WORKING PAPERS 2017

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2017-49

Microfoundations of the New Keynesian Phillips Curve in an Open Emerging Economy.

Zouhair Aït Benhamou

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Abstract
In an open economy setting, the slope in the New Keynesian Phillips Curve (NKPC) becomes sensitive to openness to trade, particularly so in emerging economies. The literature tends to overlook the underlying issues of this aspect, a shortcoming which we seek to address in this paper. We argue that a new Keynesian model framework with real rigidities can remedy to this limitation. To the literature's use of a constant domestic bias parameter, we substitute the concept of imperfect access to consumption goods. Our model incorporates real rigidities in the New Keynesian framework through domestic firm-level investment schedule, which determines aggregate openness to trade. We argue that capital-intensive goods are more integrated in global trade. The proposed model in this paper formulates a micro-founded Phillips curve augmented with an openness to trade component, which captures its ambiguous effects on inflation: strategic complementarity between domestic and foreign goods increases price stickiness, whereas competitive foreign products drive aggregate prices down. Finally, the paper describes welfare changes following different monetary policy regimes in an open economy setting. The welfare results implied by the usual tradeoff facing monetary authorities between exchange rate and inflation stability becomes sensitive to openness to trade.
Mot(s) clé(s)
International Trade, Neo-Keynesian Model, Emerging Economies, Monetary Policy, Welfare Effects, Strategic Interactions
2017-48

Building Bridges for the Adoption of Deep Green Agri-environment Measures: The Emergence of Environmental Knowledge Brokers

Tom Dedeurwaerdere, Giorgio Fabbri, Paolo Melindi-Ghidi

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Abstract
The activities of intermediary organisations in the context of payments for agri-environmental services have broadly increased in all European countries over the last two decades. However, the impact of this new governance mechanism on environmental protection and changes in individuals’ behavior has not yet studied in the economic literature. To explore this issue, we develop a new theoretical economic framework that allows us to compare the main environmental effects of an incentive mechanism with intermediaries, such as environmental knowledge brokers and information providers, as compared to those of a standard central governance mechanism. This paper bridges the knowledge-brokering theory developed in the literature in environmental science with the process of individual preferences formation and transmission developed in the economic literature. The analysis shows that the emergence of knowledge intermediaries is particularly valuable in the context of payments for agri-environmental services in a situation where individuals, such as farmers, initially have a low level of environmentally awareness. The same conclusion holds when the public institution organizing the scheme is not sufficiently apprised of individuals’ characteristics. This allows us to give a theoretical justification for previous empiric results on payment schemes for agri-environmental measures.
Mot(s) clé(s)
Knowledge Brokers, Pro-environmental Culture, Cultural Transmission, Moral Hazard, Principal-agent
2017-47

The long-term impact of U.S. aid on poverty alleviation: the role of a seat in the Security Council of the United Nations

Juliana Yael Milovich

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Abstract
Fifty years of literature on aid-effectiveness has been inconclusive so far. The main challenges that remain are to properly identify the causal effect of aid on poverty alleviation and to dispose of reliable data on poverty. To confront the first problem we use the number of years a country has spent at the Security Council of the United Nations (UNSC) as the instrumental variable to explain the amount of U.S. economic aid received (Kuziemko and Werker, 2006). We also use multidimensional poverty data (OPHI, 2016), which is highly reliable. We estimate, for a sample of 64 developing countries, the impact of average aid received between 1946 and 1999 in reducing poverty between 2000 and 2014. Our results suggest that, despite the low transparency of these flows, a country that has spent at least two mandates at the UNSC between 1946 and 1999 has succeeded to significantly reduce the percentage of population living in multidimensional poverty by 0.33 % in the long run. The highest positive effect is observed through the increase in years of schooling (0.71 %) and, to a lesser extent, through the improvement of living standards (0.41 % on average).
Mot(s) clé(s)
Multidimensional Poverty, Aid, Sustainable Development, Security Council
2017-46

Model economic phenomena with CART and Random Forest algorithms

Benjamin David

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Abstract
The aim of this paper is to highlight the advantages of algorithmic methods for economic research with quantitative orientation. We describe four typical problems involved in econometric modeling, namely the choice of explanatory variables, a functional form, a probability distribution and the inclusion of interactions in a model. We detail how those problems can be solved by using "CART" and "Random Forest" algorithms in a context of massive increasing data availability. We base our analysis on two examples, the identification of growth drivers and the prediction of growth cycles. More generally, we also discuss the application fields of these methods that come from a machine-learning framework by underlining their potential for economic applications.
Mot(s) clé(s)
decision trees, CART, Random Forest
2017-45

Understanding the Impact of Tuition Fees in Foreign Education: the Case of the UK.

Michel Beine, Marco Delogu, Lionel Ragot

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Abstract
This paper studies the determinants of international students’ mobility at the university level, focusing specifically on the role of tuition fees. We first develop an original Random Utility Maximization model of location choice for international students in the presence of capacity constraints of the hosting institutions. The last layer of the model gives rise to a gravity equation. This equation is estimated using new data on student migration flows at the university level for the U.K. We control for the endogeneity of tuition fees by taking benefit of the institutional constraints in terms of tuition caps applied in the UK to European students at the bachelor level. The estimations support a negative impact of tuition fees and stress the need to account for the endogenous nature of the fees in the empirical identification of their impact. The estimations also support an important role of additional destination-specific variables such as host capacity, the expected return of education and the cost of living in the vicinity of the university.
Mot(s) clé(s)
Foreign students; Tuition fees; Location choice; University Quality.
2017-44

The Role of Fees in Foreign Education: Evidence From Italy.

