WORKING PAPERS 2012

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2012-51

Modélisation non-linéaire de l'impact des TIC sur la productivité du travail

Benjamin David

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Abstract
This paper focuses on dynamic of diffusion of Information and Communications Technology (ICT) and their impact on labor productivity. Our contribution lies in taking into account the non-linearity of this relationship arguing successively integration time and a time when new productivity gains appear. The existence of this particular sequence is modeled using a Logistic Smooth Transition model (LSTR) which permits to verify the delayed effect assumed for nine of the twelve countries studied. Different values of the adjustment periods across them are related to the structural characteristics of economies considered.
Mot(s) clé(s)
ICT, Solow Paradox, Labor productivity, Delayed effect, LSTR model
2012-50

Les extensions contextuelles et structurelles du choix économique rationnel

Fabrice Tricou

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Abstract
Rational choice theory stretches out in two complementary directions. Its contextual and extensive application fills and then overflows the strict domain of substantive economy, eventually identifying any human choice with an economic decision. Its structural and intensive sophistication surpasses the basic framework of choice without uncertainty to treat the exogenous and endogenous forms of uncertainty. These two forms of progress, thematic and analytical, come together to ensure the general expansion of the field of rational choice. Beyond its advantages and achievements, this attempt at universal “economization” faces limits in the two directions of its development. Contextually, the logic of instrumental choice is unable to grasp deontological morals and axiological rationality. And structurally, the logistics of rational choice is inoperative faced with a radically uncertain environment and/or a one-on-one interaction with another person.
Mot(s) clé(s)
rational choice theory, economics, interest, morals, uncertainty, market
2012-49

Noncooperative Oligopoly in Markets with a Continuum of Traders: A Limit Theorem

Francesca Busetto, Giulio Codognato, Sayantan Ghosal

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Abstract
In this paper, in an exchange economy with atoms and an atomless part, we analyze the relationship between the set of the Cournot-Nash equilibrium allocations of a strategic market game and the set of the Walras equilibrium allocations of the exchange economy with which it is associated. In an example, we show that, even when atoms are countably infinite, Cournot-Nash equilibria yield different allocations from the Walras equilibrium allocations of the underlying exchange economy. We partially replicate the exchange economy by increasing the number of atoms without affecting the atomless part while ensuring that the measure space of agents remains finite. We show that any sequence of Cournot-Nash equilibrium allocations of the strategic market game associated with the partially replicated exchange economies approximates a Walras equilibrium allocation of the original exchange economy.
Mot(s) clé(s)
Cournot-Nash equilibrium, strategic market games, limit theorem
2012-48

RICARDO AND LEMKE

Christian Bidard

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Abstract
We study the economic mechanism which sustains the substitution of a marginal method for another when demand increases, in the presence of scarce resources. In those Ricardian dynamics, it is shown that the outgoing method is determined by the quantity side of the problem, the incoming method by the value side. That discrepancy explains both the possible failure of the dynamics and the possible occurrence of multiple equilibria. Conditions for existence, uniqueness and the working of the dynamics are stated. A parallel is drawn with the parametric Lemke algorithm used to solve linear complementarity problems.
Mot(s) clé(s)
Dynamics, Lemke, rent, Ricardo, scarce resources
2012-47

Longevity, pollution and growth

Natacha Raffin, Thomas Seegmuller

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Abstract
We analyze the interplay between longevity, pollution and growth. We develop an
OLG model where longevity, pollution and growth are endogenous. The authorities may provide two types of public services, public health and environmental maintenance, that participate to increase agents’ life expectancy and to sustain growth in the long term. We show that global dynamics might be featured by a high growth rate equilibrium, associated with longer life expectancy and a environmental poverty trap. We examine changes in public policies: increasing public intervention on health or environmental maintenance display opposite effects on global dynamics, i.e. on the size of the trap and on the level of the stable balanced growth path. On the contrary, each type of public policy induces a negative leverage on the long run rate of growth.
Mot(s) clé(s)
Life expectancy; Pollution; Health; Growth
2012-46

Does Bayesian Shrinkage Help to Better Reflect What Happened during the Subprime Crisis?

Ilyes Abid, Khaled Guesmi, Olfa Kaabia

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Abstract
We study the contagion effects of a U.S. housing shock on OECD countries over the period of the subprime crisis. Considering a large database containing national macroeconomic, financial, and trade dynamic variables for 17 OECD countries, we evaluate forecasting accuracy, and perform a structural analysis exercise using VAR models of different sizes: a standard VAR estimated by OLS and a MEDIUM and LARGE VARs estimated by a Bayesian shrinkage procedure. Our main findings are that: First, the largest specification outperforms the smallest one in terms of forecast accuracy. Second, the MEDIUM VAR outperforms both the LARGE BVAR and the SMALL VAR in the case of structural analysis. So the MEDIUM VAR is sufficient to provide plausible impulse responses, and reproduce more realistically what happened during the subprime crisis. Third, the Bayesian shrinkage procedure is preferable to the standard OLS estimation in the case of an international contagion study.
Mot(s) clé(s)
Contagion, subprime crisis, OECD housing markets, VAR/ BVAR models and Bayesian shrinkage
2012-45

Revisiting the hedonic price method to assess the implicit price of environmental quality with market segmentation

Marc Baudry, Masha Maslianskaïa-Pautrel

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Abstract
The article highlights the role of heterogeneity in the formation of hedonic prices. The article distinguishes between continuous and groupwise heterogeneity. The distinction helps understanding two important points. First, the analysis of market equilibrium with groupwise heterogeneity makes explicit the role of participation and incentives compatibility constraints for groups of buyers. The case of continuous heterogeneity may be thought of as a limit case of groupwise heterogeneity when the number of groups goes to infinity and their masses go to zero. The hedonic price curve is then obtained as the solution of a differential equation resulting from a market clearing condition. Second, the article outlines that submarkets emerge from market equilibrium only in the case of groupwise heterogeneity. The existence of submarkets means that the hedonic price function is continuous but the implicit price of characteristics is discontinuous at endogenous threshold values separating submarkets. Major implications for the valuation of environmental quality follow on. Based on numerical simulations, the article gives some insights into the way significant biases and drawbacks in the estimation of the implicit price of environmental quality can arise if the usual two steps procedure is implemented.
Mot(s) clé(s)
Environmental valuation, discrete heterogeneity, hedonicmodeling, vertical differentiation
2012-44

Public debt, economic growth and nonlinear effects: Myth or reality?

