Fabio Mazzola (p), Pietro Pizzuto, Davide Furceri

The aim of this paper is to assess the impact of fiscal and monetary policy shocks on regional disparities. From a theoretical point of view, policy changes may affect regions differently due to their heterogeneity in their industry-mix and their financial networks.
To test for this hypothesis, we use an unbalanced panel of 26 advanced countries from 1990 to 2016, estimating the dynamic response of regional inequalities to policy changes, controlling and interacting for country’s structural variables and specific variables associated to regional inequalities.
The paper follows the method proposed by Jorda (2005) and Teulings and Zubanov (2014), which consists of estimating Impulse Response Functions (IRFs) based on local projections of the effect of downturns on regional inequalities.
In detail, in the first part, to establish the impact of fiscal and monetary policy shocks on regional inequalities, for each future period k we estimate an equation where the change in regional inequality through time is regressed against a measure of unanticipated changes in government spending (policy rates), an autoregressive component to capture persistence and a set of country’s controls including: (i) the average regional real per capita income; (ii) the initial level of dispersion in the regional real per capita income.
In the second part of the paper, to take into account the role of macroeconomic and regional conditions in shaping the response of regional disparities to economic downturns, we follow the approach of Auerbach and Gorodnichenko (2013) and Abiad et al. (2015), that allow interaction between policy changes and economic conditions. On the one hand, the set of such variables includes, among others, business cycle conditions, the degree of trade openness, the initial level of inequalities. On the other hand, we take into consideration industry-mix variables in order to analyze the region’s output response to these shocks.

Carlo Lavalle, Nicola Pontarollo, Ricardo Ribeiro Barranco, Carolina Serpieri (p)

The strength of 2008 crisis reopened the debate on regions’ ability to deal with negative shock within the European Union (EU). This study provides a conceptual framework for one of the major dimensions of economic resilience, i.e., the renewal capacity, and empirically estimates its main drivers.
According to Martin (2012), renewal is defined in a regional context as the extent to which regional growth paths renovate after a shock. We operationalize this concept for EU regions computing the difference between the slopes of the trends after and before the 2008 crisis, taking the latter as a “what if” reference that did not experience the shock. A positive value represents the ability of renewing the growth path with a consequent social welfare gain, and a negative value the absence of renewal capacity, i.e., a decline.
We then investigate the variables that determine the renewal capacity using different model specifications. These variables belong to several economic and social categories, as well as national and regional dimensions. The framework allows to disentangle which geographical scales matter more and within each of them the more relevant socio-economic domains.
The hierarchical structure of the data requires to address some econometric issues mainly related to the non-independence of the error terms. To deal with this problem and in order to end up with reliable and robust results, we explore a set of alternative techniques: standard and spatial models with clustered standard errors, country fixed effects, country random effects, and a two steps approach.
The results are potentially useful for policy strategies in terms of reorienting their targets and financial resources to the proper geographical and socio-economic dimension to generate the higher benefits in terms of economic empowerment.

Kim Swales (p), Grant Allan, Gioele Figus, Peter McGregor

There has recently emerged a strong and widespread critique of economics centred on its inability both to predict the onset of the financial crisis and to question the institutions which created the crisis (Kwak, 2017; Earle et al, 2017). One aspect of this criticism has focussed on the role of abstract theory and, in particular, general equilibrium analysis. We would argue strongly for an analysis that attempts to incorporate simultaneously micro and macro-economic factors in a consistent manner. However, such an analysis does not have to be constrained by the conventional neo-classical straightjacket.
In this paper we investigate the impact of different expectation-formation procedures and the role that these play on the level of investment and overall economic activity in a regional economy subject to temporary exogenous shocks. The basic model which we adopt here has an eclectic, broadly Keynesian, flavour following Robinson (1960), is influenced by the work of Kahneman (2012) in the treatment of consumption and investment and incorporates endogenous technical progress. Essentially we are attempting to generate a form of behaviouralist regional Computable General Equilibrium (CGE) model.
The simulations employ a model parameterised on Scottish data. The variants of the model are subject to identical temporary and permanent exogenous reductions in export demand. The subsequent time paths of economic activity are then reported and compared. Whilst the neo-classical formulations show relatively small adjustments to economic activity and a smooth transition to the new equilibrium, this is not the case with the behavioural variant, particularly those incorporating endogenous technical change through the adoption of the Verdoorne’s Law. The models with imperfect foresight generate damped cycles in economic activity with the default parameter values and these cycles are exacerbated by endogenous technical progress.