Michel Beine, Marco Delogu, Lionel Ragot

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Abstract
This paper studies the determinants of international students' mobility at the university level, focusing specifically on the role of tuition fees. We derive a gravity model from a Random Utility Maximization model of location choice for international students in the presence of capacity constraints of the hosting institutions. The last layer of the model is estimated using new data on student migration flows at the university level for Italy. We control for the potential endogeneity of tuition fees through a classical IV approach based on the status of the university. We obtain evidence for a clear and negative effect of fees on international student mobility and confirm the positive impact of the quality of the education. The estimations also support the important role of additional destination-specific variables such as host capacity, the expected return of education and the cost of living in the vicinity of the university.
Mot(s) clé(s)
Foreign students; Tuition fees; Location choice; University Quality.
2017-43

Welfarism and segregation in endogenous jurisdiction formation models

Rémy Oddou

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Abstract
This paper analyses how welfarism affects the segregative properties of endogenous jurisdiction formation, in a model where local jurisdictions produce a local public good and distribute an allowance to their households, both financed by a proportional tax based on the households' wealth. A jurisdiction is composed of all the households that live in the same place. Local wealth tax rates and the level of the allowance are determined to maximize a social welfare function. Households can "vote with their feet", which means that they can choose to move to the jurisdiction that offers the package "tax rate - amount of public good - allowance" that provides the highest utility level. The main result of this article is the proof that the maximin criterium is more segregative than the utilitarian one.
Mot(s) clé(s)
Jurisdiction, Segregation, Welfare
2017-42

The effect of a local allowance on the endogenous formation of jurisdictions

Rémy Oddou

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Abstract
This paper analyses the effect of allowances, whose amount depends on jurisdictions, on the segregative properties of endogenous formation of jurisdictions. Households choosing to live at the same place form a jurisdiction whose aim is to produce a local public good and to implement a redistribution policy, by granting every household an allowance whose amount is determined by the jurisdiction. In every jurisdiction, the production of the local public services and the allowance are financed with a local tax based upon the households’ wealth. Local wealth tax rates and the level of the allowance are exogenously determined in every jurisdiction. Households are free to leave their jurisdiction for another jurisdiction that would provide them with their highest utility. We find that the existence of an allowance mitigates the segregative properties of endogenous jurisdiction formation, as the condition identified by Gravel and Thoron to ensure the segregation of any stable jurisdiction structure remains necessary, but is no longer sufficient.
Mot(s) clé(s)
Jurisdiction, Segregation, Allowance
2017-41

L’impact des biocarburants sur les prix des matières premières agricoles

Capucine Nobletz

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Abstract
La récente expansion des biocarburants soulève des interrogations quant à l’émergence d’une nouvelle relation entre les marchés agricoles et énergétiques. Dans ce contexte, nous analysons l’influence du développement des biocarburants sur les prix des matières premières agricoles (maïs, soja et blé) en recourant aux techniques de cointégration afin d’évaluer, dans un premier temps, les liens de long terme entre les prix des biens agricoles, du pétrole et de l’éthanol. Dans un second temps, nous analysons les dynamiques de court terme, en tenant compte de l’existence potentielle de ruptures sur la période étudiée (1997-2017). Nos résultats montrent que les effets liés au développement des biocarburants divergent en fonction de la matière agricole étudiée. Pour le maïs (composant principal de l’éthanol), l’expansion de l’éthanol américain n’a pas contribué à la hausse de son prix. Pour le soja, les liens entre son marché et les marchés énergétiques (prix du pétrole et de l’éthanol) sont plus importants. L’essor de la production du biodiésel a, en effet, contribué à la hausse de son prix. Enfin, pour le blé, à long terme, son prix dépend du prix du pétrole et de l’éthanol. Le développement des biocarburants impacte le prix du blé via un effet de substitution et via un impact sur les coûts des facteurs de production agricole. Cependant, à court terme, seules les variations du prix du pétrole tendent à impacter celles du prix du blé, via les effets sur les coûts de production
Mot(s) clé(s)
biocarburants, pétrole, matières premières agricoles, cointégration.
2017-40

The Importance of Oil in the Allocation of Foreign Aid: The case of the G7 donors

Cécile Couharde, Fatih Karanfil, Eric Gabin Kilama, Luc-Désiré Omgba

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Abstract
While it is often alleged that oil endowment might influence the destination of foreign aid, there is lack of empirical evidence of how and why such an effect may come into play, and even less so of the channels through which it works. This paper aims to bring evidence that contributes to address those points. Specifically, we investigate the role of oil in aid allocation of the G7 donors, over the 1980-2010 period. Results show that, unsurprisingly, aid allocated by these donors increases significantly with oil endowment of recipient countries. Looking more deeply, we interestingly show that their strategic interests in terms of oil security play a role in their provision of aid. More importantly, we find evidence for competition for access to oil supplies among this group of donors.
Mot(s) clé(s)
aid allocation, G7 donors, oil competition, spatial lag model.
2017-39

EQCHANGE: A World Database on Actual and Equilibrium Effective Exchange Rates

Cécile Couharde, Anne-Laure Delatte, Carl Grekou, Valérie Mignon, Florian Morvillier

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Abstract
The aim of this paper is to present EQCHANGE, the new database developed by the CEPII on effective exchange rates. EQCHANGE includes two sub-databases containing
data on (i) nominal and real effective exchange rates, and (ii) equilibrium real effective exchange rates and corresponding currency misalignments for advanced, emerging and developing countries. More specifically, the first sub-database delivers effective exchange rates for 187 countries that are computed under three different weighting schemes and two panels of trading partners (186 and top 30) over the 1973-2016 period. The second sub-database provides behavioral equilibrium exchange rate (BEER) estimates and corresponding currency misalignments for 182 economies over the 1973-2016 period. We describe the construction of the two datasets and illustrate some possible uses by presenting results concerning the evolution and main characteristics of currency misalignments in the world from 2015 to 2016. By providing publicly available indicators of equilibrium exchange rates, EQCHANGE aims to contribute to key debates in international macroeconomics.
Mot(s) clé(s)
Exchange rates; Equilibrium exchange rates; Currency misalignments.
2017-38

The Eurozone Convergence through Crises and Structural Changes

Merih Uctum, Remzi Uctum, Chu-Ping C. Vijverberg

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Abstract
In light of several economic and financial crises and institutional changes experienced by the Eurozone countries, we examine whether the adoption of the euro led to business cycle synchronization or fostered convergence of growth rates. Controlling for reverse causality, we conduct multiple endogenous break tests and find that while output growth was synchronized for some countries, convergence occurred in a nonlinear way for others: (i) convergence was not triggered by adoption of the euro but by international or idiosyncratic shocks; (ii) in several countries convergence started long before the introduction of the euro, accelerated during the 1990s and continued since then, reflecting persistent influence of the core countries; (iii) convergence has been prevalent among the non-Eurozone economies in our sample.
Mot(s) clé(s)
Convergence; business cycle synchronization; euro; crises; structural breaks.
2017-37

Institutions and firms' internationalization: an empirical analysis on three Middle East countries.

