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The paper analyses the relationship between trade, financial integration and business cycle synchronization in the euro area. The introduction of the euro has had a noticeable impact on European financial markets. Evidence that capital market integration exerts a positive effect on output correlation has two major implications. First, it corroborates the hypothesis of the endogeneity of optimum currency areas, whereby after joining a monetary union countries better meet standard OCA criteria; second, it provides European policy‐makers with yet another reason to pursue financial integration in the euro area (and in prospective members as well).

The paper investigates the empirical relevance of the negative financial spillovers hypothesis according to which fiscal imbalances in one EMU member country bid up the interest rate faced by all other participants in the currency union. This idea questions the ability of financial markets to correctly price various types of risk now that the elimination of exchange rate fluctuations and the rapid integration of national government bond markets have made securities issued by different European governments closer substitutes. The paper takes an eclectic approach and tackles the issue from different angles, reviewing historical episodes, testing the Ricardian equivalence hypothesis in Europe as a whole and finally analyzing the impact of domestic and foreign fiscal variables on European bond yields. Despite the strong comovements displayed by European interest rates, empirical evidence does not support the idea that fiscal variables are a key determinant of these interrelations.

The paper investigates the empirical relevance of the negative financial spillovers hypothesis according to which fiscal imbalances in one EMU member country bid up the interest rate faced by all other participants in the currency union. This idea questions the ability of financial markets to correctly price various types of risk now that the elimination of exchange rate fluctuations and the rapid integration of national government bond markets have made securities issued by different European governments closer substitutes. The paper takes an eclectic approach and tackles the issue from different angles, reviewing historical episodes, testing the Ricardian equivalence hypothesis in Europe as a whole and finally analyzing the impact of domestic and foreign fiscal variables on European bond yields. Despite the strong comovements displayed by European interest rates, empirical evidence does not support the idea that fiscal variables are a key determinant of these interrelations.

AbstractThis paper contributes to the literature on the relationship between innovation and exports by developing a model that emphasizes the role of product innovation in explaining heterogeneity in export behaviour both across and within firms. The dynamic model assumes that firms invest to maintain and increase the portfolio of products they sell: innovation is a stochastic process whereby the probability to capture new business opportunities is a function of the number of goods already sold. Crucially, the model assumes two independent mechanisms to drive the extensive and the intensive margins of a firm's export. The resulting lack of (built‐in) correlation between the two margins is well reflected in the data and represents the main contribution of our theoretical framework. The model is consistent with several other empirical regularities that characterize multi‐product firms, such as the heavy tail in the distribution of the number of products exported by each firm, the strict hierarchy in the sales of products across markets, the substantial degree of product churning and the highly skewed distributions of export sales.

This paper employs a weighted network analysis to study the empirical properties of the world trade web and their evolution over time. We show that most countries are characterized by weak trade links; yet, there exists a group of countries featuring a large number of strong relationships, thus hinting to a core-periphery structure. Also, better-connected countries tend to trade with poorly-connected ones, but are also involved in highly-interconnected trade clusters. Furthermore, rich countries display more intense trade links and are more clustered. Finally, all network properties are remarkably stable across the years and do not depend on the weighting procedure.

Providing financial incentives for companies to invest in productivity-enhancing technologies and practices is the key to productivity growth, according to this latest policy report by Cecilia Jona-Lasinio (ISTAT and LUISS Guido Carli), Stefano Schiavo (University of Trento) and Klaus Weyerstrass (Institut für Höhere Studien). Strong investment should also be made into training and workforce skills to exploit the productivity potential of new business models in the digital economy. Competition policy, although not directly related to productivity, is also emerging as an important tool to shape incentives and foster the efficient allocation of resources both across and within sectors and firms. The report analyses the recent trends in labour and total factor productivity in the EU and beyond and identifies factors that influence productivity.

We simulate the impact of the Covid-19 crisis on corporate solvency using a sample of around one million French nonfinancial companies, assuming they minimize their production costs in the context of a sharp drop in demand. We find that the lockdown triggers an unprecedented increase in the share of illiquid and insolvent firms, with the former more than doubling relative to a No-Covid scenario (growing from 3.8% to more than 10%) and insolvencies increasing by 80% (from 1.8% to 3.2%). The crisis has a heterogeneous effect across sectors, firm size, and region. Sectors such as hotels and restaurants, household services, and construction are the most vulnerable, while wholesale and retail trade, and manufacturing are more resilient. Micro-firms and large businesses are more likely to face solvency issues, whereas SMEs and medium-large firms display lower insolvency rates. The furlough scheme put forward by the government (activité partielle) has been very effective in limiting the number of insolvencies, reducing it by more than 1 percentage point (approximately 12,000 firms in our sample). This crisis will also have an impact on the overall efficiency of the French economic system, as market selection appears to be less efficient during crisis periods relative to "normal times": in fact, the fraction of very productive firms that are insolvent significantly increases in the aftermath of the lockdown. This provides a rationale for policy interventions aimed at supporting efficient, viable, yet illiquid firms weathering the storm. We evaluate the cost of such a scheme aimed at strength-ening firms' financial health to around 8 billion euros.

We simulate the impact of the Covid-19 crisis on corporate solvency using a sample of around one million French nonfinancial companies, assuming they minimize their production costs in the context of a sharp drop in demand. We find that the lockdown triggers an unprecedented increase in the share of illiquid and insolvent firms, with the former more than doubling relative to a No-Covid scenario (growing from 3.8% to more than 10%) and insolvencies increasing by 80% (from 1.8% to 3.2%). The crisis has a heterogeneous effect across sectors, firm size, and region. Sectors such as hotels and restaurants, household services, and construction are the most vulnerable, while wholesale and retail trade, and manufacturing are more resilient. Micro-firms and large businesses are more likely to face solvency issues, whereas SMEs and medium-large firms display lower insolvency rates. The furlough scheme put forward by the government (activité partielle) has been very effective in limiting the number of insolvencies, reducing it by more than 1 percentage point (approximately 12,000 firms in our sample). This crisis will also have an impact on the overall efficiency of the French economic system, as market selection appears to be less efficient during crisis periods relative to "normal times": in fact, the fraction of very productive firms that are insolvent significantly increases in the aftermath of the lockdown. This provides a rationale for policy interventions aimed at supporting efficient, viable, yet illiquid firms weathering the storm. We evaluate the cost of such a scheme aimed at strength-ening firms' financial health to around 8 billion euros.