WORKING PAPERS 2015

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2015-41

The Role of International Reserves Holding in Buffering External Shocks

Audrey Allegret, Jean-Pierre Allegret

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Abstract
An extended literature analyzes the accumulation foreign exchange holding observed in many developing and emerging countries since the 2000s. Empirical studies on the self-insurance motive suggest that high-reserves economies are more resilient to financial crises and to international capital inflows volatility. They show also that pre-crisis foreign reserve accumulation explains post-crisis growth. However, some papers suggest that the relationship between international reserves holding and reduced vulnerability is nonlinear, meaning that reserve holding is subject to diminishing returns. This paper deserves more attention to the potential nonlinear relationship between the foreign reserves holding and macroeconomic resilience to shocks. For a sample of 9 emerging economies, we assess to what extent the accumulation of international reserves allows to mitigate negative impacts of external shocks on the output gap. While a major part of the literature focuses on the global financial crisis, we investigate this question by considering two sub-periods: 1995-2003 and 2004-2013. We implement threshold VAR (TVAR) model in which the structure is allow to change if the threshold variable crosses a certain estimated threshold. We find that the effectiveness of reserve holding to improve the resilience of domestic economies to shocks has increased over time. Hence, the diminishing returns of foreign reserve holding stressed in the previous literature must be qualified.
Mot(s) clé(s)
Reserve accumulation, Threshold VAR model, Output gap, External shocks, Emerging countries.
2015-40

Public law enforcers and political competition

Eric Langlais, Marie Obidzinski

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Abstract
In this paper, we analyze how political competition affects the designof public law enforcement policies. Assuming that the cost of enforcement is linear, criminals'type is uniformally distributed, and society's wealth is large enough, the article arrives at two main conclusions: 1) electoral competition entails no loss of efficiency at equilibrium for both minor and major offenses (e.g. minor offenses are not enforced, while major ones are fully deterred); 2) different distortions arises at equilibrium for the intermediate offenses: enforcement expenditures for small offenses are lower than the optimal level, such that the issue of under-deterrence is exacerbated; in contrast, for larger offenses, enforcement measures are higher, and there is more deterrence than what efficiency requires. We show that these results also holds under more general assumptions (convex costs of enforcement, a general cdf of illegal bene.ts, a lower society's wealth), excepted that full deterrence of major offenses is not achievable.
Mot(s) clé(s)
Public law enforcement, deterrence, monetary sanctions, electoral competition.
2015-39

Designing a corporate bond index on solvency criteria

Lauren Stagnol

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Abstract
Doubts are rising whether bond indices, in the way they are constructed, are effective in their role of representing the markets they are designed for. Since index constituents are defined on market shares –the larger the debt obligation, the larger the share in the index– it may be that certain risks related to a high level of indebtedness are being accentuated and not necessarily representative of the market as a whole. Undue debt levels would in theory not arise in an information-efficient market, however, if prices are distorted, it makes sense to compensate for that and add elementary information on the debt issuers to the index construction process. We test how that works out on corporate bonds. We build a bond index that is based on firm accounting data rather than debt market value, and give evidence that it may serve as a market proxy.
Mot(s) clé(s)
fundamental indexing, alternative corporate bond index, solvency criteria, market efficiency.
2015-38

Oil currencies in the face of oil shocks: What can be learned from time-varying specifications?

Jean-Pierre Allegret, Cécile Couharde, Valérie Mignon, Tovonony Razafindrabe

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Abstract
While the oil currency property is clearly established from a theoretical viewpoint, its existence is less clear-cut in the empirical literature. We investigate the reasons for this apparent puzzle by studying the time-varying nature of the relationship between real effective exchange rates of five oil exporters and the real oil price in the aftermath of the oil price shocks of the last two decades. Accordingly, we rely on a time-varying parameter VAR specification which allows the responses of real exchange rates to different oil price shocks to evolve over time. We find that the reason of the mixed results obtained in the empirical literature is that oil currencies follow different hybrid models in the sense that oil countries' real exchange rates may be driven by one or several sources of oil price shocks that furthermore can vary over time. In addition to structural changes affecting oil countries, structural changes arising from the oil market itself through the various, time-varying sources of oil price shocks are found to be crucial.
Mot(s) clé(s)
oil currencies, oil shocks, Time-Varying Parameter VAR model.
2015-37

Transmission du stress financier de la zone euro aux Pays de l’Europe Centrale et Orientale

Houda Rharrabti

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Abstract
L’objectif de cet article est d’examiner empiriquement le lien entre la dégradation de l’environnement financier de la zone euro - pendant la crise des subprimes et celle des dettes souveraines - et son effet sur la volatilité des marchés boursiers des PECO. La stratégie de modélisation que nous adoptons est basée sur les modèles à changement de régime markovien à probabilités de transition variables (TVPMS) dans lesquels les périodes de crise et de calme sont identifiées de façon endogène (Kim et al 2008). Utilisant des données quotidiennes sur la période 01/01/ 2005 – 30/12/2014, nos résultats mettent en évidence une transmission du stress financier de la zone euro aux pays de l’Europe centrale et orientale (PECO) pendant les deux crises, en particulier pour les marchés boursiers hongrois et polonais. En outre, la crise de la dette souveraine semble jouer, non pas via les tensions sur les marchés obligataires, mais à travers les tensions qui affectent les banques de la zone euro.
Mot(s) clé(s)
crise financière, transmission, volatilité, changement de régime, contagion, intégration
2015-36

