WORKING PAPERS 2018

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2018-52

The effect of non-resident investments on the French sovereign spread

Pierre Bui Quang

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Abstract
Cross-border investments in public debt securities are a key driver of sovereign yields. Everything else being equal, higher external demand lowers the cost of public financing through debt. However, from a financial stability perspective, it seems important to assess the resilience of sovereign debt against non-resident divestments, as cross-border flows tend to be volatile.
Our paper adresses this issue for the French public debt. It relies on estimating the increase in yields that is necessary for the domestic financial sector to reallocate enough of its securities portfolio to compensate for hypothetical non-resident divestments.
Our results indicate that if the share of non-residents in non-central bank holdings of French public debt had decreased regularly by an extra 1.25 pp compared to actual evolution, over the year from 2016-Q3 to 2017-Q3 (hence amounting to a 5 pp decrease in total), the sovereign yield would have been by around 40bp higher in 2017-Q3. Given the amount and the maturity of gross debt issuances over this period, and using the German bund yield curves for discounting, the corresponding extra cost for public finances in 2017-Q3 would have been around 6Bn €.
Mot(s) clé(s)
government bond yields, external debt, investor base, home bias, portfolio choice
2018-51

On the impact of the launch of the euro on EMU macroeconomic vulnerability

Florian Morvillier

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Abstract
This paper aims at investigating the role played by the euro’s inception on external imbalances and macroeconomic vulnerability of the eurozone. To this end, we estimate a panel VAR model over the pre-euro (1980-1998) and EMU (1999-2016) periods for eleven eurozone members. Our findings show that with the adoption of the single currency, current account vulnerability to demand and currency misalignments shocks increases significantly. The correction of external imbalances within the euro area also becomes more difficult because of the disparition of a slow-growth process and devaluations as adjustment tools.
Mot(s) clé(s)
Global imbalances, current account, output gap, exchange-rate misalignments, panel VAR.
2018-50

Renewable energy source integration into power networks, research trends and policy implications: A bibliometric and stakeholders survey analysis

Emmanuel Hache, Angélique Palle

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Abstract
This article studies the integration of variable renewable energy sources (RES) into power networks. The main goal is to confront the contents and trends of scientific literature with the eyes and projects of researchers on future topics and issues to be solved, especially in terms of modeling of electrical systems. The analysis relies on a bibliometric study of the Scopus database on the topic and on an online survey sent to the corresponding authors of the identified papers. The paper analyses the dynamics of publication, clusters of collaboration and main studied topics. It then identifies potential research leads, among which unresolved challenges regarding technical aspects, markets and financing issues and social aspects. The paper concludes on the policy implications of the mentioned results. The disparity of models and results is still a necessary evil as research is not mature enough to integrate in one model all the very complex parameters of VRE integration into power systems. Some recurring lacks though, such as the impact of emergent technologies or the development of substitute low carbon emitting technology (other than solar and wind), need to be addressed. The paper also advocates the need for a systemic vision, for both research and policy makers that goes beyond the sole power system.
Mot(s) clé(s)
Variable renewable energy, bibliometric analysis, scenario, survey, power network, policy
2018-49

Bilan sur le consensus de Jackson Hole

Anne-Marie Rieu-Foucault

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Abstract
Before the 2007 crisis, the monetary authorities agreed in Jackson Hole for independence between monetary policy and financial stability. They thus validated the mandate of central banks with the objective of price stability. This point, however, is debated. This paper takes the arguments that led to the Jackson Hole consensus before the crisis and then revisits them in the light of the 2007 crisis. Financial imbalances and the existence of a risk-taking channel need to be addressed by economic policy. After the crisis, the monetary authorities chose to implement macroprudential policies to address this concern but did not question the independence between monetary policy and financial stability, resulting in the separation of monetary policy and macro-prudential policies. The limitations of macroprudential tools may, however, lead to changes in the central bank's strategy or mandate for the integration of a financial stability objective into monetary policy.
Mot(s) clé(s)
Monetary policy, Financial Stability, Central banks
2018-48

Cobb-Douglas preferences and pollution in a bilateral oligopoly market

Anicet Kabre

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Abstract
In this note, we introduce pollution and examine its effects in a finite bilateral oligopoly model where agents have asymmetric Cobb-Douglas preferences. We define two strategic equilibria: the Stackelberg-Cournot equilibrium with pollution (SCEP) and the Cournot equilibrium with pollution (CEP). While the supplied quantities of the polluting and the non-polluting good depend on the preferences of all economic agents in the case of symmetric preferences, we show that when preferences are asymmetric, i) at both equilibria, each polluter’s equilibrium supply depends only on the non-polluters’ preferences for the non-polluting good; ii) at the CEP and the SCEP, the elasticity of the polluters emissions is greater when nonpolluters preferences for the non-polluting good increase, compared to an increase in their own preferences for this good; iii) firm’s emissions’elasticity decreases with the market power if their marginal cost is lower than their competitor.
Mot(s) clé(s)
Bilateral oligopoly; Pollution; Cobb-Douglas preferences
2018-47

The Fate of Inventions. What can we learn from Bayesian learning in strategic options model of adoption ?

