Essays on financial disintegration in post -unification Italy and experimental tests of Ricardian equivalence

Pia Di Girolamo, Purdue University

Abstract

This thesis includes three essays. The first two essays show that after the unification in Italy there was a great degree of monetary, economic and financial disintegration. Essay 1 concentrates on one aspect of monetary disintegration: the persistence of local pre-unification currencies. The persistence of the paper ducats as medium of exchange and stores of value in the southern regions is consistent with the rate of return dominance anomaly of money: the southern agents held assets in the form of barren money (paper ducats) rather than of interest-yielding securities (consol). Nevertheless, they identified the existence of an opportunity cost in treasuring the paper ducats; therefore positive variations in the yield of the consol induced positive variations in the rate of withdrawal of the ducats. Essay 2 analyzes the price discrepancies in the early Italian financial and commodities markets. The incapacity of the government to impose a unique central bank with monopoly of issue and the monetization of the debt that followed the inconvertibility of the lira were at the origin of the monetary idiosyncrasies between the northern and the southern markets. These idiosyncrasies were the cause for price discrepancies and persisting arbitrage opportunities between the Italian markets. There is strong evidence that the price differential on the consol between the Italian stock markets was caused by a different depreciation of the lira across the territory. Essay 3 tests Ricardian equivalence with heterogeneous agents and earnings uncertainty. The experimental results indicate that whenever the theory predicted a positive bequest greater or equal to the repayment of the debt, outcomes close to those predicted by weak Ricardian equivalence occurred in the lab. When the theory predicted bequests lower than the repayment of the debt, the resulting bequests were greater than equilibrium but in most cases smaller than the repayment of the debt; therefore weak Ricardian equivalence did not occur in compliance with the theoretical predictions. Uncertainty and experience affected the decisions of the subjects. Overall it is possible to conclude that in a setup with heterogeneous agents, earnings uncertainty and random matches, subjects converge to equilibrium provided that they receive sufficient training.

Degree

Ph.D.

Advisors

Carlson, Purdue University.

Subject Area

Economics|Economic history|Finance

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