Preferences and pollution cycles

Stefano Bosi, David Desmarchelier, Lionel Ragot

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Abstract
We consider a competitive Ramsey economy where a pollution externality affects both consumption demand and labor supply, and we assume the stock of pollution to be persistent over time. Surprisingly, when pollution jointly increases the consumption demand (compensation effect) and lowers the labor supply (leisure effect ), multiple equilibria arise near the steady state (local indeterminacy) through a Hopf bifurcation (limit cycle). This result challenges the standard view of pollution as a fow to obtain local indeterminacy, and depends on the leisure effect which renders the pollution accumulation process more volatile.
Mot(s) clé(s)
pollution, endogenous labor supply, limit cycle, Ramsey model.
2015-35

On the Quest of Resource blessing: Re-examining the effect of oil on Income Inequality

Douzounet Mallaye, Gaëlle Tatiana Timba, Urbain Thierry Yogo

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Abstract
This paper provides new insights into how oil rent affects income inequality in 52 developed and developing economies over the period 1984-2008. After taking into consideration the endogeneity aspect, the analysis yields three key findings. First, the effect of oil rent on income inequality is non-linear. Oil productivity wealth induces a decline in income inequality for countries for which the share of oil rent in percentage of GDP is below the threshold of 25%. Above this threshold, we document a positive relationship. Second, the effect of oil rent is heterogeneous across countries, depending upon the institutional quality. Specifically, we find that the decline in income inequality is lower in countries with high corruption, low accountability and weak regulatory quality. Finally, we uncover a time-dependent relationship between oil rent and income inequality. In the short run, the effect of oil rent is negative while in the long run, the opposite is observed.
Mot(s) clé(s)
Oil rent, Inequality, institutional quality.
2015-34

Towards Greater Diversification in Central Bank Reserves

Marie Brière, Valérie Mignon, Kim Oosterlinck, Ariane Szafarz

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Abstract
This paper compares the performance of various diversification strategies regarding foreign exchange reserves. The aim is to provide central banks with guidelines in portfolio allocation. We pay particular attention to the situation of upward pressures on U.S. interest rates by implementing our analysis over both the whole 1986-2015 period and a rising rate subsample. Relying on geometric tests of mean-variance efficiency, we show that introducing currencies weakly correlated to the USD (AUD and CAD) significantly reduces portfolio risk. Expected return is improved through mortgage-backed securities, corporate bonds, and equities.
Mot(s) clé(s)
Foreign exchange reserves; diversification; asset allocation.
2015-33

Economie constitutionnelle en Afrique: analyse empirique du changement de l’article sur la limitation de mandat des présidents

Joseph Keneck Massil

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Abstract
This paper analyzes the constitutional change in Africa by focusing on the current phenomenon of the change in the presidential term limits. The analysis covers the period 1990 - 2010 for a set of 32 countries. Two cases are analyzed: the attempt to change and success. The results obtained with the logit models show that individual factors related to the personality of the President, the quality of the political system, socio-cultural and economics factors are the main factors explaining the will of amending Article and success. The article also shows that in some parts of Africa, the legal origin is an obstacle to constitutional change. Finally, when the opposition is not polarized, it is an obstacle to change, while it serves the interests of the dominant political group wishing to change when it is weak and highly fragmented.
Mot(s) clé(s)
Africa, Constitutional Change, Article on limiting mandate, logit.
2015-32

Spatial Mismatch through Local Public Employment Agencies? Answers from a French Quasi-Experiment

Matthieu Bunel, Élisabeth Tovar

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Abstract
Using the unanticipated creation of a new agency in the French region of Lyon as a quasinatural experiment, we question whether distance to local public employment agencies (LPEAs) is a new channel for spatial mismatch. Contrary to past evidence based on aggregated data and consistent with the spatial mismatch literature, we find no evidence of a worker/agency spatial mismatch, which supports a resizing of the French LPEA network. However, echoing the literature on the institutional determinants of the local public employment agencies’ efficiency, we do find detrimental institutional transitory effects.
Mot(s) clé(s)
spatial mismatch, unemployment, public employment service, quasi-experiment.
2015-31

Enforcement of Merger Control : Theoretical insights for its Procedural Design

Andreea Cosnita-Langlais

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Abstract
This paper reviews the theoretical underpinnings of the main procedural choices for merger control enforcement. At each relevant stage we highlight the economic trade-offs behind the corresponding procedural choices: mandatory vs voluntary pre-merger notification, ex ante vs ex post merger review, and the type of decision eventually made, binary or not. The paper also identifies the missing debates that still need formal treatment. Our study provides insight for the optimal procedural design of merger control, and as such may be useful to understand the different choices made by the various jurisdictions for merger policy enforcement.
Mot(s) clé(s)
merger control, enforcement, procedural design.
2015-30