Marc Baudry, Edouard Civel

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Abstract
We develop a game where heterogeneous agents have the option of adopting an invention of uncertain quality or postponing their decision to benefit from others' experience through Bayesian learning. Messages produced on the invention nature are noisy, representing the "teething troubles" of innovation. Our model gives microeconomic foundations to the S-shaped innovation diffusion curves, informational externality inducing strategic delay in agents' behavior. Moreover, noise could nip in the bud the diffusion of inventions: numerical simulations underline a bi-modal distribution of steady states for innovation diffusion, stillborn or fully developed, bringing to light a reputational valley of death for inventions.
Mot(s) clé(s)
Innovation diffusion ; Invention adoption ; Information ; Strategic options ; Bayesian learning.
2018-46

Exportations et exonérations, les deux vont-elles de pair ? Analyse empirique sur données individuelles d’entreprises françaises

Aziza Garsaa, Nadine Levratto

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Abstract
Exemptions from employers' social security contributions are by far the most important item of business subsidies. Although their direct influence on job creation, which is their primary objective, has been the subject of numerous evaluations, few researches propose to estimate their influence on competitiveness. This article sheds light on the subject by addressing the issue considering the ability of firms to access external markets through exports. To this end, this article proposes an empirical analysis of the determinants of the probability of exporting, the frequency of exports and their intensity resting on micro data for a sample French manufacturing companies over the 2004-2011 period. Our results highlight a negative effect of the exemptions on companies' export commitment. It is confirmed regardless of the indicator, period and sector selected.
Mot(s) clé(s)
Firm competitiveness, Export, Exemptions of social security contributions, Microdata, France
2018-45

The nexus between climate negotiations and low-carbon innovation: a geopolitics of renewable energy patents

Clément Bonnet, Samuel Carcanague, Emmanuel Hache, Gondia Sokhna Seck, Marine Simoën

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Abstract
Intellectual property is a central issue in the climate negotiations. On the one hand, it shapes and encourages innovation in low-carbon technologies. On the other hand, it reduces access to these technologies by giving patent holders market power. We analyze the interactions between climate negotiations and the acquisition of patents on renewable energy technologies. First, we recall the geopolitical nature of intellectual property and explain how it is modified by the particularities of low-carbon innovation. The second part of this article is devoted to an inventory of the production of inventions in renewable energy technologies (RETs). In particular, we focus on the relative technological advantages of countries and the value of patented inventions. Major changes are observed in the geographical distribution of low-carbon innovation during the 2000s and they foreshadow a reorganization of the geopolitical balances of innovation in renewable energies.
Mot(s) clé(s)
Patent data, energy transition, renewable energy technology, innovation, international relations
2018-44

A Steeper slope: the Laffer Tax Curve in Developing and Emerging Economies

Zouhair Aït Benhamou

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Abstract
In comparing the tax burden between developed and developing economies, we argue that the Laffer curve is sensitive to two factors, namely the size of underground economic activities and tax collection costs. The baseline model exhibits counter-intuitive results for developing and emerging economies. Insofar as we find that they are able to extract higher tax rates and revenues in comparison with developed countries. The differences are due to the values computed for structural parameters and steady-state variables. However, when the share of underground activities is taken into account, the Laffer curve is pushed downward, while tax collection costs shift the peak rate to the left.
Mot(s) clé(s)
Laffer curve, Taxes, Tax burden, Underground economy, tax collection cost, calibration, estimation, GMM, SMM
2018-43

On consumer preferences for (partial) products liability

Tim Friehe, Eric Langlais, Elisabeth Schulte

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Abstract
Traditional law and economics analyses of products liability find that different liability regimes lead to the same market outcome, implying that risk-neutral consumers are indifferent between products liability and no products liability. We present a setup in which a group of consumers supports the implementation of products liability although its enforcement is costly. All consumers may prefer the same level of (partial) products liability.
Mot(s) clé(s)
Product Liability, Monopoly, Political Economy
2018-42

Fossil fuel subsidies, income inequality and poverty. Evidence from developing countries

Cécile Couharde, Sara Mouhoud

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Abstract
The past two decades have witnessed widespread attempts to reform fossil fuel subsidies in developing countries. If the reforms are likely to improve economic efficiency, the expected effects on income distribution and poverty are more controversial. This paper reviews the recent literature that examines the impacts of fossil fuel subsidies and their reform on income inequality and poverty. It identifies the different channels that have been explored in the literature and surveys the empirical evidence on the importance of
these channels in practice. Drawing on diverse country experiences, it also discusses why fossil fuel subsidies are particularly challenging to reform and highlights several ways in which efforts to reform may be feasible and successful.
Mot(s) clé(s)
fossil fuel subsidies, developing countries, distributional impact, subsidy reform
2018-41

The effects of migration and remittances on development and capital in Caribbean Small Island Developing States

Zouhair Aït Benhamou, Lesly Cassin

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Abstract
This paper puts forward a modified OLG framework for high migration countries such as Caribbean islands, to link economic growth and demographic features. Our theoretical model captures the potential effects of migration on the households' choices in terms of savings, fertility and education, and thus on the accumulation of human and physical capital. Through a numerical analysis we study specifically five countries. We find that households in Jamaica, Haiti and Dominican Republic invest more in education for future generations and increase their fertility rate. Thus due to migration, their economic growth is driven by accumulation of efficient units of labor. For Barbados or Trinidad and Tobago, the benefits from education are dwarfed respectively by a low migration premium or a low level of remittances. Their economic growth is therefore driven by a high accumulation of physical capital. Second, we introduce frictions on the capital market in order to account for the imperfections in the interest rate adjustments to the marginal productivity of capital. For the studied islands, physical capital accumulation on the one hand and economic growth on the other hand show trade-offs between short-run and long-run if the frictions are reduced.
Mot(s) clé(s)
Migration, Capital Markets, Overlapping Generations Model, Caribbean, Small Island Developing States
2018-40

Dollar canadien et prix du pétrole : quelle causalité ?

Capucine Nobletz

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Abstract
The aim of this paper is to study the relationship between the real price of oil and the real effective exchange rate of the Canadian dollar. Using co-integration techniques, the results suggest that there is a stable long-run relationship between the series and a mean-reverting process of the Canadian exchange rate to its long-term target. In the short term, the change in the Canadian exchange rate is positively determined by its one-period lagged value and the change in the price of oil. Finally, using Granger causality tests, the results show that causality runs from exchange rate to oil price. An appreciation of the Canadian exchange rate results in an increase in the relative demand for oil - the price of oil produced in Canada being relatively more expensive - which in turn generates upward pressure on its price.
Mot(s) clé(s)
Oil, Exchange rate, Canada, Co-integration, Error correction model, Granger causality test
2018-39

Stocks and Bonds: Flight-to-Safety for Ever?