Nadine Levratto, Clarisse Nguedam Ntouko, Maarouf Ramadan

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Abstract
À partir d’une définition extensive de l’internationalisation des entreprises qui permet d’en cerner les différentes facettes, ce papier propose d’étudier ce phénomène sur la base d’un modèle en deux étapes permettant d’abord d’estimer les déterminants de l’engagement à l’international, puis les facteurs expliquant les différentes modalités d’internationalisation. L’analyse empirique repose sur des données d’entreprises couvrant trois pays (Jordanie, Liban et Turquie) pour l’année 2013. Nous montrons que la probabilité d’être internationalisé et le mode d’internationalisation dépendent de caractéristiques intrinsèques des entreprises, de l’accès aux financements et du climat institutionnel. La combinaison des facteurs déterminant l’engagement à l’international et le nombre de formes d’internationalisation adoptées varient selon la taille et le secteur d’activité dans lesquelles elles opèrent.
Mot(s) clé(s)
Internationalisation des entreprises, Climat des affaires, Moyen-Orient et Afrique du Nord (MENA).
2017-36

Analysis of the job creation process in metropolitan areas: A spatial perspective

Marc Brunetto, Nadine Levratto

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Abstract
This paper seeks to challenge the view that metropolitan areas are characterized by a general positive trend in the job creation process. It rests upon an empirical analysis of the 13 French metropolitan areas over the 2004-2010 period. The estimations of employment growth run using spatial econometrics modeling techniques show that spatial spillover effects intervene in the growth process of the areas under review and that density matters in determining the employment growth rate. We have been unable to identify a unique model of metropolitan dynamics. Indeed, each metropolitan area is characterized by a specific combination of explanatory variables which, finally, attests of the variety of the metropolitan frameworks.
Mot(s) clé(s)
Metropolitan areas; agglomeration effects; spatial econometrics; spillover effects.
2017-35

Quorum Rules and Shareholder Power

Patricia Charléty, Marie-Cécile Fagart, Saïd Souam

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Abstract
This paper characterizes the equilibria of a costly voting game in which shareholders heterogeneous in both size and preferences strategically vote for or against a proposed resolution or withhold. It is shown that a minimum quorum generates (1) equilibria in which one or several shareholders form voting coalitions in favor of the resolution that is adopted (2) an equilibrium in which shareholders strategically abstain from voting and the resolution is rejected. The size of blockholders and their preferences (in favor or against the resolution) play a crucial role in the existence of equilibria, their nature, the size and the number of voters in coalitions. We derive conditions under which the dominant shareholder controls the meeting. We also examine how large shareholders influence the result of the vote. In particular, we analyze the interaction between blockholders and discuss the situations in which large shareholders jointly control annual meetings or form coalitions to counter the dominant shareholder.
Mot(s) clé(s)
Shareholder Meeting, Strategic voting, Coalitions, Quorum rule, Dominant, Controlling and Reference shareholders.
2017-34

Obeying vs. resisting unfair laws. A structural analysis of the internalization of collective preferences on redistribution using classification trees and random forests

Sophie Harnay, Élisabeth Tovar

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Abstract
In this paper, we study whether individual normative preferences are affected by the knowledge of collective normative preferences. In a questionnaire-experimental framework, we study whether respondents obey, resist or are indifferent to a very unfair but legal distribution of an inheritance between a minimum wage-earner and a millionaire. In addition to regressions, we use classification trees and random forests to provide a full picture of how asymmetric combinations of self-interest and ideological factors may lead to identical individual redistributive preferences and law internalization attitudes. We find that sensitivity to procedural fairness and responsibility cut opinions are good predictors of individual redistributive preferences. We also find that law internalization is associated with the support of core normative values, but not with the support of fairness as procedures. This echoes Cooter’s hypothesis of ‘meta preferences’ triggering an expressive vs. backlash effects of laws. Lastly, we find that, among the law-sensitive, the social ‘losers’ tend to submit to the unfair but legal collective preference while the social ‘winners’ tend to either be indifferent of voice their disagreement.
Mot(s) clé(s)
redistribution, law expressivity, self-interest, ideology, classification trees, random forests.
2017-33

Investor Relations' Quality and Mispricing

Houdou Basse Mama, Rachidi Kotchoni

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Abstract
We investigate the role of corporate investor relations (IR) in the correction process of mispricing. We provide robust evidence of accruals' mispricing for the sub-sample of firms with lower-rated IR. However, mispricing is more pronounced among firms with higher valuation uncertainty. Further analyses show that firms with higher-rated IR on average earn higher returns, and this relation is resilient to known risk/mispricing factors. More important, IR likely has countervailing effects on mispricing. IR may widen the information asymmetry among investors and concomitantly reduce future analyst forecast errors. Overall, high-quality IR appears to facilitate the market's ability to establish efficient stock prices.
Mot(s) clé(s)
Investor relations; Mispricing; Mishkin test; Information asymmetry; In- formation uncertainty.
2017-32

On the seemingly incompleteness of exchange rate pass-through to import prices: Do globalization and/or regional trade matter?

Antonia Lopez Villavicencio, Valérie Mignon

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Abstract
This paper assesses the impact of globalization and regionalization on exchange rate pass-through (ERPT) into import prices in three core eurozone countries. To this end, we consider various indicators of globalization and rely on both aggregated (i.e., country level) and disaggregated (i.e., good level) data. Using quarterly data since 1992, we do not find compelling evidence that global factors cause a structural change in the degree of exchange rate pass-through. Indeed, increased trade openness or lower trade tariffs push up ERPT in some sectors, though results are quite sparse. However, regionalization, defined as a higher proportion of intra-EU imports' share in total imports, reduces the pass-through in a more generalized way. Most importantly, we show that ERPT incompleteness generally observed in the literature is in appearance only and not at play when intra-EU trade is controlled for. Overall, our findings show that ERPT is complete and significant in numerous sectors, meaning that exchange rate changes still exert important pressure on domestic prices.
Mot(s) clé(s)
exchange rate pass-through; import prices; globalization; eurozone.
2017-31

New firms’ bankruptcy: does local banking market matter?