Rueff, Allais, et le chômage d’équilibre

Georges Prat

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Abstract
The « permanent » unemployment concept of Rueff (1925, 1931) represents a classical form of unemployment due to wage rigidities leading to an excess of real wages compared to their theoretical value corresponding to a competitive equilibrium. Relative to this known aspect of the Rueff’s work, this paper shows that the author considered also a “temporary” unemployment due to an insufficient level of the economic activity, and a « minimum » frictional unemployment prevailing in the normal functioning of any economy. Using empirical data in England during the 1920’s, Rueff suggested that the « permanent » component was the main explanation of the unemployment (this is the socalled « law of Rueff »). We conduct simple econometric tests using Rueff’s data that confirm this conclusion, and we show that releasing the assumption of a constant labor productivity (supposed by Rueff) improves the « law of Rueff ». In line with these results, we show that the theoretical approach proposed by Allais (1943) joins the three types of unemployment pointed out by Rueff, renamed as “chronic”, “conjonctural” and “technological”, respectively. Much later, Allais (1980) proposed an unrecognized straightforward econometrical equation comprising these three types of unemployment to represent the french unemployment over the period 1952-78. We confirm that this equation describes a large part of the evolution of unemployment in England during the 1920’s and in France during the period 1970-2008, although the properties of residuals show that this equation is misspecified. Finally, we suggest that, under some restrictive conditions, the three types of unemployment distinguished by Rueff and Allais can be seen from the perspective of the equilibrium unemployment defined by the imperfect competition WS-PS model (Layard-Nickel-Jackman (1991)), hence allowing to indicate how the Allais’ equation is misspecified, thus highlighting the important scientific advances that have been made since.
Mot(s) clé(s)
equilibrium unemployment, wage rigidities, Maurice Allais, Jacques Rueff
2015-29

Fondement historique de la qualité des institutions politiques : l’expérience parlementaire à l’indépendance

Joseph Keneck Massil

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Abstract
This paper proposes a new variable to explain contemporary democracy in Africa: parliamentary experience independence defined as the difference between the Parliament's date of birth and independence. In doing so, this study explores a potential transmission channel of the Acemoglu et al. (2001) thesis concerning the colonial origin of institutional quality. Taking into account this new variable leads to a negative relationship between the lack of parliamentary experience at the time of independence and the quality of democracy in a sample of 42 countries. By combining variables of the theory of modernity, historical, geographical and socio-cultural variables, we provides a robust evidence that the negative dynamic of the contemporary democracy in Africa is explained by the lack of parliamentary experience at the time of
independence.
Mot(s) clé(s)
Parliament Ages, colonization, democracy, independence.
2015-28

Computer technology and probable job destructions in Japan: an evaluation

Benjamin David

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Abstract
This paper evaluates the risk of job destructions induced by computer technology in Japan. Relying on recent methodology, we find evidence that approximatively 55% of jobs are susceptible to be carried by computer capital in the next years. We also show that there is no significant difference on the basis of gender. On the contrary, non-regular jobs (those that concern temporary and part-time workers) are more vulnerable to computer technology diffusion than the others.
Mot(s) clé(s)
Computer technology, Japanese labor market, Automation, Random Forest.
2015-27

Who are the controlling shareholders? Degree and seniority of control, and CEO pay monitoring

Lionel Almeida

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Abstract
Based on CEO pay monitoring in French listed companies, this study first searches for the relevant metric of controlling shareholdings. The equity share held by the largest shareholder directly or indirectly represented on the board of directors, plus shareholders acting in concert with it, is associated with effective control – while other blockholders, whether or not they sit on the board, and deviations from “one share-one vote”, do not enhance monitoring. Second, a panel threshold regression (PTR) model allows to identify various regimes of control. Four regimes are found in the degree of control. A threshold at about 10% of equity separates out “non-controlled” from effectively-controlled firms; three regimes of effective control are then identified. They are termed as “influential” (from about 10% to one-third of equity), “dominant” (up to about 45%), and “majority” (over 45%) controls. Specifically, CEO pay packages provide evidence of entrenchment for dominant controlling shareholders. Then, this study introduces seniority of control as a second criterion for effective control. The PTR model allows to distinguish two regimes termed as “new” and “long-term” control: new controlling shareholders need about six to eight years to reduce asymmetries of information and no longer rely on alternative monitoring devices. The study lastly discusses the relevance of discontinuous threshold effects compared to some continuous specifications found in the literature on ownership
Mot(s) clé(s)
Corporate control, CEO compensation, Panel threshold regression (PTR).
2015-26

Hydro-climatic thresholds and economic growth reversals in developing countries: an empirical investigation