Christophe Boucher, Sessi Tokpavi

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Abstract
This paper gives new insights about flight-to-safety from stocks to bonds, asking whether the strength of this phenomenon remains the same in the current environment of low yields. The motivations lie on the conjecture that when yields are low, the traditional motives of flight-to-safety (wealth protection, liquidity) could not be sufficient, inducing weaker flight-to-safety events. Empirical applications using data for US government bonds and the S&P 500 index, show indeed that when yields are low, the strength of flight-to-safety from stocks to bonds weakens. Moreover, we develop a bivariate model of flight-to-safety transfers that measures to what extent the strength of flight-to-safety from stocks to bonds is related to the strength of flight-to-safety from stocks to other safe haven assets (gold and currencies). Results show that when the strength of flight-to-safety from stocks to bonds decreases the strength of flight-to-safety from stocks to gold increases. This result holds only in the current low-yield environment, suggesting a shift in the historical attractiveness of bonds as safe haven.
Mot(s) clé(s)
Bonds stocks relationship, Flight-to-Safety, Low-yield environment, Bond alternatives, Currencies, Gold.
2018-38

Do global value chains amplify global imbalances?

Antonia Lopez Villavicencio, Valérie Mignon

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Abstract
This paper addresses the impact of countries' participation in global value chains (GVCs) on their current account balances. Relying on a panel of 57 advanced and emerging countries, we do not find evidence that GVC participation directly raises economies' current account positions. On the contrary, we show that backward participation makes a negative contribution to current account balances: our results contradict the speculation that current account imbalances of downstream countries are likely to benefit more from GVC participation than economies which are located further upstream. Moreover, we show that there is no significant indirect effect of GVC on the current account operating through the exchange rate. Finally, our findings indicate that whereas GVC participation boosts exports, this increase is not accompanied by improvements in price competitiveness, nor by higher levels of saving rates.
Mot(s) clé(s)
Global value chains; Current account imbalances
2018-37

Compétences externes et innovation: le cas des firmes de l'industrie manufacturière algérienne

Mounir Amdaoud, Messaoud Zouikri

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Abstract
This paper addresses an hypothesis on the contribution of the external capabilities to
the birth of the innovation activity within the firm. The econometric analysis
conducted on a sample of Algerian manufacturing entreprises,
allowed to highlight four robust results which remain significant and stable after
adjustment by various indicators. The main result is that the development of different
firm capabilities was not exclusively originated from an edogenous effort, but also induced by an
exogenous shock resulting from participating to the upgraded firms' program financially
supported by the Algerian government and the European Union. Furthermore,
the improvement of human resources competencies, the use of ICT and the
compliance to performance criteria explain significantly
firm engagement differences in the product innovation activity.
The R&D and firm size as traditional factors seem not to be significant
predictors of innovation capacity in the present case.
Mot(s) clé(s)
external capabilities, innovation capacity, human capital, Algerian manufacturing industry, recursive equation system
2018-36

The fiscal impact of 30 years of immigration in France: an accounting approach

Xavier Chojnicki, Lionel Ragot, Ndeye Penda Sokhna

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Abstract
This article aims to evaluate the net contribution of immigration to the public finances of France between the late 1970s and the early 2010s. We developed an accounting method that disaggregates the primary deficit into the specific contributions of immigrant population and native population. We show that the net contribution of immigrants is generally negative over a relatively long period, but remains at an extremely low level (+/-0:5% of the french GDP, reduced to +/-0:2%, with the exception of 2011). The relatively negligible effect of immigrants on the public accounts is explained by a favourable demographic structure offsetting their lower net individual contribution. However, the 2008 financial crisis has significantly degraded the economic condition of immigrants. The net per capita contribution of EU immigrants has significantly declined since 2000 and is now similar to values from third country immigrants.
Mot(s) clé(s)
International Migration, Public Finances, Social Protection
2018-35

Green, yellow or red lemons? Framed field experiment on houses energy labels perception.

Edouard Civel, Nathaly Cruz-Garcia

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Abstract
Labels are increasingly popular among policy-makers, companies and NGOs to improve consumers awareness, especially about environmental footprints. Yet, the efficiency of these informational tools is mostly looked as their ability to shift behaviors, whereas their first goal is to enable people to discriminate labelled goods. This paper studies how the complex information displayed by houses' Energy Performance Certificates is processed by real economic agents. Through a randomized framed field experiment on 3,000 French subjects, we test the impact of these labels on people's perception of a home energy performance.

Results evidence that 24% of subjects did not take heed of the energy label. Unexpectedly, we find out that gender is the most differentiating characteristic in this changing sensitivity to energy performance certificates. We interpret this effect by the Selectivity Hypothesis: energy labels design engages more male subjects.

Among sensitive subjects, energy labels' efficiency to transmit information is mixed, as our results indicate a Bayesian reading of houses energy labels. Subjects identify separately each label's grades, and their perception is not systematically biased by individual characteristics, but idiosyncratic features blur their judgment. Moreover, this perception exhibits strong asymmetries. While worsening grades induce decreasing judgments, upgrading label's class do not strongly enhance people's evaluation of energy quality: on the contrary, top level quality label seems to undergo skepticism and intensifies idiosyncratic noise.
Mot(s) clé(s)
Information treatment ; Experimental economics ; Cognitive psychology ; Green Value ; Energy efficiency.
2018-34

Corporate Social Responsibility and workers' motivation at the industry equilibrium

Victor Hiller, Natacha Raffin

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Abstract
We consider an industry in which firms compete at two levels, the labor market and the product market. On the labor market two types of workers co-exist, socially responsible or not. Firms may strategically use CSR investments in order to screen and to elicit more effort from responsible workers. By doing so, virtuous firms lower their production costs and display a competitive advantage on the product market. As a consequence, CSR strategies by firms shape the toughness of competition on that market. In turn, incentives that firms have to invest in CSR are dampened when competition becomes harsher. Hence, we identify a twofold relationship between CSR and competition. Due to feedback effects on the competitive pressure, an increase in workers' social awareness may reduce the overall level of CSR. We also show that an exogenous increase of competition may affect positively or negatively the corporate social performance depending on the proportion of responsible workers.
Mot(s) clé(s)
Corporate Social Responsibility, Moral Motivation, Screening, Market Competition, Industry Equilibrium
2018-33