Giuseppe Arcuri, Nadine Levratto

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Abstract
This paper investigates the role of local context, with regard to the effect of local financial development and banking concentration, on a new firm’s probability of bankruptcy. Our empirical setting is based on the Logit Multilevel Model that better allows the treatment of data referring to different levels of aggregation (firm and local variables) applied to new firms located in Italian provinces. We find that a higher level of financial development in a province decreases the likelihood of a new firm’s bankruptcy. This result is robust considering a 2SLS regression in which we use instruments for the local financial development and for the concentration of bank branches. In addition, our estimations suggest that the effect of local financial development and bank concentration is shaped by size. Local financial development is particularly significant for small start-ups, which traditionally suffer from great difficulty in accessing credit, whereas local banking concentration reduces the probability of bankruptcy for large, new firms.
Mot(s) clé(s)
Probability of bankruptcy, new firms, multilevel model, local banking structure.
2017-30

On the current account - biofuels link in emerging and developing countries: do oil price fluctuations matter?

Gabriel Gomes, Emmanuel Hache, Valérie Mignon, Anthony Paris

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Abstract
Many developed countries promote the use of biofuels for environmental concerns, leading to a rise in the price of agricultural commodities utilized in their production. Such environmental policies have major effects on the economy of emerging and developing countries whose activity is highly dependent on agricultural commodities involved in biofuel production. This paper tackles this issue by examining the price impact of biofuels on the current account for a panel of 16 developing and emerging countries, and the potential nonlinear effect exerted by the price of oil on this relationship. Relying on the estimation of panel smooth-transition regression models, we show that positive shocks in the price of biofuels lead to a current-account improvement for agricultural commodity exporters and producers only when the price of oil is below a certain threshold. When the price of oil exceeds this threshold, uctuations in the price of biofuels no longer affect the current account. These findings illustrate that a rise in the price of oil exerts a negative effect on the trade balance of commodity exporters which are also oil importers, dampening the biofuel price impact on the current-account position.
Mot(s) clé(s)
Biofuels; Oil; Current account; Panel smooth transition regression
2017-29

Differences in positions along a hierarchy: Counterfactuals based on an assignment model

Laurent Gobillon, Dominique Meurs, Sébastien Roux

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Abstract
We propose an assignment model in which positions along a hierarchy are attributed to individuals depending on their characteristics. Our theoretical framework can be used to study differences in assignment and outcomes across groups and we show how it can motivate decomposition and counterfactual exercises. It constitutes an alternative to more descriptive methods such as Oaxaca decompositions and quantile counterfactual approaches. In an application, we study gender disparities in the public and private sectors with a French exhaustive administrative dataset. Whereas females are believed to be treated more fairly in the public sector, we find that the gender gap in propensity to get job positions along the wage distribution is rather similar in the two sectors. The gender wage gap in the public sector is 13:3 points and it increases by only 0:7 percentage points when workers are assigned to job positions according to the rules of the private sector. Nevertheless, the gender gap at the last decile in the public sector increases by as much as 3:6 percentage points when using the assignment rules of the private sector.
Mot(s) clé(s)
assignment, distributions, counterfactuals, wages, gender, public sector
2017-28

International Migration and Regional Housing Markets: Evidence from France

Ekrame Boubtane, Dramane Coulibaly, Hippolyte d'Ablis

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Abstract
This article examines the causal relations between immigration and the characteristics of the housing market in host regions. We constructed a unique database from administrative records and used it to assess annual migration ows into France's 22 administrative regions from 1990 to 2013. We then estimated various panel VAR models,taking into account GDP per capita and the unemployment rate as the main regional economic indicators. We find that immigration has no significant effect on property prices, but that higher property prices significantly reduce immigration rates. We also find no significant relationship between immigration and social housing supply.
Mot(s) clé(s)
Immigration, Property Prices, Social Housing, Panel VAR
2017-27

Point sur la fourniture de liquidié publique

Anne-Marie Rieu-Foucault

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Abstract
Ce papier cherche à relier la théorie et la pratique de la fourniture de liquidité publique. Partant de la théorie de l’assurance comme justificative de la fourniture de liquidité publique, il montre qu’en pratique la réponse à la crise financière a été faite pour enrayer la contagion et l’amplification, et que le stockage de liquidité peut intervenir pour des raisons stratégiques. Les banques centrales par les allocations de liquidité et les mesures macroprudentielles répondent de manière groupée aux phénomènes de la crise. Les réactions sont novatrices sous la forme d’un rôle de prêteur en dernier ressort systémique et d’interventions à grande échelle, mais n’utilisent pas la théorie de l’assurance de la liquidité systémique.
Mot(s) clé(s)
liquidité – Crise financière – Prêteur en dernier ressort–Macroprudentiel
2017-26

Bankruptcy and the difficulty of firing

Nicolae Stef

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Abstract
Firms may use layoffs as an ex ante mechanism to avoid filing for bankruptcy. However, the national labor law may impose some restrictions that delay or hamper the firing decision of the employer. This study proposes a different legal pathway for policymakers whose goal is to reduce the use of bankruptcy without acting on the design of the bankruptcy law. Using a sample of 33 countries from 2007 to 2015, we show that the total amount of firing restrictions leads to more bankruptcies. The employer's legal obligation to notify a third party prior the dismissal of one employee tends to increase the number of bankruptcies. It is very likely that the employer's rescue strategy endures an intense ex post monitoring of the employment contracts and/or a strong legal opposition to the layoff decision from such third party. In addition, labor codes that apply priority rules in case of reemployment can increase the use of bankruptcy.
Mot(s) clé(s)
Bankruptcy, Layoff, Labor
2017-25

Globalisation Financière, Croissance et effets de seuil : Le Cas des pays en développement Les moins avancés

Brahim Gaies

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Abstract
Dans cet article, nous étudions les effets de la globalisation financière sur la croissance économique dans 72 pays en développement les moins avancés entre 1972 et 2011, en prenant en compte l’existence d’effets de seuil en matière de stabilité macroéconomique et d’accroissement du revenu. Les principaux résultats auxquels nous aboutissons via l’estimation de trois modèles dynamiques en données de panel sont les suivants. La globalisation par l’endettement affecte négativement la croissance, avec la présence d’effets de seuil minimums en matière de stabilité macroéconomique et de croissance du revenu. La globalisation par l’investissement favorise la croissance jusqu’à un certain seuil maximum à partir duquel son effet sur le revenu commence à s’estomper. En somme, la globalisation financière (par l’endettement et l’investissement) a un impact favorable sur la croissance sur le long terme, avec la présence d’effets de seuil minimums en matière de stabilité macroéconomique et de croissance du revenu.
Mot(s) clé(s)
Globalisation Financière, méthode des moments généralisés, effets de seuil
2017-24

