The recent dynamics characterizing the Eurozone economy suggest the existence of a new policy trilemma faced by its member countries. According to this policy trilemma, there is a trade-off between free capital mobility, financial stability and fiscal policy flexibility. In this paper, we analyze the foundations of such a trade-off and, based on the data for 11 Eurozone countries, present an empirical investigation on the existence of the trilemma. The results highlight the existence of the trade-off, with some differences between member countries. The existence of this trilemma in the Eurozone provides arguments for implementing centralized financial supervision together with fiscal and monetary reforms that should strengthen the currency union.

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This paper investigates the economic and non‐economic determinants of interregional migration for unskilled and skilled migrants in Italy for the period 1985–2006. In addition to the traditional variables of the Harris and Todaro model, we consider the impact of house prices, carbon dioxide emission and crime. Using a dynamic two‐step panel generalized method of moments, the traditional model omits some important variables and may not be representative of migration flow. Our analysis confirms that for different periods we have to take into account different determinants. Moreover, the externalities are significant, indicating the importance of including broader quality of life as explanatory variables.

Purpose The purpose of this paper is to analyse the long-term nature of the interrelationship between interest rate and exchange rate. Design/methodology/approach By employing Mexican data, the authors estimate a non-linear autoregressive distributed lags (NARDL) model to investigate the nature of the changes and the interaction between interest rate and exchange rate in response to monetary authorities’ actions. Findings The results show that, contrary to simplistic predictions, the real exchange rate causes the real interest rate in an asymmetric way. The bounds testing approach of the NARDL models suggests the presence of co-integration among the variables and the exchange rate variations appear to have significant long-run effects on the interest rate. Most importantly, these effects are asymmetric and positive variations in the exchange rate have a lower impact on the interest rate. It is also interesting to report that the reverse is not true: the interest rate in the long-run exerts no statistical significant impact on the exchange rate. Practical implications The asymmetric long-term relationship between real exchange rate and real interest rate is evidence of why monetary authorities are reluctant to free float exchange rate. In Mexico, as in most developing countries, monetary policy strongly responds to exchange rate movements because these have relevant effects on commercial trade. Moreover, in dollarized economies these effects are stronger because of pass-through impacts to inflation, income distribution and balance-sheet equilibrium (the well-known “original sin”). Originality/value Under inflation targeting and flexible exchange rate regime, despite central banks pursue the control of short-term interest rate, in the long-run one could observe that it is the exchange rate that influences the interest rate, and that this reverse causality is stronger in emerging economies. This paper contributes by analysing the asymmetric relationship between the variables.

The purpose of this paper is to investigate the evidence for economic convergence across Italian regions using trends in interest rate spreads and premia as indicators of regional credit conditions. Our results indicate the presence of persistent interest rate differentials, and thus an absence of convergence across the twenty political regions, but we observe a high degree of convergence within the four macroeconomic areas. On the other hand we find evidence of a strong level of homogeneity in credit conditions within each of the four macroeconomic regions.JEL Classification Codes: C23, E43, R11 and R15.

In this article, we investigate the presence of a long-run money demand in a\ud selected group of nine developed OECD countries (G7 plus Australia and\ud Switzerland). Our estimations are based on panel DOLS and between-dimension\ud group-mean panel DOLS introduced by Mark and Sul (2003) and Pedroni (2001),\ud respectively. We employ income and wealth as alternative scale variables to\ud model two money demand functions using quarterly data for the period 1982 to\ud 2008. Our results highlight the role of total wealth in the determination of money\ud demand with a positive elasticity. Moreover, a parameter stability analysis suggests that estimated money demand with the inclusion of wealth is more stable

The definition of money demand and the study of its stability are still relevant issues, as the effects of monetary policies are also analyzed on the basis of the movements in the demand for money. Therefore, understanding the functioning of money demand is extremely important for monetary policy decisions. In this paper we study money demand in the euro-area, investigating if its estimated stability is influenced by the monetary aggregate employed. This aspect is particularly relevant in the context of the European Monetary Union (EMU), as the European Central Bank (ECB) conducts monetary policy on the basis of the broad money aggregate M3 and one of the most relevant problems for monetary policy decisions in this area is the instability of money demand. By employing panel data techniques, we are able to show that the stability of the relation between money demand and its determinants changes depending on the monetary aggregate (M1, M2 or M3) employed as a proxy for money demand. Moreover, money demand is substantially more stable when M2 is considered. Then, by switching from M3 to M2 as the reference monetary aggregate can increase the estimated money demand stability and improve the performance of the ECB’s monetary policy. This result is also confirmed by splitting the sample in two separate groups of countries. Nevertheless, in less stable economies the impact of inflation on money demand is significantly higher, while in more stable economies the role of income is more relevant

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