Balázs Egert

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Abstract
The economics profession seems to increasingly endorse the existence of a strongly negative nonlinear effect of public debt on economic growth. Reinhart and Rogoff (2010) were the first to point out that a public debt-to-GDP ratio higher than 90% of GDP is associated with considerably lower economic performance in advanced and emerging economies alike. A string of recent empirical papers broadly validates this threshold value. This paper seeks to contribute to this literature by putting a variant of the Reinhart-Rogoff dataset to a formal econometric testing. Using nonlinear threshold models, there is some evidence in favour of a negative nonlinear relationship between debt and growth. But these results are very sensitive to the time dimension and country coverage considered, data frequency (annual data vs. multi-year averages) and assumptions on the minimum number of observations required in each nonlinear regime. In addition, we also show that nonlinear effects can kick in at much lower levels of public debt (between 20% and 60% of GDP). These results, based on bivariate regressions on secular time series, are largely confirmed on a shorter dataset (1960-2010) when using a multivariate growth framework that accounts for traditional drivers of long-term economic growth and model uncertainty. Nonlinear effects might be more complex and difficult to model than previously thought. Instability might be a result of nonlinear effects changing over time, across countries and economic conditions. Further research is certainly needed to fully understand the link between public debt and growth.
Mot(s) clé(s)
Public debt, economic growth, nonlinearity, threshold effects
2012-43

The Frail Grounds of the Ricardian Dynamics

Christian Bidard

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Abstract
The Ricardian dynamics study the evolution of distribution when demand increases. The successive marginal methods in agriculture are determined by means of a rule which has never been stated explicitly by Ricardo's commentators. But the rule also allows us to point at two limits of Ricardo's construction, first in his attempt to get rid of rent in the analysis of distribution, second in the working of the dynamics themselves. Similarly, the identification of a productivity and a profitability criterion is at the basis of Sraffa's mistake in his reconstruction of the theory of rent, whereas post-Sraffian formalizations have abandoned Ricardo's dynamic approach.
Mot(s) clé(s)
Rent; Ricardian dynamics; Ricardo; Sraffa
2012-42

On the links between stock and commodity markets' volatility

Anna Creti, Marc Joëts, Valérie Mignon

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Abstract
This paper investigates the links between price returns for 25 commodities and stocks over the period from January 2001 to November 2011, by paying a particular attention to energy raw materials. Relying on the dynamic conditional correlation (DCC) GARCH methodology, we show that the correlations between commodity and stock markets evolve through time and are highly volatile, particularly since the 2007-2008 financial crisis. The latter has played a key role, emphasizing the links between commodity and stock markets, and underlining the financialization of commodity markets. At the idiosyncratic level, a speculation phenomenon is highlighted for oil, coffee and cocoa, while the safe-haven role of gold is evidenced.
Mot(s) clé(s)
Commodities; stock market; financial crisis; volatility; correlations; DCC-GARCH
2012-41

The Ricardo-Lemke parametric algorithm on oddity and uniqueness

Christian Bidard

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Abstract
The parametric Lemke algorithm finds an odd number of solutions to the linear complementarity problem LCP (q, M), for a matrix M with zero blocks on the diagonal and vector q within a certain domain. A criterion for monotonicity and uniqueness is given. The algorithm applies to the determination of a long-run equilibrium in the presence of scarce resources, and its first description can be traced back to the nineteenth century economist David Ricardo.
Mot(s) clé(s)
Oddity; parametric Lemke algorithm; Ricardo; uniqueness.
2012-40

Theoretical Channels of International,Transmission During the Subprime Crisis to OCDE Countries: A FAVAR Model Under Bayesian Framework

Ilyes Abid, Olfa Kaabia

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Abstract
This paper studies whether and how U.S. shocks are transmitted to other OECD economies in the case of the subprime crisis. Using a large data set of financial and macroeconomic variables in 17 OECD countries from 1980:Q1 to 2006:Q2, we characterize the transmission channels by the interpretable factors and make a structural analysis using FAVAR models under a Bayesian approach. Our main findings suggest that differences exist in the contagion effects. This implies that no generalizations can be made for OECD countries even of equal economic size and in the same geographic region. Our results show that a large portion of the variance of domestic economic variables is explained by global factors and that the interest rate shock appears to play an important role in the spillover mechanism from the U.S to the OECD countries.
Mot(s) clé(s)
Transmission channels; Contagion; Bayesian estimation and FAVAR models
2012-39

China’s Ambiguous Impacts on Commodity-Dependent Countries: the Example of Sub-Saharan Africa (with a Focus on Zambia)

Lee Robinson, Alice Nicole Sindzingre

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Abstract
The spectacular growth of China has induced major changes for developing countries, in particular low-income Sub-Saharan African economies. Most of these economies heavily depend on primary commodities for their exports, and China’s demand for these commodities, especially oil and metals, has contributed to a long cycle of increase in commodity prices (the ‘supercycle’ of the 2000s), but also to increased price volatility. China has also become a significant trade partner of Sub-Saharan African economies, and invested significantly in Sub-Saharan Africa. A theoretical question is therefore whether these changes may generate structural transformation and trigger sustained growth paths in Sub-Saharan countries. The paper shows that the transmission channels of China’s impact on growth prospects in Sub-Saharan African economies are multiple, both direct and indirect, and underscores the ambivalence of these impacts: i) high commodity prices have the potential to improve fiscal space, creating opportunities to catalyse diversification and structural transformation. Moreover, Chinese investments occur not only in the commodity sectors but also in industrial sectors and infrastructure; ii) however, higher and more volatile commodity prices, driven by China, can result in negative effects (e.g., Dutch disease). Furthermore, China’s demand may lock African economies into their century-old pattern of dependence on primary commodities. Large Chinese investments (especially in infrastructures) may also have lock-in effects, as they are organised by original contracts that exchange investments for commodities; iii) it is particular commodity and industry factors that affect an individual country’s ability to harness opportunities created by high commodity prices, which is demonstrated via the case study of Zambia.
Mot(s) clé(s)
China; Sub-Saharan Africa; commodities; trade; foreign direct investment
2012-38