A Model of Influence on Trade Policy in a Computable General Equilibrium Model

Franck Viroleau

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Abstract
This paper aims at making explicit the micro foundations of the government's preference function in an influence-driven political economy model. It also addresses the behavior functions of domestic and foreign firms in their attempts to gain policy favors. These favors are granted by means of subsidies. In our model, the government simultaneously chooses three interdependent policy instruments under the political influence of domestic and foreign firms. Thus, we create a political market characterized by utility-maximizing and profit-maximizing behaviors of its actors, which takes place in a computable general equilibrium model. Endowed with these features, this model fills a gap in the literature. However, our results demonstrate that the model is only valid under a reasonable set of constraints on its parameters. Finally, this paper formally shows the key role of the subsidy elasticity of political cost in limiting the distortions created by the influence of interest groups.
Mot(s) clé(s)
Lobbying, Public Policies, Computable General Equilibrium Model
2017-23

Introducing global term structure in a risk parity framework

Lauren Stagnol

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Abstract
In this paper, we aim at constructing a global risk model using the term structure from major bond-issuing countries. The goal is twofold: first this allows quantifying global interest rate risk (level, slope and curvature effects), providing insights on global risks at play. Secondly, such information could be used in order to design sovereign bond indexes in a risk parity framework where each country's sensitivity to global interest risk is accounted for. More specifically, we propose two innovative indexing schemes, a first one where we equalize contribution to global level risk exposures across countries, and a second one where we turn to level, slope and curvature risk exposures within a country. Indeed at the country level, only parallel (level) risk matters, while when turning to maturity buckets within a country, non parallel risks (slope and curvature) have to be accounted for. Finally, we demonstrate that the conjunctive use of these two approaches allows to efficiently tackle exposure to global interest rate risk while providing appealing improvements in the risk-return profile.
Mot(s) clé(s)
Equal Risk Contribution, Yield Curve, Risk Parity, Smart Beta, Risk Measure, Risk-Based Indexing, Sovereign Bonds, Term Structure
2017-22

Hierarchical competition and heterogeneous behavior in noncooperative oligopoly markets

Ludovic A. Julien

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Abstract
In this paper, we consider a sequential bilateral oligopoly market which embodies a finite number of leaders and followers who compete on quantities. We define a noncooperative equilibrium concept for this two-stage market game with complete and perfect information, namely the Stackelberg-Nash equilibrium (SNE). Then, we study the existence of a SNE with trade. The existence proof requires some steps as this market game displays a rich set of strategic interactions. In particular, to show the existence of a pure strategy subgame perfect Nash equilibrium, we have to determine the conditions under which there exist well defined continuously differentiable best responses. Some examples buttress the approach and discuss the assumptions made on the primitives.
Mot(s) clé(s)
Best responses, Stackelberg-Nash equilibrium, trade, autarky
2017-21

Illiquid Collateral and Bank Lending during the European Sovereign Debt Crisis

Jean Barthélémy, Vincent Bignon, Benoît Nguyen

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Abstract
This paper assesses the effect on banks’ lending activity of accepting illiquid collateral at the central bank refinancing facility in times of wholesale funding stress. We exploit original data on the loans granted by the 177 largest euro area banks between 2011m1 and 2014m12 and on the composition of their pool of collateral pledged with the Eurosystem. During this period, two-thirds of the banks in our sample experienced a sizable loss of wholesale funding. Panel regression estimates show that the banks that pledged more illiquid collateral with the Eurosystem reduced their lending to non-financial firms and households less: a one standard deviation increase in the volume of illiquid collateral pledged corresponded to a 0.6% increase in loans to the economy. This result holds for banks that were and were not run. Our finding thus suggests that the broad range of collateral eligible in the euro area may have helped to mitigate the credit crunch during the euro debt crisis.
Mot(s) clé(s)
collateral, loans, central bank, euro crisis.
2017-20

Testing for Extreme Volatility Transmission with Realized Volatility Measures

Christophe Boucher, Elena Ivona Dumitrescu, Sessi Tokpavi, Gilles de Truchis

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Abstract
This paper proposes a simple and parsimonious semi-parametric testing procedure for variance transmission. Our test focuses on conditional extreme values of the unobserved process of integrated variance since they are of utmost concern for policy makers due to their sudden and destabilizing effects. The test statistic is based on realized measures of variance and has a convenient asymptotic chi-square distribution under the null hypothesis of no Granger causality, which is free of estimation risk. Extensive Monte Carlo simulations show that the test has good small sample size and power properties. An extension to the case of spillovers in quadratic variation is also developed. An empirical application on extreme variance transmission from US to EU equity markets is further proposed. We find that the test performs very well in identifying periods of significant causality in extreme variance, that are subsequently found to be correlated with changes in US monetary policy.
Mot(s) clé(s)
Extreme volatility transmission, Granger causality, Integrated variance, Realized variance, Semi-parametric test, Financial contagion.
2017-19

Reguler la liquidité des actifs risqués

Anne-Marie Rieu-Foucault

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Abstract
L’existence du risque des créances titrisées sur les bilans bancaires a été l’une des spécificités de la crise de 2007-2009. Les marchés d’actifs se sont gelés, dans le sillage de la crise de confiance liée au contexte d’asymétries d’information entre les banques, vendeurs de ces créances titrisées et les fonds d’investissement, leurs acheteurs. Dans ce contexte, ce papier propose un équilibre séquentiel dans lequel la banque centrale peut intervenir pour ranimer le marché d’actifs. Toutefois, ce rôle du banquier central est celui d’un preneur de risque en dernier ressort, qui a un coût budgétaire. Le papier montre alors que la mission de fourniture des liquidités doit être complétée par une politique macroprudentielle sur les risques extrêmes des actifs. Enfin, une comparaison est faite entre le modèle de l’économie normative et la gestion pratique de la crise par les banques centrales.
Mot(s) clé(s)
Banques centrales – Liquidité – Conception de mécanisme
2017-18

The Impact Of Regulations And Institutions On Multi-Factor Productivity: New Evidence From Macroeconomic Estimates