Dynamic Effects of the Chilean Fiscal Policy

Antonio Lemus

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Abstract
In Chile, the empirical literature studying the dynamic effects of fiscal policy and fiscal multipliers, using linear vector autoregression models, disagrees on the effects of government spending and taxes on output. In this paper, we bring new elements to this debate. We include the nonlinear dimension of vector autoregression models to answer if the state, “tight” or “normal”, of the Chilean economy, affects fiscal policy effectiveness. Last, based on the nonlinear framework we question if monetary policy has an influence on the size of fiscal multipliers. We find that: (i) once using the same quarterly data, the size of fiscal multipliers not only varies depending on the identification strategy and the linear vector autoregression model used but also on the definitions of government spending and taxes considered; (ii) the government spending multiplier from the nonlinear framework differs, being about the unit in the “tight” regime and around -0.5 in the “normal” regime; (iii) government spending and tax multipliers in the nonlinear framework are smaller when monetary policy is taken into account, which influences the effectiveness of fiscal policy.
Mot(s) clé(s)
Fiscal Policy, Fiscal Multipliers, Vector Autoregression Models
2018-32

Male reproductive health, fairness and optimal policies

Johanna Etner, Natacha Raffin, Thomas Seegmuller

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Abstract
Based on epidemiological evidence, we consider an economy where agents differ through their ability to procreate. Households with impaired fertility may incur health expenditures to increase their chances of parenthood. This health heterogeneity generates welfare inequalities that deserve to be ruled out. We explore three different criteria of social evaluation in the long-run: the utilitarian approach, which considers the wellbeing of all households, the ex-ante egalitarian criterion, which considers the expected well-being of the worst-off social group, and the ex-post egalitarian one, which only considers the realized well-being of the worstoff. In an overlapping generations model, we propose a set of economic instruments to decentralize each solution. To correct for the externality and inequalities, both a preventive (a taxation of capital) and a redistributive policy are required.
Mot(s) clé(s)
Reproductive health; Fairness; Egalitarianism; Optimal policy; OLG model
2018-31

Les interventions de crise de la FED et de la BCE diffèrent-elles ?

Anne-Marie Rieu-Foucault

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Abstract
In the context of the 2007-2009 financial crisis, central banks innovated in the form of multiple unconventional measures. Due to a different history, different mandates and monetary policy implementations, the first crisis measures, mainly for financial stability, differed between the Fed and the ECB, resulting in a balance sheet size and structure of the assets specific to each. After 2015, the ECB's large-scale asset purchase transactions marked a convergence of the unconventional policies of the two central banks, which resulted in the ECB renouncing the principle of separation between monetary policy and stability financial.
In addition, the risk-taker of last resort function of the two central banks has increased, although differences persist in their risk management policies (scope of counterparties and securities eligible).
Mot(s) clé(s)
Central Banks, Unconventional measures
2018-30

The effects of migration and pollution externality on cognitive skills in Caribbean economies: a Theoretical analysis

Lesly Cassin

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Abstract
Caribbean Small Island Developing States (SIDS) face specific social, economic and environmental vulnerabilities. This paper provides a simple overlapping generations model with migration and intergenerational transfers in an economy where production generates pollution. This pollution hampers the cognitive skills of the children and thus the efficiency of human capital accumulation in the economy. Therefore the model developped in this work introduces kea features of Caribbean SIDS in order to exacerbate the dynamics between demography – i.e. migration and human capital accumulation – and pollution. Results reveal that the usual gain from migration in terms of human capital was no longer possible because of the environmental externality. Indeed, in most of the cases, in presence of the environmental externality, per capita variables (utility, production and capital) are decreased by migration, while the aggregated production can be enhanced thanks to the demographic growth that occurs with migration. Moreover, it has been shown that the conditions to have a profitable environmental tax depend on the pollution intensity of the economy. Finally, the interactions between the emigration rate and the form of intergenerational transfers – i.e. solidarity from the domestic area and/or from the diaspora – have an impact on the scale of the reduction of human capital due to migration. Thus, in this model a gain from an increase in the rate of emigration is still possible but only if migration is already very high.
Mot(s) clé(s)
Pollution, Demographics, Economic Development, Migration, Caribbean, Small Island Developing States
2018-29

Media Perception of Fed Chair's Overconfidence and Market Expectations

Hamza Bennani

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Abstract
This paper aims to assess the impact of media perception of Fed chair's overconfidence on market expectations. We first use a media-based proxy to compute a measure of Fed chair's overconfidence for the period 1999M01-2017M07, the overconfidence indicator. The overconfidence indicator provides a measure of the perceived overconfidence of the Fed chair by the media, and thus, by financial market participants. We relate this variable to inflation and unemployment expectations of market participants. Our results show that an overconfident Fed chair is associated with higher inflation expectations and lower unemployment expectations. These findings are robust to (i) the macroeconomic forecasts used to extract the exogenous component of the media-based proxy reflecting Fed chair's overconfidence, (ii) different measures of the media-based proxy used to quantify Fed chair's overconfidence and (iii) different measures of inflation expectations. These findings shed some new light on the impact of central bankers' personality on market expectations, and thus, on the effectiveness of their monetary policy decisions.
Mot(s) clé(s)
Fed Chair, Overconfidence, Monetary Policy, Media
2018-28

"Taking Diversity into Account": Real Effects of Accounting Measurement on Asset Allocation

