Research

A European Safe Asset? Not Without the Investors (with Juri Marcucci)

We study debt issued by the European Union (EU) as a joint and several liability of its member countries and show that it pays an interest rate higher than comparably safe, large, and liquid sovereign issuers. The unconditional spread paid by EU bonds reflects their higher sensitivity to bad news, which is especially large during periods of tightening monetary policy. Using novel data, we show that EU bonds face low inelastic demand because they are excluded from major fixed-income indices owing to their lack of formal sovereign status. This translates into lower expected prices during crises, which makes EU bonds unattractive to investors with a potential need for cash, such as mutual funds and foreign central banks. Expectations of state-contingent purchases by the European Central Bank (ECB) can significantly compress this premium even if they are not targeted to EU bonds. A demand-based asset pricing framework indicates that the spread would be negligible if the EU were recognized as a fully sovereign issuer.

Please email me if you are interested in a copy of the draft

Fiscal integration as a Pareto improvement

I study the effect of partial fiscal integration for sovereign countries that are members of a single currency area. I make three contributions to the existing literature. First, in addition to joint issuance of debt securities, I consider an element of (partial) joint taxation that is costly to default on and hence provides an implicit commitment device for weaker countries. Second, I focus on the welfare gains for stronger countries thanks to the reduced moral hazard due to the costs imposed on them by default of a weak country. Finally, I incorporate the empirical evidence from Bonfanti (2024) to take into account the high cost of issuance of securities that are not formally government bonds.

The market for intellectual capital (with Bruno Pellegrino)

We use a novel data source to characterize the market for intellectual property among large US corporations through the licensing of proprietary technology and trademarks. We recover the network of agreements and show that it is a large market with potential for spillovers from one pair of companies to other entities that are related as customers, suppliers, or competitors. We model the strategic choice of firms to license part of their IP to another firm when taking into consideration the interaction of increased productivity with the network structure of the product market. Since firms do not internalize the positive spillovers from technology transfers, there is scope for policy to subsidize the search process. We show that the predictions from the model are clearly detectable in the data, with the pattern of agreements being consistent with firms making a strategic choice when transferring proprietary technology and trademarks.

Do financial markets consider European common debt a safe asset? (with Luis Garicano)

Bruegel blog, December 2022

"Workshop on EU borrowing costs: drivers and dynamics", European Parliament, Brussels

Here are the details of the event, my slides and a recording of my testimony