Balázs Egert

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Abstract
Empirical research on the drivers of multi-factor productivity (MFP) is abundant at the firm- and industry level but surprisingly little research has been conducted on the determinants of MFP at the macroeconomic level. In this paper, we seek to understand the drivers of country-level MFP with a special emphasis on product and labour market policies and the quality of institutions. For a panel of OECD countries, we find that anticompetitive product market regulations are associated with lower MFP levels and that higher innovation intensity and greater openness go in tandem with higher MFP. We also find that the impact of product market regulations on MFP may depend on the level of labour market regulations. Better institutions, a more business friendly environment and lower barriers to trade and investment amplify the positive impact of R&D spending on MFP. Finally, we also show that cross-country MFP variations can be explained to a considerable extent by cross-country variation in labour market regulations, barriers to trade and investment and institutions (including corruption).
Mot(s) clé(s)
multi-factor productivity, trade openness, innovation, product market regulation, labour market regulation, institutions, policy interactions, OECD
2017-17

Regulation, Institutions and Productivity: New Macroeconomic Evidence From OECD Countries

Balázs Egert

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Abstract
This paper investigates the relationship linking investment (capital stock) and structural policies. Using a panel of 32 OECD countries from 1985 to 2013, we show that more stringent product and labour market regulations are associated with less investment (lower capital stock). The paper also sheds light on the existence of non-linear effects of product and labour market regulation on the capital stock. Several alternative testing methods show that the negative influence of product and labour market regulation is considerably stronger at higher levels. The paper uncovers important policy interactions between product and labour market policies. Higher levels of product market regulations (covering state control, barriers to entrepreneurship and barriers to trade and investment) tend to amplify the negative relationships between product and labour market regulations and the capital stock. Equally important is the finding that the rule of law and the quality of (legal) institutions alters the overall impact of regulations on capital deepening: better institutions reduce the negative effect of more stringent product and labour market regulations on the capital stock, possibly through the reduction of uncertainty as regards the protection of property rights.
Mot(s) clé(s)
aggregate investment, capital deepening, structural policy, product market regulation, labour market regulation, poliy interaction, OECD
2017-16

Systemic risk and individual risk: A trade-off?

Tatiana Gaelle Yongoua Tchikanda

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Abstract
The global financial crisis raised concerns about the European financial system structure. The systemic nature of financial institutions, especially banking institutions, was highlighted, questioning the bottom-up approach used so far to ensure the financial stability as a whole. In this study, we legitimize the calibration of micro-prudential instruments for macro-prudential purposes in order to measure and manage systemic risk. The debate on the best way to eliminate the negative externalities of systemic risk is politically controversial and economically complicated. Using bank balance sheet and daily stock market data from listed banks classified as Monetary Financial Institutions (MFIs) across EU-17 over the period 1999-2013, we investigate whether more individual bank soundness is conducive for financial stability. Through a 2SLS model to correct the observed endogeneity between the individual risk, measured by Z-score (Roy, 1952) and the systemic risk, measured by SRISK (Acharya, Engle and Richardson, 2012), our strong empirical results suggest that riskier banks contribute more to systemic risk. Thus, individual bank soundness increases the banking system resilience to potential shocks. On the one hand, this finding seems to challenge the traditional bottom-up approach. Indeed, our outcome emphasizes the fallacy of composition prior the crisis. Nevertheless, it shows that even if the sum of the risks borne by financial institutions does not reflect the global risks borne by the entire system, it is an important addition. On the other hand, this result justifies the calibration of micro-prudential tools for macro-prudential purposes; taking into account individual factors that are sources of systemic fragilities and a part of individual risk-taking. This study has important policy implications for designing and implementing new regulations to improve the financial system stability, in particular for MFIs because systemic risk remains misunderstood and its measuring tools are still ongoing (Hansen, 2012).
Mot(s) clé(s)
Financial stability; Bank risk-taking; systemic risk; financial structure
2017-15

The Quantification of Structural Reforms in OECD countries: A New Framework

Balázs Egert, Peter Gal

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Abstract
This document describes and discusses a new supply side framework that quantifies the impact of structural reforms on per capita income in OECD countries. It presents the overall macroeconomic impacts of reforms by aggregating over the effects on physical capital, employment and productivity through a production function. On the basis of reforms defined as observed changes in policies, the paper finds that product market regulation has the largest overall single policy impact five years after the reforms. But the combined impact of all labour market policies is considerably larger than that of product market regulation. The paper also shows that policy impacts can differ at different horizons. The overall long-term effects on GDP per capita of policies transiting through capital deepening can be considerably larger than the 5- to 10- year impacts. By contrast, the long-term impact of policies coming only via the employment rate channel materialises at shorter horizon.
Mot(s) clé(s)
structural reforms, product markets, labour markets, regulation, simulation, multi-factor productivity, investment, employment, per capita impact, OECD
2017-14

Gérer la crise de 2007-2009: Un début de Politique des Liquidités

Anne-Marie Rieu-Foucault

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Abstract
Dans le contexte où la crise financière de 2007-2009 a été, entre autres, une crise de liquidité, ce papier démontre que les interventions des banques centrales sur la liquidité ont changé de nature, passant d’une politique monétaire à une politique des liquidités. Après avoir défini les différents concepts de liquidité et la manière de les agencer, dans la pratique bancaire et dans la théorie économique, le papier analyse ce qu’il appelle une politique de liquidités, en premier en s’intéressant aux opérations du côté du passif des banques centrales puis ensuite du côté des mesures non conventionnelles, représentant les actifs des banques centrales comme contrepartie monétaire. Rapprochant alors ces observations pratiques de la théorie, il conclut à la nécessité de définir une politique de création de liquidité publique et de trouver une articulation avec les justifications de mesures non conventionnelles dans un objectif de stabilité des prix. Cette politique des liquidités fonde plusieurs rôles de dernier ressort des banques centrales.
Mot(s) clé(s)
Banques; centrales; Mesures; non conventionnelles; Liquidité
2017-13

Hoarding international reserves and global liquidity expansion, what are the links and do they matter?