Cécile Couharde, Rémi Generoso

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Abstract
In this paper, we exploit the Global Standardized Precipitation and Evapotranspiration Index database to search for a nonlinear relationship between hydro-climatic conditions and economic growth on a sample of developing countries over the period 1980-2011. We evidence a nonlinear link between hydro-climatic conditions and economic growth only in developing agricultural-dependant countries, the impact of hydro-climatic variations being more easily absorbed in more diversified economies. Furthermore, threshold values reached by hydro-climatic conditions that drive changes in the pattern of economic growth are lower than to those corresponding to extreme weather conditions, suggesting a high sensitivity of economic growth in developing agricultural-dependent countries to small fluctuations in weather.
Mot(s) clé(s)
Developing countries; Economic growth; Hydro-climatic conditions; Panel Smooth Transtion Regression (PSTR) model.
2015-25

Evaluation du système financier Algérien : Construction d’un indice agrégé de stabilité bancaire

Hayet Abbad, Mohamed Achouche, Yamina Tadjeddine

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Abstract
This article aims to elaborate an index of stability in the Algerian banking sector. We completing the battery of indicators developed by the bank of Algeria and by the IMF under the Financial Sector Assessment Program with the introduction of new variables and with the use of different econometric tools. Firstly, we propose different modelings of the stability index. We mobilize the principal components analysis for selecting the relevant information and the appropriate weights on the various variables. The article also uses the often adopted banking z-score. Secondly, we look for the best modeling with an econometric validation through the linear specification. The pattern of our aggregate banking stability index is in line with the recent evolution in Algeria. The index of stability of the Algerian banking sector is increasing during the considered period 2007-2011. This latter period is characterized both by deepening banking reforms and by recapitalization of public banks. The econometric results confirm the sensitivity of the index face of changes in some macroeconomic key indicators.
Mot(s) clé(s)
Bank, Banking stability index, Algeria, Monetary Policy.
2015-24

On the relevance of differentiated car purchase taxes in light of the rebound effect

Bénédicte Meurisse

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Abstract
The significant weight of CO2 emissions resulting from car use in the total of CO2 emissions is enough of a signal to set up policy tools aiming at reducing such emissions. This paper investigates the effects of setting a penalty on the purchase of high emitting cars (i.e. a Malus). With static comparative analyses of a basic model of consumer’s behaviour facing two alternatives: a clean and a dirty vehicles, we essentially find that a rebound effect does not necessarily accompany the reduction in the average fuel consumption per kilometre resulting from the implementation of a differentiated car purchase tax such as a Malus scheme. This is because the improvement of the fuel-efficiency is observed at the aggregate scale and not at the individual level. Thereby, it happens that we observe a rebound effect only under certain conditions pertaining to the characteristics of the vehicles that make up the fleet. We also show that, from the moment that a rebound effect occurs, the higher the amount of Malus, the higher the rebound effect. It implicitly means that because of the rebound effect, the higher the pricing scheme, the less efficient the purchase tax.
Mot(s) clé(s)
Car purchase decision, car use, CO2 emissions, rebound effect, penalty on car purchase.
2015-23

Currency misalignments and economic growth: the foreign currency-denominated debt channel

Carl Grekou

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Abstract
The literature on the growth effects of currency misalignments, although prolific, revolves around two main axes: one the one hand, the export-oriented growth literature which attributes positive effects to undervaluations (competitiveness gains) and, on the other hand, the Washington Consensus view according to which any deviations from equilibrium hamper economic growth. In this paper, we show that there is no "one size fits all" relationship in this regard. Indeed, relying on a panel of 72 developing and emerging countries, we evidence the existence of a foreign currency-denominated debt channel through which misalignments impact growth. Compared to the "traditional" competitiveness channel, this channel works in the opposite direction. The paper therefore reconciles the two strands of the literature: undervaluations may have indeed a positive growth effect, but it is crucial to take into account the possible costs related to this undervaluation to have a clearer picture of the net total effect.
Mot(s) clé(s)
Currency misalignments; Economic growth; Foreign currency-denominated debt.
2015-22

Tax Policies and Informality in South Africa

Eliane El Badaoui, Riccardo Magnani

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Abstract
We use a micro-macro simulation model to evaluate the effects of labor income tax policies in South Africa. The country is characterized by a high unemployment rate while employment in the informal sector is relatively low. Our approach is based on the aggregation of the preferences of individuals who choose among (i) working in the formal sector,(ii) working in the informal sector, and (iii) not working. We quantify the effects of different tax policies on the individual's labor supply choices (formal/informal employment, work/leisure) and at the macro level (GDP, equilibrium wages, size of the informal sector, and unemployment rate). We further analyze the effects in terms of income distribution, poverty and inequality. We find that the introduction of a negative income tax system reduces inequality and poverty but, at the same time, discourages people from participating in the labor market and working in the formal sector and, consequently worsens the equitye efficiency trade-off. We find however that the equity-efficiency trade-off can be improved by introducing (i) a (revenue-neutral) tax system which combines a sufficiently high at rate (25%) and lump-sum transfer paid only to formal workers; (ii) an expansionary policy (a reduction in total taxes or an increase in public expenditures). Interestingly, even though they increase the informal sector, these reforms reduce inequality and poverty through a reduction in the level of unemployment.
Mot(s) clé(s)
Tax Reform, Informal Sector, Labor Supply, CGE Model, Microsimulation, South Africa.
2015-21

Towards Recoupling? Assessing the Global Impact of a Chinese Hard Landing through Trade and Commodity Price Channels