Energy price transmissions during extreme movements

Marc Joëts

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Abstract
This paper investigates price transmissions across European energy forward markets at distinct maturities during both normal times and extreme fluctuation periods. To this end, we rely on the traditional Granger causality test (in mean) and its multivariate extension in tail distribution developped by Candelon, Joëts, and Tokpavi (2012). Con- sidering forward energy prices at 1, 10, 20, and 30 months, it turns out that no significant causality exists between markets at regular times whereas comovements are at play during extreme periods especially in bear markets. More precisely, energy prices comovements appear to be stronger at short horizons than at long horizons, testifying an eventual Samuelson mechanism in the maturity prices curve. Diversification strategies tend to be more efficient as maturity increases.
Mot(s) clé(s)
Forward energy prices; Value-at-Risk (VaR); CAViaR approach; risk spillover; Granger causality
2012-37

Optimality of a monetary union : New evidence from exchange rate misalignments in West Africa

Issiaka Coulibaly, Blaise Gnimassoun

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Abstract
This paper aims to study the optimality of a monetary union in West Africa by using a new methodology based on the analysis of convergence and co-movements between exchange rate misalignments. Two main advantages characterize this original framework. First, it brings together the information related to several optimum currency area criteria— such as price convergence, terms of trade shocks, and trade and fiscal policies—going further than previous studies which are mainly based on only one criterion at a given time. Second, our study detects potential competitiveness differentials which play a key role in the debate on the optimality or not of a monetary union, as evidenced by the recent crisis in the Euro area. Relying on recent panel cointegration techniques and cluster analysis, our results show that the WAEMU area has a core composed by Burkina Faso, Mali, Niger and Senegal which can be joined by Ghana, Sierra Leone and, to a lesser extent, Gambia, and that Ghana and Senegal appear to be the best reference countries for the creation of the whole West Africa monetary union.
Mot(s) clé(s)
Exchange rate misalignment, Optimum Currency Area, West African countries
2012-36

Integer Programming and Nondictatorial Arrovian Social Welfare Functions

Francesca Busetto, Giulio Codognato, Simone Tonin

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Abstract
Following Sethuraman, Teo and Vohra ((2003), (2006)), we apply integer programming tools to the analysis of fundamental issues in social choice theory. We generalize Sethuraman et al.'s approach specifying integer programs in which variables are allowed to assume values in the set {0; 1/2 ; 1}. We show that there exists a one-to-one correspondence between the solutions of an integer program defined on this set and the set of the Arrovian social welfare functions with ties (i.e. admitting indifference in the range). We use our generalized integer programs to analyze nondictatorial Arrovian social welfare functions, in the line opened by Kalai and Muller (1977). Our main theorem provides a complete characterization of the domains admitting non- dictatorial Arrovian social welfare functions with ties by introducing a notion of strict decomposability.
Mot(s) clé(s)
2012-35

Will technological progress be sufficient to stabilize CO2 emissions from air transport in the mid-term?

Julien Chevallier, Benoît Chèze, Pascal Gastineau

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Abstract
This article investigates whether anticipated technological progress can be expected to be strong enough to offset carbon dioxide (CO2) emissions resulting from the rapid growth of air transport. Aviation CO2 emissions projections are provided at the worldwide level and for eight geographical zones until 2025. Total air traffic flows are first forecast using a dynamic panel-data econometric model, and then converted into corresponding quantities of air traffic CO2 emissions using specific hypotheses and energy factors. None of our nine scenarios appears compatible with the objective of 450 ppm CO2-eq. (a.k.a. "scenario of type I") recommended by the Intergovernmental Panel on Climate Change (IPCC). None is either compatible with the IPCC scenario of type III, which aims at limiting global warming to 3.2°C.
Mot(s) clé(s)
Air transport; CO2 emissions; Forecasting; Climate change
2012-34

Revisiting the theory of optimum currency areas: Is the CFA franc zone sustainable?

Cécile Couharde, Issiaka Coulibaly, David Guerreiro, Valérie Mignon

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Abstract
This paper aims at explaining why the CFA countries have successfully maintained a currency union for several decades, despite failing to meet many of optimum currency area criteria. We suggest that the CFA zone, while not optimal, has been at least sustainable. We test this sustainability hypothesis by relying on the Behavioral Equilibrium Exchange Rate (BEER) approach. In particular, we assess and compare the convergence process of real exchange rates towards equilibrium for the CFA zone countries and a sample of other sub-Saharan African (SSA) countries. Our findings evidence that internal and external balances have been fostered and adjustments facilitated in the CFA zone as a whole—compared to other SSA countries—as well as in each of its member countries.
Mot(s) clé(s)
Equilibrium exchange rates; CFA zone; Optimum Currency Areas; currency union sustainability
2012-33

Underestimation of probability modifications: characterization and economic implications

Johanna Etner, Meglena Jeleva

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Abstract
The aim of this paper is to propose a behavioral characterization of individuals who underestimate probability modifications and to characterize this behavior in the standard preferences representation models under risk (Expected utility, Dual theory, Rank Dependant Utility Theory and MaxMin Expected Utility). Our main results are the following. Underreaction to probability modifications is in general independent from standard risk aversion and prudence. In models involving probability transformation functions, it is characterized by the slope of the probability transformation function. In the MaxMin Expected utility model under risk, it is related to the weights of the maximal and minimal consequences in the preferences representation function. Considering a simple prevention decision, consisting in the reduction of the probability of a monetary loss, we show that individuals who underreact to probability modifications invest less in prevention than individuals who objectively evaluate these modifications. Underreaction to probability modification is thus a possible explanation for low investment in prevention.
Mot(s) clé(s)
probability perception; non expected utility; prevention
2012-32

Exchange rate pass-through to import prices in the Euro-area: a multicurrency investigation

