)[Abstract: Building upon Lee (2013), this paper puts forward a methodological issue and presents a simple numerical example showing that the extent of systemic liquidity shortages due to a contagious funding run is strictly dependent on the seniority assigned to the different categories of claimants wishing to withdraw funds from financial intermediaries. In more detail, we find that a clearing payment algorithm based on the priority of interbank debt over depositors is found to potentially underestimate such liquidity shortages, if compared to a seniority rule working the other way round. This aspect may be of interest for supervisors implementing macro-prudential stress-testing exercises.]
JOURNAL OF ECONOMIC INTERACTION AND COORDINATION, 14(3), 595-622
(Joint with E. Gaffeo and L. Gobbi) DOI:10.1007/s11403-018-0229-4[Rivista di Classe A - ANVUR, Area 13/A]
[Abstract: Can the netting of on-balance-sheet interbank assets and liabilities be useful in thwarting financial contagion during a systemic crisis episode? In order to answer this question, in this paper we use mean-field approximation techniques and computer simulations to comparatively assess how contagion spreads out throughout an interbank network under different settlement modes. We find that a regulator forcing banks to net their credit/debt obligations instead of allowing them to regulate their mutual exposures on a gross basis succeeds in reducing the number of defaults and in preserving the aggregate amount of bank capital. Interbank netting takes its toll on retail depositors by increasing their potential losses, however. Hence, our analysis provides support for an optimal crisis-management policy mix that combines the enforcement of bilateral netting with a blanket deposit insurance scheme. The desirability of netting increases when the system is highly connected and susceptible to large shocks, especially when strains are first detected in banks located at the core of the network. ]
2018:
JOURNAL OF ECONOMIC INTERACTION AND COORDINATION, 13(1), 51–79.
(Joint with E. Gaffeo) DOI: 10.1007/s11403-017-0210-7[Rivista di Classe A - ANVUR, Area 13/A]
[Abstract: The financial sector is a critical component of any economic system, as it delivers key qualitative asset transformation services in terms of liquidity, maturity and volume. Although these functions could in principle be carried out separately by specialized actors, in the end it is their systemic co-evolution that determines how the aggregate economy performs and withstands disruptions. In this paper we argue that a functional perspective on financial intermediation can be usefully employed to investigate the functioning of financial networks. We do this in two steps. First, we use previously unreleased data to show that focusing on the economic functions performed over time by the different institutions exchanging funds in an interbank market can be informative, even if the underlying topological structure of their relations remains constant. Second, a set of alternative artificial histories are generated and stress-tested by using real data as a calibration base, with the aim of performing counterfactual welfare comparisons among different topological structures. ]
2017:
ECONOMIC MODELLING, 64(C), 322-333.
(Joint with E. Gaffeo) [WP here] DOI: http://doi.org/10.1016/j.econmod.2017.04.003[Rivista di Classe A - ANVUR, Area 13/A]
[Abstract: The recent global financial crisis has revived a long-standing debate on the desirability and feasibility of taxing financial activities to curb speculation and promote price stability. In this paper we apply agent-based computational techniques to explore this issue in a multi-market environment in which the processes driving the fundamental value of the securities traded in different jurisdictions are heterogeneous. A natural exemplification is to assume that security dealers have the opportunity to submit orders by choosing among stock markets at different stages of development. We argue that the proper policy objective to be pursued is not volatility in itself but price efficiency, that is, the volatility in excess of the discounted stream of subsequent dividends. In this case, a global coordination of tax rates is incentive-compatible, given that it minimizes the distortion associated with speculative trading, on the one hand, and it ensures that the loss of trading volume is lower if compared to the case of unilateral taxation on the other. Notwithstanding a fundamental heterogeneity of the markets involved, the optimal tax rate turns out to be symmetric provided that fundamental value trajectories are positively correlated. ]
2016:
ECONOMIC NOTES, 45(3), 303-325.
(Joint with S. Giannangeli & G. Fagiolo ) [Preprint] DOI: 10.1111/ecno.12059[ Abstract: We study the relationships between firm financial structure and growth for a large sample of Italian firms (1998–2003). We expand upon existing analyses testing whether liquidity constraints affect firm expansion by considering amongst growth determinants also firm debt structure within a unified framework. Panel regression analyses show that more liquid firms tend to grow more. However, firms do not use their capital to expand, but rather to increase debt. We also find that firm growth is highly fragile as it is positively correlated with non‐financial liabilities and it is not sustained by a long‐term debt maturity. Finally, quantile regressions suggest that fast‐growing firms are characterized by higher growth/cash‐flow sensitivities and heavily rely on external debt, but seem to be less bank‐backed than the rest of the sample. Overall, our findings suggest that the link between firms’ financial structure and expansion decisions is far more complicated than postulated by standard tests of investment/cash‐flow sensitivities. ]
JOURNAL OF EVOLUTIONARY ECONOMICS, 26(1), 77-99.