Nady Rapelanoro

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Abstract
Global liquidity expansion raises concerns amongst regulators and policy makers, especially since its evolution is closely related to destabilizing phenomena’s, particularly for the financial sector. Despite that those effects are largely investigated in the advanced countries, the literature is scarce concerning the effects for the emerging and developing economies. In this paper, our objective is to investigate the links between the hoarding reserves observed in the Asian emerging economies and the development of the global liquidity conditions in the core countries. For this purpose, we study the theoretical relationships between the two phenomena and provide an empirical approach that evaluates the influences of the growing demand for reserves in the emerging countries into the main reserves issuing country. We particularly focus on macroeconomics consequences and the effects on the developments of global liquidity conditions.
Mot(s) clé(s)
SVARs; Global liquidity; Emerging countries; International reserves
2017-12

Inflation Targeting and the Forward Bias Puzzle in Emerging Countries

Dramane Coulibaly, Hubert Kempf

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Abstract
Based on quarterly data on 31 emerging countries (among which 16 are inflation targeting countries) from 1990Q1 to 2014Q3, we obtain a strong support for the conjecture that the implementation of inflation targeting weakens the Fisherian relation between expected depreciation and the interest rate differential (uncovered interest parity condition) and thus is conducive to the appearance of the forward bias puzzle in emerging countries. We show that this reects the performance of inflation targeting regimes in lowering the level and volatility of inflation which leads non-Fisherian fundamentals to be predominant. Our finding holds when controlling for country-specific effects, time-specific effects, global disinflationation, exchange rate management and using different econometric techniques.
Mot(s) clé(s)
Inflation targeting; uncovered interest parity; forward bias puzzle; emerging countries
2017-11

On Oil-US Exchange Rate Volatility Relationships: an Intradaily Analysis

Hachmi BEN AMEUR, Abdoulkarim Idi Cheffou, Fredj Jawadi, Wael Louhichi

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Abstract
The paper investigates the dynamics of oil price volatility by examining interactions between the oil market and the US USD/EUR exchange rate. To this end, we use recent intradaily data to measure realised volatility and to investigate the instantaneous intradaily linkages between different types and proxies of oil price and US$/euro volatilities. We specify the drivers of oil price volatility through a focus on extreme US$ exchange rate movements (intradaily jumps). Accordingly, we find a negative relationship between the US USD/EUR and oil returns, indicating that a US $ appreciation decreases oil price. Second, we note the presence of a volatility spillover from the US exchange market to the oil market. Interestingly, this spillover effect seems to occur through intradaily jumps in both markets.
Mot(s) clé(s)
Oil price volatility, realised volatility, intradaily jumps, exchange rate, intradaily data, GARCH model
2017-10

Taking Diversity into Account: the Diversity of Financial Institutions and Accounting Regulation

Gaëtan Le Quang

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Abstract
The global financial crisis and what followed point out at least two major failures of the financial system: its inability to contain liquidity risk and its inability to fund long term investments. We think that these two problems come from the setting up of rules and practices that tend to homogenize market participants’ incentives and behaviors. Fair value accounting is one element of this set of practices and rules. If the rationale behind fair value accounting – that is enhancing transparency in order to limit unreported losses and manipulations – can justify its use in the case of short-term financial institutions (meaning institutions whose time horizon is short because of the maturity of their liabilities) that constantly face the risk of a sudden liquidity need, it seems totally irrelevant when it comes to long-term financial institutions that will not face liquidity needs before ten or twenty years. In this perspective, we develop a model that shows that an accounting regulation that takes the diversity of financial institutions into account offers better results both in terms of liquidity and in terms of efficiency than a regulation that ignores this diversity.
Mot(s) clé(s)
Fair value; Banks; Insurers; Diversity
2017-9

The impact of regulatory requirements on the banking flows to emerging countries

Michel Boutillier, Samira Hellou

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Abstract
Le renforcement des exigences réglementaires, avec l’évolution de la réglementation bancaire, peut avoir un effet négatif sur le financement extérieur bancaire des pays émergents fortement dépendants à ce type de financement. En effet, plusieurs études ont fait naître des craintes sur les effets potentiels des ajustements réglementaires importants sur les prêts bancaires vers les marchés émergents. Ce papier présente un essai pour estimer la sensibilité des flux bancaires à l’augmentation des exigences réglementaires, dans un cadre macroéconomique basé sur les déterminants des flux des crédits des banques de 19 pays développés vers 37 pays émergents. Les résultats des estimations en GMM confirment l’impact négatif des exigences réglementaires sur les flux bancaires vers les pays émergents, l’impact significatif de l'ouverture commerciale et l’effet négatif de la financiarisation des banques sur les flux bancaires vers ces pays. Les résultats montrent aussi que les pays notés en catégorie spéculative sont influencé par les exigences réglementaires, contrairement aux pays notés en catégorie investissement.
Mot(s) clé(s)
flux bancaires, pays émergents, facteurs pull et push, exigences réglementaires.
2017-8

Comparer les mesures non conventionnelles de la FED et de la BCE : ce que disent les bilans des banques centrales.

Anne-Marie Rieu-Foucault

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Abstract
Dans le contexte de la crise financière de 2007-2009, les banques centrales ont innové sous la forme de multiples mesures non conventionnelles, mises en œuvre dans le cadre opérationnel existant de la politique monétaire. Ces innovations soulèvent deux questions en 2016 : la catégorisation au sein des mesures existantes, et l’homogénéité entre les mesures prise par la FED et celles prises par la BCE. Ce papier démontre l’existence de deux faits stylisés importants : une rupture structurelle dans les modalités d’allocation de liquidité, et une convergence apparente des mesures qui cache en fait des différences fondamentales entre le mode opérationnel de la FED et celui de la BCE, différences qui relèvent de l’histoire et des institutions. Les deux faits stylisés amènent alors à se questionner sur le type et sur la forme du mandat de la BCE en lien avec les orientations de l’économie politique des sociétés européennes.
Mot(s) clé(s)
Banques centrales – Mesures non conventionnelles
2017-7

Environmental, Social and Governance (ESG) performance and sovereign bond spreads: an empirical analysis of OECD countries

Gunther Capelle-Blancard, Patricia Crifo, Marc-Arthur Diaye, Rim Oueghlissi, Bert Scholtens

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Abstract
What are the determinants of borrowing cost in international capital markets? Apart from macroeconomic fundamentals, are there any qualitative factors that might capture sovereign bond spreads? In this paper we consider to what extent Environmental, social and governance (ESG) performance can affect sovereign bond spreads. First, countries with good ESG performance tend to have less default risk and thus lower bond spreads. Moreover, the economic impact is stronger in the long-run, suggesting that ESG performance is a long-lasting phenomenon. Second, we examine the financial impact of separate ESG dimensions, and find that the environmental dimension appears to have no financial impact whereas governance weighs more than social factors. Third, we examine cross-countries differences and show that ESG performance has a more significant and stronger impact in the Eurozone than elsewhere in OECD countries. Fourth, we include evidence from the global financial crisis and find stronger influence of country sustainability performance during crisis period.
Mot(s) clé(s)
ESG performance; sovereign bond yield spreads.
2017-6