Tovonony Razafindrabe, Olivier de Bandt

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Abstract
Using a new database of actual import price data, and not unit value indices, for several euro area countries during the period between June 2005 and April 2011, we provide new results on the Exchange Rate Pass Through (ERPT). First, we use a multi-currency approach to distinguish between invoicing strategies across the most important currencies for euro area imports and show that the effective ERPT is primarily driven by the US Dollar ERPT. The firms which invoice in US Dollar (and in Chinese Yuan) are more concerned with demand conditions, while those which invoice in British Pound are more concerned with profit margins. Second, in contrast to several papers in the empirical literature that argue that ERPT is incomplete and its value is declining, we find that short run effective ERPT is incomplete, while long run effective ERPT is complete for a large number of products. Third, we uncover significant heterogeneity across products and countries: ERPT in US Dollar and British Pound appears higher than average for raw materials (e.g. petroleum products) and lower for transformed manufacturing products (chemical, pharmaceutical products and motor vehicles), and ERPT is higher in Spain than in the other euro area countries considered. Fourth, the 2008 global crisis triggered a temporary increase in the effective ERPT.
Mot(s) clé(s)
2012-31

Valuing patents using renewal data: an inquiry into the feasability of an automated patent scoring method

Marc Baudry, Béatrice Dumont

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Abstract
In this paper, we address the problem of patent valuation. With this aim in view, we focus on the feasibility of a patent rating system. This leads us to develop a structural model of patent renewal decisions based on real options that links patent renewals and patent value and to estimate it on micro level data. Results for a sample of European patents show that unobserved heterogeneity is too high to efficiently discriminate among patents and cast some doubt on the possibility to develop a reliable rating system based only on patent metrics.
Mot(s) clé(s)
2012-30

On currency misalignments within the euro area

Virginie Coudert, Cécile Couharde, Valérie Mignon

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Abstract
Although nominal parities have been completely fixed within the euro area since the launch of the single currency, real effective exchange rates have continued to vary under the effect of inflation disparities, exhibiting a strong appreciation in the peripheral countries. In this paper, we assess real exchange rate misalignments for euro area countries by using a Behavioral Equilibrium Exchange Rate (BEER) approach on the period 1980-2010. The results show that the peripheral member countries have been suffering from increasingly overvalued exchange rates since the mid-2000s, as their real appreciation has not stemmed from improving fundamentals in terms of productivity or external position. In addition, currency misalignments have been increased on average for all euro area countries since monetary union, while becoming more persistent. More worryingly, our findings highlight different patterns across members, as misalignments have been larger and more persistent in peripheral countries than in core countries.
Mot(s) clé(s)
euro area; real equilibrium exchange rates; misalignments; panel cointegration
2012-29

Modeling the horizon-dependent risk premium in the forex market: evidence from survey data

Georges Prat, Remzi Uctum

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Abstract
Using Consensus Economics survey data on experts' expectations, we aim to model the 3- and 12-month ahead ex-ante risk premia on the Yen/USD and the British Pound/USD exchange markets. For each market and at a given horizon, we show that the risk premium is well determined by the conditional expected variance of the change in the real exchange rate, agents' real net market position in assets and a constant composite risk aversion coefficient, as suggested by a two-country portfolio asset pricing model. The expected variance depends on the past values of the observed variance and the unobservable real net market position is estimated as a state variable using the Kalman filter methodology. We found that the trends of our estimated horizon-specific net market positions are consistent with the ones of the observed short term aggregate net market positions calculated using the U.S. Treasury International Capital System dataset. Moreover, we show that the ex-post premia tend to adjust towards the ex-ante values, suggesting that experts' beliefs provide a relevant information to the market. These results bring new responses to the difficulties reported by the widespread ex-post risk premium literature and enhances the usefulness of survey data in modelling the risk premium.
Mot(s) clé(s)
risk premium; foreign exchange market; international asset pricing model; survey data
2012-28

Testing for crude oil markets globalization during extreme price movements

Bertrand Candelon, Marc Joëts, Sessi Tokpavi

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Abstract
This paper investigates the global crude oil market dependence during extreme price movements. To this aim we extend the univariate Granger causality test in extreme risk developed by Hong et al. (2009) in a multivariate context. Asymptotic as well as finite sample properties are delivered. Applying this test for 32 crude oil markets, it turns out that extreme price movements are governed by non-OPEC crude oil markets rather than OPEC ones. More precisely, WTI and Brent crude oils are price setters in both extreme downside and upside price movements. More surprisingly, Mediterranean Russian Urals and Europe Forcados (resp. Ecuador Oriente) rather than Dubai Fateh act as additional benchmarks in periods of extreme price falls (resp. rises). Moreover, the integration process between crude oil markets seems to decrease during extreme price movements making diversification strategies more feasible.
Mot(s) clé(s)
Crude oil markets; Risk transmission; Globalization; Distribution tails; Granger-causality test
2012-27

The changing international transmission of US monetary policy shocks: is there evidence of contagion effect on OECD countries

Farhan Akbar, Irfan Akbar Kazi, Hakimzadi Wagan

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Abstract
We study the changing international transmission of US monetary policy shocks to 14 major OECD countries over the period 1981Q1-2010Q4. We use a time-varying parameter factor augmented VAR approach to study the effective federal funds rate shocks together with a large data set of 265, major financial, macroeconomic and trade variables. Our main findings are as follows. First, negative US monetary policy shocks have considerable negative impact on GDP growth in the US, Canada, Japan and Sweden whereas there is positive impact on GDP growth in the most of the other member countries. Second, the transmission to GDP growth has increased in OECD countries since the early 1980s. Third, the transmission of US monetary policy shocks to major economic and financial variables varies in magnitude during financial turmoil periods than normal periods such as the gross fixed capital formation residential, turned most negative over the second quarter after the initial shock in the US, Canada, Germany, Japan, Switzerland and New Zealand mainly during 2008Q4. Asset prices, interest rates and trade channel seem to play major role in propagation of monetary policy shocks.
Mot(s) clé(s)
Monetary policy shocks; financial markets; international transmission channels; global integration; turmoil periods; time-varying parameter factor augmented VAR
2012-26

On the allocation of talented people in developing countries: the role of oil rents