Ludovic Gauvin, Cyril Rebillard

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Abstract
China’s rapid growth over the past decade has been one of the main drivers of the rise in mineral commodity demand and prices. At a time when concerns about the sustainability of China’s growth model are rising, this paper assesses to what extent a hard landing in China would impact other countries, with a focus on trade and commodity price channels. After reviewing the main arguments pointing to a hard landing scenario – historical rebalancing precedents, overinvestment, unsustainable debt trends, and a growing real estate bubble – we focus on a sample of 36 countries, and use a global VAR methodology adapted to conditional forecasting to simulate the impact of a Chinese hard landing. We model metal and oil markets separately to account for their different end-use patterns and consumption intensity in China, and we identify three specific transmission channels to net commodity exporters: through real exports, through income effects (related to commodity prices), and through investment (a fall in commodity prices reducing incentives to invest in the mining and energy sectors); we also look at the role played by the exchange rate as a shock absorber. According to our estimates, emerging economies (ex. China) would be hardest hit – with a 7.5 percent cumulated growth loss after five years –, in particular in South-East Asia but also in commodity-exporting regions such as Latin America; advanced economies would be less affected. The "growth gap" between emerging and advanced economies would be considerably reduced, leading to partial recoupling.
Mot(s) clé(s)
China, hard landing, spillovers, global VAR, conditional forecast, commodities, recoupling.
2015-20

External debt and real exchange rates’adjustment in the euro area: New evidence from a nonlinear NATREX model

Audrey Allegret, Cécile Couharde, Serge Rey

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Abstract
In this paper we revisit medium- to long-run real exchange rate determination within the euro area, focusing on the role of external debt. Accordingly, we rely on the NATREX approach which provides an explicit framework of the external debt-real exchange rates nexus. In particular, given the indebtedness levels reached by the euro area economies, we investigate potential non-linearity in real exchange rates dynamics, according to the level of the external debt. Our results evidence that during the monetary union, gross and net external debt positions of the euro area countries have exerted pressures on real exchange rate dynamics within the area. Moreover, we find that, beyond a threshold reached by the external debt, euro area countries are found to be in a vulnerable position, leading to an unavoidable adjustment process. Nevertheless, the adjustment process, while effective, is found to be low and occurs slowly.
Mot(s) clé(s)
Euro area; External debt; NATREX approach; Panel Smooth Transition Regression models; Real exchange rates.
2015-19

La Théorie de la Modernisation : un Examen Empirique en Afrique

Joseph Keneck Massil

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Abstract
This paper empirically tests the theory of modernization based on a sample of developing countries in Africa. It provides, for the first time, an empirical validation of four determinants of democracy according to the modernization theory (education, wealth, urbanization and industrialization). We use three estimation techniques (pooled OLS, LSDVC and GMM) and find reliable results which suggest that the modernization theory does not explain the negative dynamic of democracy in Africa.
Mot(s) clé(s)
Africa, Democracy, Education, Industrialization, Income and Urbanization.
2015-18

Market pull instruments and the development of wind power in Europe: a counterfactual analysis

Marc Baudry, Clément Bonnet

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Abstract
Renewable energy technologies are called to play a crucial role in the reduction of greenhouse gas emissions. Since most of these technologies are immature, public policies provide for two types of support: technology push and market pull. The latter aims at creating demand for new technologies and at stimulating their diffusion. Nevertheless, due to the complex self-sustained dynamics of diffusion it is hard to determine whether newly installed capacities are imputable to the impulse effect of instruments at the beginning of the diffusion process or to the current support. The paper addresses this problem. A micro-founded model of technology diffusion is built to estimate the impact of the yearly average Return-on-Investment (RoI) on the yearly count of commissioned wind farms in six European countries over the last decade. A counter-factual analysis is carried out to assess the impact of policy instruments on the RoI and, indirectly, on diffusion.
Mot(s) clé(s)
Renewable energy; technology diffusion; wind power; market pull; technology push.
2015-17

Heterogeneity in Macroeconomic News Expectations: A disaggregate level analysis

Imane El Ouadghiri

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Abstract
The aim of this paper is to investigate heterogeneity in macroeconomic news forecasts using disaggregate data of monthly expectation surveys conducted by Bloomberg
on macroeconomic indicators from January 1999 to February 2013. We find three major results. First, we show that macroeconomic indicator forecasters are mostly heterogeneous and their expectations are found to violate the rational expectation hypothesis. Second, the use of the expectation mixed model –combining extrapolative, regressive and adaptive components– reveals a large dominance of the chartist profile among forecasters with a systematical persistence over time despite all the structural breaks determined endogenously by the Bai-Perron estimation method. Third, we find that forecasters whose forecasting models combine at least two or three anticipatory components (extrapolative, and regressive or/and adaptive) and display high temporal flexibility, thus adapting to different structural breaks, are those which provide the most accurate forecasts.
Mot(s) clé(s)
Announcements, heterogeneity, survey data, expectation formation.
2015-16