Workers or mothers? Czech welfare and gender role preferences in transition

Alzbeta Mangarella

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Abstract
Two decades after the fall of state socialism, the Czech Republic records the widest employment gap between women with and without pre-school children among OECD countries: 41 pp. Several substantial parental leave reforms took place during the first stage of the transition (1995) and after the EU accession (2008). The responses by the targeted population, i.e. take-up rates and duration of work interruptions, do not fully mimic predictable effects drawn by financial incentives. Why is that? Using the European Values Study and the Generations and Gender Programme panel data, I show that quite counter-intuitively, in the context of post-socialist public policy adjustments, preference for long leaves does not stem from lower preference for welfare state institutions, but from a purely intra-household value change in favour of higher task specialization between men and women. Indeed, unlike most European countries and even other post-communist countries, we observe a significant turn towards specialized couple preferences - among both women and men, both parents and non-parents, and both the higher and lower educated.
Mot(s) clé(s)
Family policy, Gender roles, Culture, Central and Eastern European transition.
2017-5

Forecasting economic activity in data-rich environment

Rachidi Kotchoni, Maxime Leroux, Dalibor Stevanovic

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Abstract
This paper compares the performance of five classes of forecasting models in an extensive out-of-sample exercise. The types of models considered are standard univariate models, factor-augmented regressions, dynamic factor models, other data-rich models and forecast combinations. These models are compared using four types of data: real series, nominal series, the stock market index and exchange rates. Our Findings can be summarized in a few points: (i) data-rich models and forecasts combination approaches are the best for predicting real series; (ii) ARMA(1,1) model predicts inflation change incredibly well and outperform data-rich models; (iii) the simple average of forecasts is the best approach to predict future SP500 returns; (iv) exchange rates can be predicted at short horizons mainly by univariate models but the random walk dominates at medium and long terms; (v) the optimal structure of forecasting equations changes much over time; and (vi) the dispersion of out-of-sample point forecasts is a good predictor of some macroeconomic and financial uncertainty measures as well as of the business cycle movements among real activity series.
Mot(s) clé(s)
Forecasting, Factor Models, Data-rich environment, Model averaging.
2017-4

Sustainability of an economy relying on two reproducible assets

Robert D. Cairns, Stellio Del campo, Vincent Martinet

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Abstract
Evaluating the sustainability of a society requires a system of shadow or accounting values derived from the sustainability objective. As a first step toward the derivation of such shadow values for a maximin objective, this paper studies an economy composed of two reproducible assets, each producing one of two consumption goods. The effect of the substitutability between goods in utility is studied by postulating, in turn, neoclassical diminishing marginal substitutability, perfect substitutability and perfect complementarity. The degree of substitutability has strong effects on the maximin solution, affecting the regularity or non-regularity of the program, and on the accounting values. This has important consequences for the computation of genuine savings and the sustainability prospects of future generations.
Mot(s) clé(s)
sustainable development; maximin; sustainability accounting; substitutability.
2017-3

The French banking sector during the interwar: What lessons can be drawn from the stock market?

Raphaël Hekimian

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Abstract
The aim of this paper is to provide new insights on the French banking crisis of the1930’s. This crisis is usually considered in the literature to have been relatively more limited in France than in other European countries. One feature of the French banking system at that time was the specialization of its activities: French banks were, for the most part, either deposit or business banks. The literature highlights the fact that business banks faced the greatest difficulties because they invested in foreignmarkets. The purpose of this article is to test this hypothesis with a new dataset of stock prices by estimating the risk on i) the aggregated banking sector; ii) on two subsamples, one including only deposit banks and the other one, only business banks and iii) on the individual series. We find that during the 1930’s, business banks were indeed more risky than deposit banks, relative to the overall market.
Mot(s) clé(s)
Banking crisis, Financial History, Great Depression
2017-2

International equity portfolio diversification: a sectoral and security-by-security analysis

Pierre Bui Quang, Jonas Heipertz, Natacha Valla

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Abstract
International portfolio diversification has been shown to be subject to several puzzles, notably the home bias in equity investment, and the correlation bias. Taken together, those facts suggest that not only do investors tend to prefer domestic equity to foreign equity, but that, when they venture into cross-border investments, they do so in countries where stock prices are most correlated with home markets - contradicting the intuition that international investments are used to diversify portfolios more optimally. Our paper deals mainly with the correlation bias. It uses a dataset on French external financial portfolio positions produced by the Banque de France that allows a security-by-security analysis of international positions. We show that although insurance companies and investment funds are indeed more exposed to highly correlated markets, the way they arrange their portfolios at the security-level is consistent with the existence of a diversification motive.
Mot(s) clé(s)
gross international investment positions, home bias, correlation puzzle, financial structure, macro-prudential regulation.
2017-1

Les business angels, révélateurs, plus que moteurs, de l’engagement des entreprises dans l’innovation

Nadine Levratto, Maarouf Ramadan, Luc Tessier

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Abstract
Whereas the funding of the first years of the life cycle of companies is presented as a key condition for their survival and growth, the attention given to business angels (BA noted below) by academics have been growing steadily during the past years. This article proposes to discuss the extent, which they contribute to innovation from a unique database of 432 French companies financed by one of the members of the network France Angels (French Federation of Business Angels networks) during the period 2004-2011. We compare it to a test group constituted of 2,160 similar companies. We specify an econometric model specifying the determinants of innovation approximated by the share of non-financial intangible assets in total assets explained by the presence or absence of a BA and control variables. The use of the estimation method using a Fixed Effects Vector Decomposition method shows the positive effect of BA on innovation. Elements of explanation of these results are provided from a qualitative survey of BA members of France Angels and from a subset of companies extracted from the population of 432 ones backed by BA. They illustrate how the specific behavior of BA at the time of selection of companies and their attitude during the accompaniment period explains these different trajectories.
Mot(s) clé(s)
Business Angels, Innovation, Entrepreneuriat, Start-ups, France
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