Christian Ebeke, Rachid Laajaj, Luc-Désiré Omgba

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Abstract
Evidence has shown that the allocation of talented people affects the long-term growth. It has been found that a large population of engineers tends to foster innovation and growth more rapidly than population of lawyers and other activities with access to the public rent. Yet little is known about what determines the allocation of talents. This paper uses a sample of 69 developing countries to address this question. It shows that the oil rent tends to orient talents towards productive activities in well-governed countries, and towards rentseeking activities in poorly governed countries. These results are robust to different specifications, datasets on governance quality and estimation methods. The paper sheds light on the sources and mechanisms of the resource curse through its effect on human resources and rent-seeking activities.
Mot(s) clé(s)
Rent-seeking; occupational choice; oil rents
2012-25

The impact of changes in second pension pillars on public finances in Central and Eastern Europe

Balázs Egert

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Abstract
This paper studies the impact of recent changes in second pension pillars of three Central and Eastern European Countries on the deficit and implicit debt of their full pension systems. The paper seeks to answer the following questions: i) what is the impact on the sustainability of Poland’s pension system of the decrease in the pension contribution going to the second pension pillar from 7.3% to 2.3% in 2011; ii) what are the implications of the recent changes on gross replacement rates; iii) does the weakening of the Polish second pension system have a different impact on pension system sustainability than a similar move in a Hungarian-style pension system with a defined-benefit first pillar and iv) how does Estonia’s temporary decrease in pension contributions compensated by temporarily higher future rates affect pension sustainability in that country. The simulation results show that in our baseline scenario the Polish move would permanently lower future pension-system debt, chiefly as a result of a cut in replacement rates. But using a combination of pessimistic assumptions including strong population ageing, low real wage growth and a high indexation of existing pension benefits, coupled with bringing in tax expenditures related to the third voluntary pension pillar and an increase in the share of minimum pensions leads to higher pension system deficits and eventually more public debt at a very long horizon. The simulations also suggest that the Hungarian pension reversal reduces deficit and debt only temporarily, mainly because of Hungary’s costly defined-benefit first pension pillar: the weakening of the second pillar is tantamount to swapping low current replacement rates (in the defined-contribution second pillar) against high future replacement rates in the defined-benefit first pension pillar. Finally, results show that the Estonian move will increase public debt only very moderately in the long run, even though this result is sensitive to the effective interest rate on public debt.
Mot(s) clé(s)
pension reversal; defined benefit; defined contribution; public finances; Central and Eastern Europe
2012-24

Mood-misattribution effect on energy markets: a biorhythm approach

Marc Joëts

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Abstract
This paper investigates the relationship between emotion and European energy forward prices of oil, gas, coal and electricity during normal times and periods of extreme price movements relying on the biorhythm approach. To this end, we use the Seasonal Affective Disorder (SAD) variable to study the impact of emotion on energy market dynamics. Estimating OLS and quantile regressions, we find that seasonal patterns have a significant impact during extreme volatility periods only. Further investigations reveal that the SAD affect is significant during periods of price decrease, but insignificant during priceincrease. The out-of-sample predictive ability properties are also investigated and show that our "SAD model" outperforms significantly the pure "macroeconomic one".
Mot(s) clé(s)
energy forward markets; mood-misattribution; behavioral finance; extreme price movements; quantile regression
2012-23

L’hégémonie retrouvée du centre de la métropole parisienne. L’apport d’une mesure de la ségrégation fonctionnelle des emplois

Lise Bourdeau-Lepage, Élisabeth Tovar

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Abstract
This article examines the spatial distribution of jobs in the Paris Region. Going beyond the standard analysis often centered on economic sectors, it focuses instead on the functions achieved by the jobs. We rely on exploratory spatial data analysis (ESDA) and segregation indicators. We bring to light the hyper-mono-centric structure of the job distribution in the Paris Region in 2007 and, further, show its asymmetric and segregated nature. These results call for additional work on the link between the spatial differentiation and functional segregation of the jobs, and a city’s wealth, productivity and status in the globalized economy. They also challenge the role that the functional hyper-centrality could play in the competition among global metropolises.
Mot(s) clé(s)
Centre; Job Functions; Paris Region; Segregation
2012-22

Local Job Accessibility Measurement: When the Model Makes the Results. Methodological Contribution and Empirical Benchmarking on the Paris Region

Matthieu Bunel, Élisabeth Tovar

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Abstract
This paper focuses on local job accessibility measurement. We propose an original model that uses national exhaustive micro data and allows for i) a full estimation of job availability according to an extensive set of individual characteristics, ii) a full appraisal of job competition on the labour market and iii) a full control of frontier effects. By matching several exhaustive micro data sources on the Paris region municipalities, we compare the results produced by this benchmark model to a representative set of alternative models, we show that the model may indeed make the results as far as local job accessibility is concerned. Significant empirical differences do stem from the use of different Local Job Accessibility measures. Moreover, these differences are spatially differentiated across the Paris region municipalities. In particular, we show that failing to use a model where job availability is fully estimated according to individual characteristics may lead to the over-estimation of the job accessibility levels of notably under-privileged municipalities.
Mot(s) clé(s)
job accessibility measurement; Paris Region; benchmarking; geo-referenced microdata
2012-21

Equilibres Multiples, Croissance Endogène et Politiques Publiques

Ali Abcha

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Abstract
Public policies can change the number of equilibria in an endogenous growth model. This work shows that in a growth model with monopolistic competition the existence of externalities not internalized by the agents can result in a multiplicity of equilibria. Government intervention in the economy can have an impact on this multiplicity by the management of externalities and adverse effects of imperfect competition. However inefficient public intervention can make the economy converge to a suboptimal equilibrium. To this end, we develop a macroeconomic model for a closed economy that has a perfectly competitive sector of final goods and a sector of monopolistically competitive intermediate goods. In order to identify the effects of a public policy on this model we simulate.
Mot(s) clé(s)
multiple equilibria; endogenous growth; public policies
2012-20

The impact of macro news and central bank communication on emerging European forex markets