Gaëtan Le Quang

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Abstract
Following a request made by the G20, the IASB begins to work in 2009 on a new accounting standard meant to replace IAS 39: IFRS 9. Among other things, IFRS 9 puts forward a new way of classifying financial instruments that rests on a two-step procedure: a business model assessment and a contractual cash flow characteristics test. We develop a theoretical model that assesses the relevance of this procedure, specifically that of the business model assessment. We show that a mixed accounting regime where financial institutions whose time horizon is short resort to fair value accounting while those whose time horizon is longer resort to historical cost accounting provides a better asset allocation than a pure accounting regime where all FIs resort to the same accounting rule. In other words, business models are worth being taken into consideration when deciding whether an asset should be evaluated at its fair value or at its historical cost, which is in line with the framework presented in IFRS 9.
Mot(s) clé(s)
IFRS 9; Fair Value Accounting, Historical Cost Accounting; Asset Allocation; Real Effects of Accounting; Banks; Insurers
2018-27

CREDIT RISK AND BANK COMPETITION IN SUB-SAHARAN AFRICA

Michael Brei, Luc Jacolin, Alphonse Noah

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Abstract
This paper investigates the impact of bank competition in Sub-Saharan Africa on bank non-performing loans, a measure of credit risk. Using bank-level data for a sample of 221 banks from 33 countries over the period 2000-15, we find a non-linear or U-shaped relationship between bank competition and credit risk. In other words, increased bank competition has the potential to lower credit risk via efficiency gains (lower credit cost, operational gains). However, the positive effects may be outweighed by adverse effects of excessive competition (lower profit margins, increased risk incentives). We also find that credit risk in Sub-Saharan Africa is not only related to macroeconomic determinants, such as growth, public debt, economic concentration, financial deepening and inclusion, but also to the business and regulatory environment. These results may provide useful insights on how to design and adapt prudential and regulatory frameworks to the specific needs in developing countries.
Mot(s) clé(s)
Bank competition, credit risk, bank stability, Africa
2018-26

The Nonlinear Relationship between Economic growth and Financial Development

Balázs Egert, Fredj Jawadi

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Abstract
This paper studies the relationship between financial development and economic growth in a large sample of developing, emerging and advanced economies and on a separate, longer sample including only OECD countries over the recent period. Estimation results based on nonlinear threshold regression models do not confirm the too-much-finance-is-bad hypothesis, especially if the cross-country variation in the data is accounted for. We cannot indeed identify a tipping point beyond which financial development has a negative relation to economic development. What we see at best is that the positive effect of finance declines at higher levels of finance. Our results also show that banking and market finance are complementary. The positive effect of stock market deepening is larger when banking finance is more pronounced (and the other way around). But the thresholds above which complementarity kicks in are rather low. Finally, our results indicate that finance has a stronger positive effect in more developed countries. At the same time, the positive effect of finance is weaker in countries with lower trade openness. This may suggest that more open economies have access to alternative sources of external financing.
Mot(s) clé(s)
financial development, economic growth, nonlinearity, threshold effects.
2018-25

Term structure of interest rates: modelling the risk premium using a two horizons framework

Georges Prat, Remzi Uctum

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Abstract
This paper proposes a hybrid two-horizon risk premium model with one- and two-period maturity debts, among which the risky asset and the riskless one depend on agents’ investment horizon. A representative investor compares at each horizon the ex-ante premium offered by the market with the value they require to take a risky position, with the aim of choosing between a riskless and a risky strategy. Due to market frictions, the premium offered adjusts gradually to its required value determined by the portfolio choice theory. The required market risk premium is defined as a time-varying weighted average of the required 1- and 2-period horizon premia, where the weights represent the degree of preference of the market for each of the horizons. Our framework is more general than the standard model of the term structure of interest rates where it is assumed that the 1-period rate is the riskless rate at any time and for all agents. Setting one period equal to three months, we use 3-month ahead expected values of the US 3-month Treasury Bill rate provided by Consensus Economics surveys to estimate our 3- and 6-month horizon risk premium model using the Kalman filter methodology. We find that both 3- and 6-month maturity rates represent the riskless and the risky rates with a time-varying market preference for the former rate of about two-thirds. This result strongly rejects the standard model and shows the importance of taking into account the market preference for alternative horizons when describing risky strategies in interest rate term structure modelling.
Mot(s) clé(s)
interest rates, risk premium, survey data
2018-24

The tale of two international phenomena: International migration and global imbalances

Dramane Coulibaly, Blaise Gnimassoun, Valérie Mignon

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Abstract
Following the dynamics of globalization, international migration has increased dramatically since the 1990s. Given that these migrations may obscure the natural demographic structure of nations, they are likely to explain a significant part of global imbalances. This paper tackles this issue by investigating the role played by international migration in the dynamics of global imbalances. To this end, we rely on an overlapping generations model to derive the theoretical relationship between international migration and current account position. Through a series of robust estimates, we empirically investigate this relationship by relying on a panel of 157 developed and developing countries over the period 1990-2014. Our results point to substantial effects of international migration. Specifically, we show that an increase in migration improves national savings and the current account balance in the destination country, while it has opposite impacts in the origin country. These effects are particularly pronounced in developing economies, and attenuated by migrants' remittances.
Mot(s) clé(s)
International migration, current account, global imbalances, remittances
2018-23

Term structure of bank flows to emerging countries: what effects of short- vs. long-term regulatory arbitrage are?