Equity Prices and Fundamentals: a DDM-APT Mixed Approach

Fredj Jawadi, Georges Prat

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Abstract
This paper focuses on the linkages between equity prices and fundamentals for 27 individual shares from the French stock price index (CAC40). To assess fundamental value, the traditional Dividend Discount Model (DDM) equities’ valuation principle is coupled with the Portfolio Choice Theory based on the Arbitrage Pricing Theory (APT). This yields a general equity valuation relationship for which the APT determines the long-term risk premium included in the DDM. Interestingly, restrictions are less significant than in the usual approaches since the number of risk premium factors is not limited a priori by the theory. Accordingly, our empirical results point to two major findings. On the one hand, while results in the literature based on the DDM showed that fundamental value dynamics are very smooth with respect to stock price indices, our DDM-APT model reproduces both trends and major share price fluctuations. On the other hand, a simple linear Error Correction Model (ECM) highlighted a mean-reversion process of equity prices towards their fundamental values.
Mot(s) clé(s)
Stock valuation; equity risk premium; stock price adjustment.
2015-15

Estimating the Competitive Storage Model with Trending Commodity Prices

Christophe Gouel, Nicolas Legrand

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Abstract
We present a method to estimate jointly the parameters of a standard commodity storage model and the parameters characterizing the trend in commodity prices. This procedure allows the influence of a possible trend to be removed without restricting the model specification, and allows model and trend selection based on statistical criteria. The trend is modeled deterministically using linear or cubic spline functions of time. The results show that storage models with trend are always preferred to models without trend. They yield more plausible estimates of the structural parameters, with storage costs and demand elasticities that are more consistent with the literature. They imply occasional stockouts, whereas without trend the estimated models predict no stockouts over the sample period for most commodities. Moreover, accounting for a trend in the estimation imply price moments closer to those observed in commodity prices. Our results support the empirical relevance of the speculative storage model, and show that storage model estimations should not neglect the possibility of long-run price trends.
Mot(s) clé(s)
Commodity prices; non-linear dynamic models; storage; structural estimation; trend.
2015-14

Jumps in Equilibrium Prices and Asymmetric News in Foreign Exchange Markets

Imane El Ouadghiri, Remzi Uctum

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Abstract
In this paper we examine the intraday effects of surprises from scheduled and
unscheduled announcements on six major exchange rate returns (jumps) using an
extension of the standard Tobit model with heteroskedastic and asymmetric errors.
Since observed volatility at high frequency often contains microstructure noise, we use
a recently proposed non parametric test to filter out noise and extract jumps from
noise-free FX returns (Lee and Mykland (2012)). We found that the most influential
scheduled macroeconomic news are globally related to job markets, output growth
indicators and public debt. These surprises impact FX jumps rather in the form of
good news, as a result of pessimistic forecasts from traders during the crisis period
analyzed. We reconfirmed for most of the currencies the hypothesis that negative
volatility shocks have a greater impact on volatility than positive shocks of the same
magnitude, reflecting markets' concern about the cost of stabilization policies.
Mot(s) clé(s)
Forex market, announcements, jump detection test, high frequency data, microstructure noise, asymmetric GARCH.
2015-13

The universal bank model: Synergy or vulnerability?

Michael Brei, Xi Yang

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Abstract
In this paper we examine empirically the relationship between banks’ income diversification, expansion into non-traditional activities and performance. Using detailed information on the U.S. banking sector over the period 2002-12, we investigate whether or not banks’ involvement in various business lines has been associated with higher accounting returns and risks. Over the long-term, we find robust evidence that banks’ expansion into non-traditional activities has lacked revenue and diversification benefits: overall risks of non-traditional banks have been higher, while returns were not. A higher degree of diversification across traditional and certain non-traditional activities, on the contrary, has been associated with important risk reduction benefits. The effects are non-linear and differ across business lines, which seems to suggest that an optimal mix of banking activities exists.
Mot(s) clé(s)
Banking, diversification, non-traditional activities, risk, profitability
2015-12

What Are The Macroeconomic Effects of High-Frequency Uncertainty Shocks?

Laurent Ferrara, Pierre Guérin

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Abstract
Following the Great Recession, econometric models that better account for un certainty have gained increased attention, and an increasing number of works evaluate the effects of uncertainty shocks. In this paper, we evaluate the impact of high-frequency uncertainty shocks on a set of low-frequency macroeconomic variables representative of the U.S. economy. Rather than estimating models at the same common low-frequency, we use recently developed econometric methodology that allows us to avoid aggregating high-frequency data before estimating models. The impulse response analysis uncovers various salient facts. First, in line with the existing literature, high-frequency uncertainty shocks are associated with a broad-based decline in economic activity. Second, we find that credit and labor market variables react the most to uncertainty shocks. Third, we show that the responses of macroeconomic variables to uncertainty shocks are relatively similar across single-frequency and mixed-frequency data models, suggesting that the temporal aggregation bias is not acute in this context. Finally, we find that some macroeconomic variables exhibit an asymmetric response to uncertainty shocks over the different phases of the business cycle.
Mot(s) clé(s)
MIDAS model, Mixed-frequency VAR, Uncertainty.
2015-11