Balázs Egert, Evžen Kočenda

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Abstract
We analyze the impact of macroeconomic news and central bank communication on the exchange rates of three Central and Eastern European (CEE) currencies against the euro. In doing so, we first estimate standard and extended versions of the monetary model to capture deviations from the long-term monetary equilibrium. In the second stage, we employ a high-frequency GARCH model that includes accurately identified macroeconomic news, central bank communication and emerging market risk and allows for non-linear behavior as regards the deviation from equilibrium. Surprisingly, there is little support for non-linearity in the data. During the pre-crisis period (2004–2007) the major CEE currencies generally respond to macroeconomic news in an intuitive manner that corresponds to exchange rate-related theories. During the crisis (2008–2009), the responsiveness breaks down and the currencies react to news on the key economic indicator (real GDP growth). There is a lack of responsiveness to central bank communications during the pre-crisis period but all currencies react to central bank verbal interventions during the crisis. Our results show that the CEE currencies react to both macroeconomic news and central bank communications but this responsiveness differs during the pre-crisis and crisis periods. Detailed responses vary across the currencies and we conjecture that the exchange rate regime and the extent to which particular currencies are traded on the international forex market are potential explanations behind these differences.
Mot(s) clé(s)
exchange rate; macroeconomic news; central bank communication; monetary model; Central Europe; European Union
2012-19

Financial variables as leading indicators of GDP growth: Evidence from a MIDAS approach during the Great Recession

Laurent Ferrara, Clément Marsilli

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Abstract
The global economic recession, referred to as the Great Recession, endured by the main industrialized countries during the period 2008-09, in the wake of the financial and banking crisis, has pointed out the current importance of the financial sector in macroeconomics. In this paper, we evaluate the predictive power of some major financial variables to anticipate GDP growth in euro area countries during this specific period of time. In this respect, we implement a MIDAS-based modeling approach, put forward by Ghysels et al. (2007), that enables to forecast quarterly GDP growth rates using exogenous variables sampled at higher frequencies. Empirical results show that, overall, stock prices help to improve the accuracy of GDP forecasts by comparison with a standard opinion survey variable, while oil prices and term spread appear to be less informative.
Mot(s) clé(s)
Great Recession; Forecasting; Financial variables; MIDAS approach
2012-18

Nominal and Real Exchange Rate Models in South Africa: How Robust Are They?

Balázs Egert

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Abstract
This paper addresses difficulties in modelling exchange rates in South Africa. Real exchange rate models of earlier research seem to be sensitive to the sample period considered, alternative variable definition, data frequency and estimation methods. Alternative exchange rate models proposed in this paper including the stock-flow approach and variants of the monetary model are not fully robust to data frequency and alternative estimation periods, either. Nevertheless, adding openness to the stock-flow approach and augmenting the monetary model with share prices and the country risk premium improves significantly the fit of the models around the large (nominal and real) depreciation episodes of 2002 and 2008. Interestingly, real commodity prices do not help explain the large depreciations. While these models do a reasonably good job in-sample, their out-of-sample forecasting properties remain poor.
Mot(s) clé(s)
exchange rate; real exchange rate; nominal exchange rate; commodity; Balassa-Samuelson; productivity; monetary model; stock-flow approach; openness; country risk
2012-17

Macroeconomic Policy in DSGE and Agent-Based Models

Giorgio Fagiolo, Andrea Roventini

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Abstract
The Great Recession seems to be a natural experiment for macroeconomics showing the inadequacy of the predominant theoretical framework - the New Neoclassical Synthesis - grounded on the DSGE model. In this paper, we present a critical discussion of the theoretical, empirical and political-economy pitfalls of the DSGE-based approach to policy analysis. We suggest that a more fruitful research avenue to pursue is to explore alternative theoretical paradigms, which can escape the strong theoretical requirements of neoclassical models (e.g., equilibrium, rationality, representative agent, etc.). We briefly introduce one of the most successful alternative research projects - known in the literature as agent-based computational economics (ACE) - and we present the way it has been applied to policy analysis issues. We then provide a survey of agent-based models addressing macroeconomic policy issues. Finally, we conclude by discussing the methodological status of ACE, as well as the (many) problems it raises.
Mot(s) clé(s)
Economic Policy; Monetary and Fiscal Policies; New Neoclassical Synthesis; New Keynesian Models; DSGE Models; Agent-Based Computational Economics; Agent-Based Models; Great Recession; Crisis
2012-16

Labour Market Reforms and Outcomes in Estonia

Zuzana Brixiova, Balázs Egert

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Abstract
The unemployment rate in Estonia rose sharply in 2010 to one of the highest levels in the EU, after the country entered a severe recession in 2008. While the rate declined relatively rapidly in 2011, it remained high especially for the less educated. In 2009, the Employment Contract Law relaxed employment protection legislation and sought to raise income protection of the unemployed to facilitate transition from less to more productive jobs while mitigating social costs. Utilizing a search model, this paper shows that increasing further labour market flexibility through reducing the tax wedge on labour would facilitate the structural transformation and reduce the long-term unemployment rate. Linking increases in unemployment benefits to participation in job search or training programmes would improve the unemployed workers' incentives to search for jobs or retrain and the medium term labour market outcomes. Social protection schemes for the unemployed should be also strengthened as initially intended to give the unemployed sufficient time to search for adequate jobs or retrain for new opportunities.
Mot(s) clé(s)
Labour market reforms; search model; Estonia; OECD countries
2012-15

The nature of financial and real business cycles: The great moderation and banking sector pro cyclicality

Balázs Egert, Douglas Sutherland

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Abstract
This paper takes a fresh look at the nature of financial and real business cycles in OECD countries using annual data series and shorter quarterly and monthly economic indicators. It first analyses the main characteristics of the cycle, including the length, amplitude, asymmetry and changes of these parameters during expansions and contractions. It then studies the degree of economic and financial cycle synchronisation between OECD countries but also of economic and financial variables within a given country, and gauges the extent to which cycle synchronisation changed over time. Finally, the paper provides some new evidence on the drivers of the great moderation and analyses the banking sector's pro-cyclicality by using aggregate and bank-level data. The main findings show that the amplitude of the real business cycle was becoming smaller during the great moderation, but asset price cycles were becoming more volatile. In part this was linked to developments in the banking sector which tended to accentuate pro-cyclical behaviour.
Mot(s) clé(s)
real business cycles, financial cycles, great moderation, banking system, financial markets
2012-14

Combining Rights and Welfarism: a new approach to intertemporal evaluation of social alternatives

