Bank of Italy publishes seven working papers on bank models, AI, climate and labor markets

The Bank of Italy has published seven working papers and the 83rd issue of its economic research newsletter. A study of significant euro-area banks finds that internal ratings-based model adoption reduced risk-weighted asset density but provides no evidence that weaker or less-capitalized banks made larger post-adoption reductions under the Single Supervisory Mechanism. The models were also associated with a shift in lending toward more profitable assets, particularly exposures to large non-financial corporations. Separate research on European Union climate policy finds that immediate tightening raises inflation while anticipated future tightening lowers it, although both reduce emissions and economic activity. Other papers find that U.S. artificial intelligence innovation raises productivity, output, employment and wages while lowering prices, but also reduces labor’s income share and increases wealth concentration. Unexpected cold spells, unlike heat shocks, reduce U.S. activity and prices and raise uncertainty. The remaining studies find that most fixed-term contracts among systematic Italian users serve as workforce buffers against uncertainty, foreign acquisitions of Spanish manufacturers increase robot adoption and reduce labor’s share of value added, and the U.S. green bond market weakened after Donald Trump’s re-election, with issuance falling and the greenium turning positive.