International Financial Shocks in Emerging Markets

Michael Brei, Almira Buzaushina

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Abstract
The present paper investigates how an emerging market economy is affected when it suddenly faces a higher risk premium on international capital markets. We study this question empirically for five Latin American economies over the period 1994-2007 within a structural panel vector autoregression and analyze theoretically the transmission mechanism using a dynamic stochastic general equilibrium model (DSGE) of a small open economy. The financial shock is modeled by an unexpected increase in the risk premium of firms’ foreign-currency debt. In response, the adverse shock is amplified by a feedback mechanism between currency depreciation, adverse balance sheet and risk premium effects. The theoretical model is used to study different monetary policy responses. We find that an exchange rate targeting rule that strikes a balance between exchange rate and inflation targeting allows the monetary authority to stabilize inflation and output more effectively than under a pure inflation targeting rule.
Mot(s) clé(s)
Emerging Markets, Financial Crises, International Capital Markets
2015-10

The Evolution of Gender Wage Inequality in Senegal Following the Economic Partnership Agreements 

Franck Viroleau

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Abstract
There are considerable gender inequalities in the Senegalese labor market. As Senegal will open its trade with the European Union (EU) in the framework of the Economic Partnership Agreements (EPA), we can ask whether the new economic equilibrium will be associated with a rise or fall in labor-market gender inequality. We here use the most recent data from the National Statistic and Demographic Agency of Senegal to analyze, in a prospective manner, the evolution of pay by gender following EPA trade opening. Our ex‐ante analysis is based on a computable general equilibrium model that includes a gender dimension.  Our key finding is that, under the most likely hypothesis regarding the way in which lower Senegalese tariff revenues will be offset, trade opening will significantly increase population well‐being, but at the same time increase the gender wage gap.  
Mot(s) clé(s)
Gender inequalities, Trade opening, CGEM, EPA, Senegal, Ex‐ante evaluation, Public policy.  
2015-9

Exchange rate misalignments and the external balance under a pegged currency system

Blaise Gnimassoun

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Abstract
This paper analyzes the link between the exchange rate misalignments and the external balance under a pegged currency system focusing on the CFA zone. Having discussed and chosen an appropriate analytical framework, it addresses the issue of model uncertainty regarding the equilibrium exchange rate model before estimating currency misalignments. The results show that misalignments have a negative and asymmetric impact on the current account. While overvaluation of the CFA franc deteriorates the current account in the CFA zone, undervaluation does not improve it. Finally, our results highlight that the export concentration tends to exacerbate the overall negative impact of currency misalignments on the external balance. Thus, greater economic diversification is needed in an environment in which countries face both uncertainty in the terms of trade and uncertainty in the nominal exchange rate to conduct a proactive exchange rate policy.
Mot(s) clé(s)
Currency peg, Exchange rate misalignments, Current account, concentration of exports, Bayesian model averaging.
2015-8

Jordan and the Middle-Income Growth Trap: Arab Springs and Institutional Changes

Bénédicte Coestier

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Abstract
Although Jordan reached middle-income status more than three decades ago, the country has not made the additional leap, like most developing countries in the Middle East, to become a high-income economy. In this paper, we argue that institutions, namely formal rules (constitution, judiciary, political system) as well as “personality-based” informal rules (tribalism, wasta) might explain the middle-income growth trap. More precisely, we highlight that informal institutions, as well as the distorted use of formal institutions, are a by-product of the process of state formation. They play a part in the preservation of personal/anonymous relationships between the state and society and in the persistence of the rentier system. Jordanian Spring events reveal that a demand for reforming the power structure prevails over the overthrow of the Monarchy. Finally, to assess the undergoing transition process in Jordan, we resort to the social orders conceptual framework (North et al. (2009, 2012)) with an emphasis on impersonality (Wallis (2011)). The “Arab Springs” events have put pressure on the power structure to advance the rule of law (impersonal relationships among elites), and on the Monarchy in Jordan to create a “perpetual” state.
Mot(s) clé(s)
Economic development, middle-income growth trap, rentier system, institutions, rule of law, tribalism, wasta, Arab springs.
2015-7

Does the volatility of commodity prices reflect macroeconomic uncertainty?

Marc Joëts, Valérie Mignon, Tovonony Razafindrabe

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Abstract
This paper analyzes the impact of macroeconomic uncertainty on a large sample of 19 commodity markets. We rely on a robust measure of macroeconomic uncertainty based on a wide range of monthly macroeconomic and financial indicators, and we estimate a structural threshold VAR (TVAR) model to assess whether the effect of macroeconomic uncertainty on commodity price returns depends on the degree of uncertainty. Our findings show that whereas the safe-haven role of precious metals is confirmed, agricultural and industrial markets are highly sensitive to the variability and the level of macroeconomic uncertainty, respectively. In addition, we show that the recent 2007-09 recession has generated an unprecedented episode of high uncertainty in numerous commodity markets that is not necessarily accompanied by a subsequent volatility in the corresponding prices, highlighting the relevance of our uncertainty measure in linking uncertainty to predictability rather than to volatility.
Mot(s) clé(s)
Macroeconomic uncertainty, commodity prices, threshold vector autoregressive model.
2015-6