Ngo Van Long, Vincent Martinet

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Abstract
We propose a new criterion which reflects both the concern for welfare (utility) and the concern for rights in the evaluation of economic development paths. The concern for rights is captured by a pre-ordering over combinations of thresholds (floors or ceilings on various quantitative indicators) that serve as constraints on actions and on levels of state variables. These thresholds are interpreted as minimal rights to be guaranteed to all generations. They are endogenously chosen within the set of all feasible thresholds, accounting for the "cost in terms of welfare" of achieving these rights. We apply the criterion to several examples, including the standard Dasgupta-Heal-Solow model of resource extraction and capital accumulation. We show that if the weight given to rights in the criterion is sufficiently high, the optimal solution may be on the threshold possibility frontier. The development path is then "driven" by the rights. In particular, if a minimal consumption is considered as a right, constant consumption can be optimal even with a positive utility discount rate. The shadow prices of thresholds play an important role in the determination of the rate of discount to be applied to social investment projects.
Mot(s) clé(s)
Rights, Intergenerational Equity, Welfare, Sustainability
2012-13

Effect of soil heterogeneity on the welfare economics of biofuel policies

Vincent Martinet

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Abstract
Biofuel policies (blend mandate or tax credit) have impacts on food and energy prices, and on land-use. The magnitude of these effects depends on the market response to price, and thus on the agricultural supply curve, which, in turn, depends on the land availability (quantity and agronomic quality). To understand these relationships, we develop a theoretical framework with an explicit representation of land heterogeneity. The elasticity of the supply curve is shown to be non-constant, depending on land heterogeneity and the availability of land for agricultural expansion. This influences the welfare economics of biofuels policies, and the possible carbon leakage in land and fuel markets. We emphasize that the impacts of biofuel policies on welfare and land-use change depend strongly on the potential development of the agricultural sector in terms of expansion and intensification, and not only on its current size.
Mot(s) clé(s)
Agricultural and energy market, Biofuels, Land use, Soil heterogeneity, Welfare
2012-12

Fiscal Policy Reaction to the Cycle in the OECD: Pro- or Counter-cyclical?

Balázs Egert

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Abstract
This paper analyses the reaction of fiscal policy to the cycle in OECD countries. The results suggest that while overall government balances were counter-cyclical in the past and more so in economic downturns than in upswings, discretionary fiscal policy was neutral on average. However, discretionary fiscal policy appears to react to the cycle in a non-linear fashion: fiscal policy in countries with high public debt and high government deficits tends to be pro-cyclical, while countries that have low public debt and that have surpluses are more likely to conduct a counter-cyclical fiscal policy. The paper also finds that asset prices have a significant impact on government balances.
Mot(s) clé(s)
Fiscal policy, pro-cyclicality, counter-cyclicality, OECD countries
2012-11

Risk and Sustainability: Assessing Fisheries Management Strategies

Michel De Lara, Vincent Martinet, Julio Peña-Torres, Héctor Ramírez Cabrera

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Abstract
We develop a theoretical framework to assess sheries management strategies from a sustainability perspective, when the bioeconomic dynamics are marked by uncertainty. Using stochastic viability, management strategies are ranked according to their probability to satisfy economic and ecological constraints over time. The proposed framework is useful when it is not possible to define a multiattribute utility function to represent the trade-offs between the several sustainability objectives. This framework is applied to a Chilean shery case-study, faced with El Niño uncertainty. We study the viability of effort and quota strategies, when a minimal catch level and a minimal biomass are required. For realistic sustainability objectives, effort-based management results in a better viability probability than quota-based management.
Mot(s) clé(s)
sustainability, risk, fishery economics and management, viability, stochastic
2012-10

L’effacement des dettes des particuliers surendettés : Une étude empirique des décisions judiciaires

Régis Blazy, Bertrand Chopard, Eric Langlais, Ydriss Ziane

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Abstract
In this paper, we explore the mechanisms employed by the French judges while discharging personal debts in exchange for liquidation of debtors' assets. Our empirical results highlight the determinants of judicial selection between debtors whose debts are wiped out and those who have to reimburse them. These empirical results help us to understand better how much French personal bankruptcy law is rather pro creditor than pro debtor.
Mot(s) clé(s)
personal bankruptcy, courts, debt restructurings
2012-9

Commitments in Antitrust

Philippe Choné, Saïd Souam, Arnold Vialfont

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Abstract
Competition agencies have the power to close an antitrust case in return for the commitment to end the alleged infringement. We examine how such a procedure affects deterrence and consumer welfare. We first show that it lowers the deterrent effect of competition policy. However, under asymmetric information, commitments may enhance consumer surplus with shortened proceedings and avoidance of trial type-II errors. The variation of consumer harm w.r.t. the firm's gain from the practice determines the optimal usage frequency of this negotiation tool. Finally, we show that trial and commitments may be complements as the latter is not always an answer to a lack of efficiency of the agency.
Mot(s) clé(s)
Commitments in antitrust, Plea bargaining, Consumer Surplus
2012-8

Water Conservation versus Soil Salinity Control

Alain Ayong Le Kama, Agnès Tomini

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Abstract
This paper tackles the increasingly significant problem of irrigation-induced soil salinity within a groundwater management model. Irrigation can result not only in heavier salt concentrations, but also in the removal of salt from the soil through return flows. Given these contradictory observations, we are interested in the effects on soil salt concentration if irrigation efficiency is improved. We develop a model of salt concentration patterns in both soil and groundwater. We introduce a negative externality to the production process by assuming that soil degradation due to higher soil salinity affects total factor productivity. Within this framework, we show that in the presence of this externality, increasing irrigation efficiency can lead to higher or lower soil salt concentration, depending on the social cost of transferring salt from one reservoir to another.
Mot(s) clé(s)
Groundwater Management, Optimal Control of Water Consumption, Soil Salinity
2012-7

Fat-Tail Distributions and Business-Cycle Models

Guido Ascari, Giorgio Fagiolo, Andrea Roventini

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Abstract
Recent empirical findings suggest that macroeconomic variables are seldom normally distributed. For example, the distributions of aggregate output growth-rate time series of many OECD countries are well approximated by symmetric exponential-power (EP) densities, with Laplace fat tails. In this work, we assess whether Real Business Cycle (RBC) and standard medium-scale New-Keynesian (NK) models are able to replicate this statistical regularity. We simulate both models drawing Gaussian- vs Laplace-distributed shocks and we explore the statistical properties of simulated time series. Our results cast doubts on whether RBC and NK models are able to provide a satisfactory representation of the transmission mechanisms linking exogenous shocks to macroeconomic dynamics.
Mot(s) clé(s)
Growth-Rate Distributions, Normality, Fat Tails, Time Series, Exponential-Power Distributions, Laplace Distributions, DSGE Models, RBC Models
2012-6