Samira Hellou

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Abstract
Considering the literature of economic stability, the need to analyze short-term external bank flows is particularly obvious to prevent the contagion crisis. Moreover, the context of crisis has put prudential regulation at the center of the current debate in this literature. In this paper, we offer a new perspective on the role of regulation as a determinant of banking flows maturity, with a focus on the issue of short-term vs. long-term regulatory arbitrage. Indeed, regulatory arbitrage that favors short-term bank flows is a destabilizing factor of the financing of these countries as they have experienced major crises due to the external financing volatility. We adopt a macroeconomic approach to study the importance of bank regulation adjustments as a determinant of bank flows maturity from 12 developed countries to 37 emerging countries for the period 1990-2014. The results confirm the significant effect of risk-based regulation on the term structure of bank flows to emerging countries, especially to speculative countries.
Mot(s) clé(s)
Regulatory arbitrage, Short-term bank flows, Emerging countries
2018-22

Understanding the long run dynamics of French unemployment and wages

Michel-Pierre Chélini, Georges Prat

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Abstract
A standard specification of the WS-PS model based on wage bargaining between unions and firms makes it possible to understand the main features of long-term dynamics of unemployment and wages in France at the macroeconomic level. This result is conditional on auxiliary hypotheses made on the representations of the degree of rigidity in the labour market (depicted by a stochastic state variable), of the reservation wage (depending on the legal minimum wage), and on the nature of “other factors” pertaining to wages and prices that are not a priori specified in the WS-PS theoretical framework (summarized by the output gap). We find that the observed unemployment adjusts gradually to its equilibrium value, which is composed of three components: a “chronic” component due to the repartition in the added-value (real reservation wage, social contributions, productivity, profit margins of companies), a “cyclical” component depending on the output gap, and a “frictional” component due to the imperfect mobility of labour and technical progress. The observed wage also adjusts gradually to its negotiated value, the latter depending on the reservation wage, the social contributions, the price level, the labor productivity, the profit margins of companies, the unionization rate and on the unemployment rate whose influence is time-varying. Our results suggest that, in the average, the power of firms dominates that of unions during the negotiations, while, as predicted by the theory, change in employment intervenes effectively in the adjustment between wage desired by employees and wage offered by employers to achieve equilibrium.
Mot(s) clé(s)
equilibrium unemployment, wages, France
2018-21

Can Public and Private Sanctions Discipline Politicians? Evidence from the French Parliament

Maxime Le Bihan, Benjamin Monnery

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Abstract
This paper investigates the effects of sanctions on the behavior of deputies in the French National Assembly. In 2009, the Assembly introduced small monetary sanctions to prevent absenteeism in weekly standing committee meetings (held on wednesday mornings). Using a rich monthly panel dataset of parliamentary activity for the full 2007-2012 legislature, we study the reactions of deputies to (i) the mere eligibility to new sanctions, (ii) the actual experience of a salary cut, and (iii) the public exposure of sanctioned deputies in the media. First, our diff-in-diff estimates show very large disciplining effects of the policy in terms of committee attendance, and positive or null effects on other dimensions of parliamentary work. Second, exploiting the timing of exposure to actual sanctions (monthly salary cuts versus staggered media exposure), we find that deputies strongly increase their committee attendance both after the private experience of sanctions and after their public exposure. These results suggest that monetary and reputational incentives can effectively discipline politicians without crowding out intrinsic motivation.
Mot(s) clé(s)
political economy; political accoutability; sanctions; reputation; motivation
2018-20

Aggregate multi-factor productivity: measurement issues in OECD countries

Balázs Egert

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Abstract
This paper analyses for 34 OECD countries the extent to which the calculation of aggregate multi-factor productivity (MFP) is sensitive to alternative parameterisations. The starting point is the definition of MFP used in previous work in the OECD’s Economics Department (e.g. Johansson et al. 2013). They include alternative MFP measures, with human capital included or excluded, with different measures of Purchasing Power Parity (PPP) exchange rates, using time-varying capital depreciation rates and different measures of capital stock and labour input (headcount against hours worked). The main result of the paper is that whether or not human capital is included in MFP makes a significant difference for the level and dynamics of MFP. At the same time, MFP measures are less sensitive to other parameters of the calculation.
Mot(s) clé(s)
multi-factor productivity, measurement, human capital, OECD
2018-19

The quantification of structural reforms: extending the framework to emerging market economies

Balázs Egert

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Abstract
This paper estimates and quantifies the impact of structural reforms on per capita income for a large set of OECD and non-OECD countries. The findings suggest that the quality of institutions matters to a large extent for economic outcomes. More competition-friendly regulations, as measured by the OECDs’ Product Market Regulation (PMR) indicator improve economic outcomes. Lower barriers to foreign trade and investment help MFP. Lower barriers to entry and less pervasive state control of businesses boost the capital stock and the employment rate. No robust link between labour market regulation and MFP and capital deepening could be established. But looser labour market regulation is found to go hand in hand with higher employment rates. The paper shows that countries at different level of economic development face different policy impacts. Furthermore, PMR effects depend on the level of labour market regulations.
Mot(s) clé(s)
structural reforms, product markets, labour markets, regulation, institutions, simulation, multi-factor productivity, investment, employment, per capita impact, OECD, emerging market economies, developing countries.
2018-18

Oil windfalls might not be the problem in oil-producing countries: evidence from the impact of oil shocks on export diversification

Eric W. Djimeu, Luc-Désiré Omgba

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Abstract
This paper examines the factors behind export diversification in oil countries. Specifically, by investigating the impact of oil booms on export diversification through a difference-in-difference framework, this paper finds that the economy’s export structure before oil boom determines whether oil windfalls might affect the diversification process. Thus, an oil boom negatively affects export diversification only if countries initially exhibit low levels of diversification. In countries with a high level of diversification before the boom, an oil boom has no impact on diversification. These results are based on a large sample of 134 countries, and are robust to various sensitivity analyses. They are corroborated with data from the manufacturing sector, which show that oil booms only reduce diversification in countries with a small manufacturing sector prior to the boom. The results suggest that the initial constraints, which hampered the emergence of entrepreneurs’ class prior the boom, are key elements of the failure of a diversification process in resource rich countries.
Mot(s) clé(s)
Export diversification; Oil resources; Panel data
2018-17

Imperfect Governance and Price Stickiness in Emerging Economies

Zouhair Aït Benhamou

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Abstract
Imperfect governance exacerbates macroeconomic fluctuations in emerging economies. We use strategic interactions between public and private goods to link price stickiness and institutional failure. The government as a provider of public goods exhibits agency in its relationship with households, and that yields to welfare losses for the latter. The government also faces a sub-optimal Laffer curve because of its inability to extract taxes. Imperfect governance also has an impact on terms of trade, as it distorts domestic prices in comparison to those of imported goods.
Mot(s) clé(s)
inflation, nominal rigidities, government, agency theory, strategic interactions, Phillips curve
2018-16