(Joint with E. Gaffeo) [WP here] DOI: 10.1007/s00191-015-0419-3[Rivista di Classe A - ANVUR, Area 13/A]
[Abstract: Can consolidation policy be made consistent with macro-prudential supervision? In this study, we seek to provide new insights on this key-question using a network approach. We study how the resilience of a banking network evolves as we shock an initially homogenous competitive market with a sequence of M&A activities that significantly alter the topology of the network. We study how different M&A treatments impact the structural vulnerabilities that can propagate through the system and we show that the severity of contagion and default dynamics depends on the chosen treatment. The desirability of alternative competitive settings (such as a hub-centered market or a more concentrated and yet symmetric market) are assessed against a homogenous benchmark case. We show that the choice depends crucially on the size of the interbank market and the level of bank capitalization. The existence of a large highly connected hub is beneficial in a capitalized network with a well-developed interbank market, but it can significantly weaken the system’s resilience in a poorly capitalized market. Antitrust and competition authorities should adopt a state-contingent approach to M&A activities according to the market conditions in which banks operate. ]
2015:
QUANTITATIVE FINANCE, 15(4), 637-652.
(Joint with E. Gaffeo) [WP here] DOI: 10.1080/14697688.2014.968196[Rivista di Classe A - ANVUR, Area 13/A]
[Abstract: This paper develops a network model of a stylized banking system in which banks are connected to one another through interbank claims, which allows us to study the diffusion of default avalanches triggered by an exogenous shock under a number of different assumptions on the degree of interconnectedness, level of capitalization, liquidity buffers, the size of the interbank market and fire-sales. We expand upon the existing literature by comparing two alternative resolution mechanisms: (i) liquidations triggered by either illiquidity or insolvency-related distress implying asset sales and compensation of creditors; and (ii) a bail-in mechanism avoiding bank closure by forcing a recapitalization provided by bank creditors. Our model speaks to how contagion dynamics unravel via illiquidity-driven defaults in the first case and higher-order losses in the latter one. Within this framework, we show how the liquidity risk externality can be resolved, and we put forward a macro-criterion to assess the adequacy of the liquidity ratio introduced with Basel III. ]
2013:
STRUCTURAL CHANGE AND ECONOMIC DYNAMICS, 24(C), 34-44.
[Preprint here] DOI: 10.1016/j.strueco.2012.11.003[Rivista di Classe A - ANVUR, Area 13/A]
[Abstract: This paper conducts an empirical investigation of the finance–growth nexus at firm level. We exploit a large panel of Italian manufacturing firms observed over the period 1998–2003 to jointly assess the impact of cash flow and leverage on corporate growth measured in terms of employees and sales. We tackle problems of endogeneity, unobservable heterogeneity and persistence by using a system GMM estimator fully developed by Blundell and Bond (1998). We find an inverted U-shaped relationship between debt and growth: at low levels, leverage exerts a positive influence on growth and yet there appears to be a negative relationship between growth and debt-exposure for fragile firms, i.e. highly leveraged ones. This finding is consistent with the idea that debt initially enables firms to broaden their financing options and provides additional resources to growth. Nevertheless, once debt-exposure reaches a certain threshold, liquidity and debt overhang effects prevail and negatively affect firm expansion. Highly leveraged firms are also endowed with relatively lower levels of internal cash flow and exhibit higher growth-cash flow sensitivity. We conclude that this latter result can be interpreted as evidence of the existence of financial constraints. ]
Refereeing Activity for:
Refereeing Activity for:
IMF Economic Review (1), Journal of Economic Dynamics and Control (1), Quantitative Finance (2), European Journal of Finance (1), Journal of Evolutionary Economics (1), Journal of Economic Interaction and Coordination (1), Metroeconomica (1), Italian Economic Journal (1), Research Policy (1), JASSS (1), International Journal of Computational Economics and Econometrics (1), North American Journal of Economics and Finance (1), Economic Change and Restructuring (1) Eurasian Economic Review (1)
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