International Financial Integration and Economic Growth: New Evidence on Threshold Effects

Jinzhao Chen, Thérèse Quang

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Abstract
Recent research highlights that countries differ with respect to their experience with capital flows and do not systematically gain from capital account liberalization. This paper is related to the empirical literature that investigates the particular conditions under which international financial integration (IFI) is growth-enhancing. Relying on non-linear panel techniques, we find that countries that are able to reap the benefits of IFI satisfy certain threshold conditions regarding the level of economic, institutional and financial development, and the inflation rate. Our results also reveal a differentiated behaviour of foreign direct investment and portfolio liabilities compared to debt liabilities.
Mot(s) clé(s)
international financial integration, economic growth, panel threshold regression model
2012-5

Income Distribution, Credit and Fiscal Policies in an Agent-Based Keynesian Model

Giovanni Dosi, Giorgio Fagiolo, Mauro Napoletano, Andrea Roventini

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Abstract
This work studies the interactions between income distribution and monetary and fiscal policies in terms of ensuing dynamics of macro variables (GDP growth, unemployment, etc.) on the grounds of an agent-based Keynesian model. The direct ancestor of this work is the "Keynes meeting Schumpeter" formalism presented in Dosi et al. (2010). To that model, we add a banking sector and a monetary authority setting interest rates and credit lending conditions. The model combines Keynesian mechanisms of demand generation, a "Schumpeterian" innovation-fueled process of growth and Minskian credit dynamics. The robustness of the model is checked against its capability to jointly account for a large set of empirical regularities both at the micro level and at the macro one. The model is able to catch salient features underlying the current as well as previous recessions, the impact of financial factors and the role in them of income distribution. We find that different income distribution regimes heavily affect macroeconomic performance: more unequal economies are exposed to more severe business cycles fluctuations, higher unemployment rates, and higher probability of crises. On the policy side, fiscal policies do not only dampen business cycles, reduce unemployment and the likelihood of experiencing a huge crisis. In some circumstances they also affect positively long-term growth. Further, the more income distribution is skewed toward profits, the greater the effects of fiscal policies. About monetary policy, we find a strong non-linearity in the way interest rates affect macroeconomic dynamics: in one "regime" with low rates, changes in interest rates are ineffective up to a threshold beyond which increasing the interest rate implies smaller output growth rates and larger output volatility, unemployment and likelihood of crises.
Mot(s) clé(s)
agent-based Keynesian models, multiple equilibria, fiscal and monetary policies, income distribution, transmission mechanisms, credit constraints
2012-4

Is price dynamics homogeneous across Eurozone countries?

David Guerreiro, Marc Joëts, Valérie Mignon

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Abstract
The aim of this paper is to investigate whether price dynamics is homogeneous across the Eurozone countries. Relying on monthly data over the January 1970-July 2011 period, we test for the absolute purchasing power parity (PPP) hypothesis through the implementation of second-generation panel unit root and cointegration tests. Our results show that price dynamics are heterogeneous depending on both the time period and the considered group of countries. More specifically, while PPP is validated for the core EMU countries, this hypothesis does not hold for Northern peripheral economies. Turning to the Southern countries, PPP is observed only before the launch of the euro.
Mot(s) clé(s)
price convergence, Eurozone, panel unit root tests, half-life
2012-3

Taux de change et mésalignements du franc CFA avant et après l’introduction de l’euro

Blaise Gnimassoun

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Abstract
In this paper, we rely on panel cointegration techniques to estimate the equilibrium exchange rate of the CFA Franc according to the BEER approach (Behavioural Equilibrium Exchange Rate). Examination of the CFA Franc estimated misalignments revealed that flexibility for the CFA zone in terms of price competitiveness has been greatly reduced since 2002 with the appreciation of the euro, becoming almost zero in 2009. Our results also reveal heterogeneous misalignments across exchange rates. Thus, while some countries have experienced an exchange rate undervaluation in 2009, Ivory Coast has meanwhile reached a level of overvaluation comparable to that observed in 1993. By studying the sources of CFA misalignments, we show the existence of a significant impact of the anchor currency misalignment (euro, French Franc) on the CFA misalignments with a greater influence for the French franc.
Mot(s) clé(s)
Misalignments, panel cointegration, CFA Franc, anchor currency
2012-2

An Environmental-Economic Measure of Sustainable Development

Robert D. Cairns, Vincent Martinet

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Abstract
A central issue in the study of sustainable development is the interplay of growth and sacrifice in a dynamic economy. This paper investigates the relationship among current consumption, growth, and sustained consumption in two canonical, stylized economies and in a more general context. It is found that the maximin value measures what is sustainable and provides the limit to growth. Maximin value is interpreted as an environmental-economic carrying capacity and current consumption or utility as an environmental-economic footprint. The time derivative of maximin value is interpreted as net investment in sustainability improvement. It is called durable savings to distinguish it from genuine savings, usually computed with discounted utilitarian prices.
Mot(s) clé(s)
sustained development; growth; maximin; sustainability indicator
2012-1

The Impact of External Shocks in East Asia: Lessons from a Structural VAR Model with Block Exogeneity

Jean-Pierre Allegret, Cécile Couharde, Cyriac Guillaumin

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Abstract
In this paper, we examine the relative importance of external shocks in domestic fluctuations of East Asian countries and check if these shocks lead to asymmetric or symmetric reactions between the considered economies. To this end, we estimate, over the period 1990.1-2010.4, a structural VAR model with block exogeneity (SVARX model) relying on a comprehensive set of external shocks. We firstly document a rising impact of these external shocks on domestic variables since the mid 1990s. Finally, real oil price and U.S. GDP shocks have a significant impact on domestic activity and lead to more symmetric responses, compared to U.S. monetary shock and MSCI Index financial shocks.
Mot(s) clé(s)
external shocks, East Asia, SVARX model.
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