THE DIASPORA AND ECONOMIC DEVELOPMENT IN AFRICA

C. John Anyanwu, Blaise Gnimassoun

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Abstract
While the dominant collective belief asserts that brain drain is detrimental to the development of small economies, new studies hold the reverse view. This paper aims at studying the role of the African Diaspora in the economic development of Africa. It analyzes both the overall effect and the specific effect of emigration according to the level of education of emigrants. Then, through a deeper investigation, the paper analyzes the main channels through which the Diaspora influences economic development in Africa. The results show that the African Diaspora contributes positively, significantly and robustly to the improvement of real per capita income in Africa. These findings challenge the dominant collective belief since the higher the educational level of the emigrants, the greater the impact of the Diaspora on the level of economic development. Improvements in human capital, total factor productivity and democracy are effective transmission channels of this impact. Finally, the results show that while high-skilled emigrants have an overall greater impact on economic development and democracy, those with a low level of education contribute more to remittances to Africa. The establishment of an annual African Diaspora Summer School (ADSS) by the AfDB in partnership relevant international and regional stakeholders as a channel for the transfer of knowledge, technology and experience would further strengthen the role of the Diaspora in Africa’s economic development.
Mot(s) clé(s)
International migration, Economic development, Africa.
2018-15

The role of exchange rate undervaluations on the inflation-growth nexus

Florian Morvillier

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Abstract
The link between exchange rate undervaluations and growth has been an important source of concern over the past years, but the role of undervaluations on the inflation-growth nexus has not been yet studied. We fill up this gap by showing to what extent undervaluation's level change the effect of inflation on growth. Our analysis is based on a sample of 62 countries over the period 1980-2015. In a first time, we rely on the Bayesian Model Averaging (BMA) methodology to select the relevant growth determinants. Then, using the System Generalized Method of Moments (GMM), we find evidence that higher is the lagged undervaluation, higher is the negative effect of inflation on growth. This result is robust to the exclusion of currency crises episodes.
Mot(s) clé(s)
Exchange rate undervaluation, Inflation, Growth, GMM
2018-14

Multivariate Periodic Stochastic Volatility Models: Applications to Algerian dinar exchange rates and oil prices modeling

Nadia Boussaha, Faycal Hamdi, Saïd Souam

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Abstract
The contribution of this paper is twofold. In a first step, we propose the so called Periodic Multivariate Autoregressive Stochastic Volatility (PV ARSV) model, that allows the Granger causality in volatility in order to capture periodicity in stochastic conditional variance. After a thorough discussion, we provide some probabilistic properties of this class of models. We thus propose two methods for the estimation problem, one based on the periodic Kalman filter and the other on the particle filter and smoother with Expectation-Maximization (EM) algorithm. In a second step, we propose an empirical application by modeling oil price and three exchange rates time series. It turns out that our modeling gives very accurate results and has a well volatility forecasting performance.
Mot(s) clé(s)
Multivariate periodic stochastic volatility; periodic stationarity; periodic Kalman filter; particle filtering; exchange rates; Saharan Blend oil.
2018-13

Politique monétaire et stabilité financière

Anne-Marie Rieu-Foucault

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Abstract
Trois positionnements théoriques de la politique monétaire par rapport à la stabilité financière sont proposés : assurer le bon fonctionnement des canaux de transmission, utiliser la stabilité financière pour la stabilité des prix et définir un objectif de stabilité financière pour les politiques monétaires. Le premier positionnement relève de la politique de liquidité, qui est naturellement dévolue aux banques centrales. Les deux autres positionnements relèvent d’une politique de solvabilité car prenant en compte la croissance du crédit, les prix d’actifs et l’évolution du cycle financier. Dans ces deux derniers cas, la politique de solvabilité qui n’est pas naturellement dévolue à la banque centrale ouvre un questionnement sur l’absence d’indépendance entre politique monétaire et stabilité financière. Que la stabilité financière soit analysée du point de vue de la stabilité des prix, des mesures non conventionnelles ou des politiques macroprudentielles, le débat sur l’indépendance des deux politiques reste non tranché.
A l’heure actuelle, le choix a été fait de ne pas modifier le mandat des banques centrales. Des conséquences sur la politique budgétaire pourraient autrement en résulter.
Mot(s) clé(s)
Politique monétaire, Stabilité financière, Liquidité
2018-12

Credit risk of foreign bank branches and subsidiaries in Argentina and Uruguay

Michael Brei, Carlos Winograd

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Abstract
The paper presents both theoretical and empirical analysis to explain the differences in credit risks between branches and subsidiaries of foreign banks. Using a model with costly monitoring and asymmetric information (from the perspective of host country regulators and parent banks), we show theoretical evidence that the optimal amount of monitoring increases with the size of foreign affiliates (relative to their parent banks), regardless of whether their legal form is of a branch or subsidiary. In the case of small affiliates, we argue that there is a conflict of interest between parent banks and regulators, the former of which prefer to operate with riskier and ring-fenced subsidiaries, and the latter of which prefer better-monitored and co-insured branches. Using bank-level data on Argentina and Uruguay prior to their financial crises of 2001-02, we find that (i) larger foreign branches have lower ratios of non-performing loans than foreign subsidiaries and smaller branches and (ii) branches headquartered in more developed economies had fewer non-performing loans.
Mot(s) clé(s)
Bank risks, branches, subsidiaries
2018-11

L'INTEGRATION DE L'UEMOA EST-ELLE PRO-CROISSANCE ?