Social capital and access to primary health care in developing countries: Evidence from Sub-Saharan Africa

Guillaume Hollard, Omar Séne

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Abstract
We test the causal role of social capital, as measured by self-reported trust, in determining access to basic health facilities in Sub-Saharan Africa. To skirt reverse-causality problems between social capital and basic health, we rely on instrumental variable (IV) estimates. The results show that a one standard deviation increase in the level of localized trust leads to a 0.221 standard deviation decrease in the predicted value of doctor absenteeism, a 0.307 standard deviation decreases in the predicted value of waiting time and a 0.301 standard deviation decreases in the predicted value of bribes. As a robustness check, we also use a different database regarding a different health issue, namely access to clean water. We find that a one standard deviation increase in the level of localized trust leads to a 0.330 standard deviation increase in the access on clean water. All in all, social capital is found to have an important causal effect on health, even stronger that the one found in western countries.
Mot(s) clé(s)
Social Capital, Health, Africa, Causality.
2015-5

Immigration Policy and Macroeconomic Performance in France

Ekrame Boubtane, Dramane Coulibaly, Hippolyte d'Albis

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Abstract
This paper quantitatively assesses the interaction between permanent immigration into France and France's macroeconomic performance as seen through its GDP per capita and its unemployment rate. It takes advantage of a new database where immigration is measured by the ow of newly-issued long-term residence permits, categorized by both the nationality of the immigrant and the reason of permit issuance. Using a VAR model estimation of monthly data over the period 1994-2008, we find that immigration ow significantly responds to France's macroeconomic performance: positively to the country's GDP per capita and negatively to its unemployment rate. At the same time, we find that immigration itself increases France's GDP per capita, particularly in the case of family immigration. This family immigration also reduces the country's unemployment rate, especially when the families come from developing countries.
Mot(s) clé(s)
Immigration, Female and Family Migration, Growth, Unemployment, VAR Models.
2015-4

An oddity property for cross-dual games

Christian Bidard

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Abstract
The parametric Lemke algorithm is used to show the existence of an odd number of solutions of a generalized bimatrix game in a certain domain. These solutions are classified into two types according to the relative sign of two determinants. The British economist David Ricardo made an implicit use of that algorithm at the beginning of the nineteenth century.
Mot(s) clé(s)
Complementarity problems, Generalized bimatrix game, Oddity, Parametric Lemke algorithm, Ricardo.
2015-3

Institutional Design and Antitrust Evidentiary Standards

Andreea Cosnita-Langlais, Jean-Philippe Tropeano

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Abstract
The purpose of this paper is to study the relative impact of public and private competition law enforcement on antitrust liability. We develop a model with asymmetric information during trial, where the number of cases filed depends on the amount of damages awarded and on the standard of evidence applied either by the public authority or by the judge. Our model predicts that higher damages result in a higher standard of evidence, which is not always welfare improving. We also show that public enforcement better incentivizes pro-competitive practices by allowing a lower standard of evidence. This may lead the public enforcement to outperform the private enforcement.
Mot(s) clé(s)
Antitrust, public and private enforcement, evidentiary standard.
2015-2

Mitigation and adaptation are not enough: turning to emissions reduction abroad

Alain Ayong Le Kama, Aude Pommeret

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Abstract
In this paper we focus on a long-term dynamic analysis of the optimal adaptation/mitigation mix in the presence of a pollution threshold above which adaptation is no longer efficient. We account for accumulation in abatement capital, greenhouse gases, and adaptation capital in order to better capture the arbitrage between abatement and adaptation investments. Pollution damages arise from the emissions due to the country consumption but also from the emissions of the rest of the world (ROW). A pollution threshold is then introduced, above which adaptation is no longer efficient. We obtain that if this threshold is lower than the steady-state level of pollution, there is no way for the modeled economy to avoid it. In particular, such a situation will appear if the ROW's emissions are high. Next step is then to introduce another type of investment allowing for lower ROW pollution ie. emissions eduction abroad through CDM for instance. We obtain that CDM may be a means to avoid a pollution threshold above which adaptation becomes of no use.
Mot(s) clé(s)
Climate change, mitigation, adaptation, CDM, pollution threshold.
2015-1

How is credit scoring used to predict default in China?

Ha Thu Nguyen

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Abstract
In this paper, we carry out a review of literature for both traditional and sophisticated credit assessment techniques, with a particular focus on credit scoring which is broadly used as a costeffective credit risk management tool. The objective of the paper is to present a set-up of an application credit-scoring model and to estimate such a model using an auto loan data-set of one of the largest automobile manufacturers in China. The logistic regression approach, which is widely used in credit scoring, is employed to construct our scorecard. A detailed step-by-step development process is provided, as are discussions about specific modeling issues. The paper finally shows that “married”, “house owner”, “female”, age in years, “working in public institutions, foreign, or joint venture companies”, down payment rate, and maximum months on book of current accounts negatively impact the probability of default.
Mot(s) clé(s)
Credit Risk, Credit Scoring, Auto Loans, Logistic Regression.
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