Edoardo Gaffeo
             ... give me a one-handed economist. All my economists say 'on one hand ...', then 'but on the other one ...'   (H. Truman)

Matching frictions, credit reallocation and macroeconomic activity: how harmful are financial crises?
(with Emanuele Ciola and Mauro Gallegati)

This paper develops a macroeconomic model of real-financial market interactions in which the credit and the business cycles reinforce each other according to a bidirectional causal relationship. We do so in the context of a computational agent-based framework, where the channelling of funds from savers to investors occurring through intermediaries is affected by information frictions. Since banks compete in both the deposit and the loan markets, the whole dynamics is driven by endogenous fluctuations in the size of the intermediaries’ balance sheet. We use the model to show that financial crisis are particularly harmful when hitting in phase with a real recession, and that when this occurs the loss in real output is permanent.

Bilateral netting and systemic liquidity shortages in banking networks
(with Lucio Gobbi and Massimo Molinari)

The cross holding of interbank deposits represents an optimal ex-ante risk-sharing arrangement whenever the uncertainty concerning banks’ liquidity needs is idiosyncratic and imperfectly correlated. When a shock to aggregate liquidity demand occurs, however, such an arrangement could be detrimental – depending on the topological structure of interlinkages - as financial exposures become a means to spread risk. If the ex-post facto is an excess demand for liquidity, therefore, regulators could sever potential channels of contagion by forcing banks to net their mutual debt obligations. Starting from these premises we employ simulation techniques with simple interbank structures to obtain two results. First, a contingent-based mandatory policy to bilaterally net mutual interbank exposures comes with a trade-off between the benefits of thwarting the channels of contagion and the harms of a greater concentration of the remaining netted expositions. Second, the weigh between the two prongs of the trade-off depends on the metric used by regulators to define financial stability and the topological structure characterizing the interbank market.

Leverage and evolving heterogeneous beliefs in a simple agent-based financial market
Recent research has acknowledged the crucial role of financial intermediaries' balance sheet variables - namely, wealth and leverage - in the dynamics of asset prices. In this paper we use a prototypical "small-type" artificial financial market model with heterogeneous interacting traders to pin down how asset prices are affected by the complex interaction between balance sheet contraints and the endogenous evolution of trading rules.

  • 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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