Edoardo Gaffeo
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"The price is right". Using auction theory to enhance competition in the NPL market
(with Ronny Mazzocchi)

Almost a decade after the onset of the global financial crisis, a huge stock of non-performing loans (NPLs) still represents a major burden for European banks’ profitability and a severe headwind for credit growth at an area-wide level. While a great deal has been done to establish stricter supervisory rules and more robust insolvency frameworks, the development of an efficient secondary market for impaired assets is currently lagging behind, especially in the countries where the level of troubled loans is more worrisome. To address this problem, the European Banking Authority has recently proposed to set up an EU-backed asset management company (AMC) for the exchange of NPLs. In addition to the difficulties associated to a full compliance of a public AMC with EU State aid rules, we argue that such a vehicle might be useful in solving just one of the three failures typically affecting the market for NPLs, that is the information asymmetry between buyers and sellers. To successfully tackle the other two – namely, market power and collusion – a correct design of the market is crucial. From this point of view, auction theory can be of great help.


A functional perspective to financial networks
(with Massimo Molinari)

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 the determines how the aggregate economy performs and withstands disruptions. In this paper we argue that a functional perspective to 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.



Work-in-progress
  • Prediction markets and the social economy (with Luigi Mittone, Matteo Ploner and Alessandro Rossi)
  • Are loans and debt securities complements or substitutes? A time-frequency analysis for the US (with Marco Gallegati)
  • The pro-cyclicality of real wages: evidence from the XIXth century art market (with Antonello Scorcu)





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