Blaise Gnimassoun

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Abstract
Economists are divided on the effect of exchange rate regimes on economic growth. In this article we study the particular case of the West African Economic and Monetary Union (WAEMU), which is one of the oldest monetary unions in the world resulting from French colonization. The objective is to study the impact of this integration on the economic growth of the region. To this end, we propose an empirical model of economic growth specific to the zone. We also address the problem of simultaneity bias between integration and growth relying on a gravity-based IV strategy. Our econometric results show that although West African regional integration is one of the most important in Africa, it has not led to significant economic growth in the Union. We propose measures to strengthen community transport infrastructures, which are essential to boost integration and its impact on the growth of We propose a massive investment plan in the community transport infrastructure, which is essential to strengthen integration and its impact on the growth of the area.
Mot(s) clé(s)
Regional integration, Monetary Union, Empirical growth model
2018-10

Existence and Optimality of Cournot-Nash Equilibria in a Bilateral Oligopoly with Atoms and an Atomless Part

Francesca Busetto, Giulio Codognato, Sayantan Ghosal, Ludovic A. Julien, Simone Tonin

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Abstract
We consider a bilateral oligopoly version of the Shapley window model with large traders, represented as atoms, and small traders, represented by an atomless part. For this model, we provide a general existence proof of a Cournot-Nash equilibrium that allows one of the two commodities to be held only by atoms. Then, we show, using a corollary proved by Shitovitz (1973), that a Cournot-Nash allocation is Pareto optimal if and only if it is a Walras allocation.
Mot(s) clé(s)
Shapley window model; Atoms; Atomless part; Cournot–Nash equilibrium; Optimality
2018-9

Regional Integration: Do intra-African trade and migration improve income in Africa?

Blaise Gnimassoun

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Abstract
Regional integration in Africa is a subject of great interest, but its impact on income has not been studied sufficiently. Using cross-sectional and panel estimations, this paper examines the impact of African integration on real per capita income in Africa. To do this, we consider intra-African trade and migration flows as quantitative measures reflecting the intensity of regional integration. In order to address the endogeneity concerns, we use a gravity-based IV strategy. Our results show that, from a long-term perspective, African integration has not been strong enough to generate a positive, significant and robust impact on real per capita income in Africa. However it appears to be significantly income-enhancing in the short term but only through inter-country migration. These results are robust to a wide range of specifications. Further analysis shows that economic diversification, financial development and the quality of transport and telecommunication infrastructure significantly affect the impact of intra-African trade on per capita income. Their improvement would make intra-African trade income-improving. Our policy recommendations have been formulated in this direction.
Mot(s) clé(s)
Income per Capita, Trade, International Migration, Economic Integration, Africa.
2018-8

Is there a market value for energy performance in a local private housing market? An efficiency analysis approach

Catherine Baumont, Frédéric Lantz, Déborah Leboullenger

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Abstract
This paper aims to find evidence of a “green value” in a local housing market using notarial data on a small urban area in France. We use frontier functions, an original approach that departs from customary hedonistic regressions, to model housing market prices as a production set bordered by an efficiency frontier estimated by Data Envelopment Analysis (DEA). The paper tests if difference in prices (i.e. the distance from the frontier) can be explained by energy performance measured as a normalized categorical ascending kWh/m²/year grade (or Energy Performance Certificate -EPC). We show that there is significative evidence for energy performance's market value. The “Green Property Value” is estimated to range between 1% and 3% of the price for medium-high performance buildings. Our findings are robust to the specifications of the first (frontier estimation) and the second stage (residual analysis). We then propose a cost-benefit analysis to evaluate the return on retrofit investment a household would get from higher market value. We find that housing green property value accounts for a part, between 4.6% in houses and 6.6% in collective dwellings, of the real terms investment in energy retrofit. We interpret our findings with regard to spatial dependencies that affect the market and the heterogeneity between the private and the public social housing stocks.
Mot(s) clé(s)
Residential Housing Market, Energy Retrofit, Green Value, Efficiency Analysis, Frontier Functions, Data Envelopment Analysis, Energy Performance Certificates
2018-7

Contribution de l’immigration à la demande des biens et services finaux en France

Ndeye Penda Sokhna

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Abstract
An argument often put forward when mentioning the positive effects of immigration for the host country is that the entry of immigrants would have positive effects on demand and therefore on growth. This paper aims to measure the contribution of immigrants to the demand for final goods and services in France (over a relatively long period 1979-2011). We conduct an accounting analysis using three main sources of data : family budget surveys from 1979 to 2011, population censuses data and national accounts data. We find that at any age, an immigrant consumes on average less than a native. However, the share of immigrants’ demand in total demand is between 7.3% and 8.3%, which is proportional to their size in the French population. We show that the age structure of the immigrant population (over-represented in the working age group where consumption is at its maximum level) allows for compensation. A disaggregation of total consumption by item shows that immigrants have some specific characteristics : they lead to an increasing in the demand in some expense items such as food, clothing, housing and communication. The analysis of the evolution of consumption shows that between 4.5% and 16% of this change is explained by the immigrant population. However, these changes are more often explained by an increase in the population than by an increase in individual consumption, and this for our two subpopulations.
Mot(s) clé(s)
immigration, demand for final goods and services, age and skill structure
2018-6

Market Efficiency and Optimal Hedging Strategy for the US Ethanol Market

Emmanuel Hache, Anthony Paris

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Abstract
The aim of this paper is to study the ethanol price dynamics in the US market and find the optimal hedging strategy. To this end, we first attempt to identify the long-term relationship between ethanol spot prices and the prices of futures contracts on the Chicago Board of Trade (CBOT). Then, we model the short-term dynamics between these two prices using a Markov-switching vector error correction model (Ms-VECM). Finally, accounting for the variance dynamics using a Gjr-MGarch error structure, we compute a time-varying hedge ratio and determine the optimal hedging strategy in the US ethanol market.
Mot(s) clé(s)
Ethanol prices, Futures markets, Markov-switching regime models, Hedge ratio
2018-5

Monetary Policy and Asset Price Bubbles

Christophe Blot, Paul Hubert, Fabien Labondance

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Abstract
This paper assesses the linear and non-linear dynamic effects of monetary policy on asset price bubbles. We use a Principal Component Analysis to estimate new bubble indicators for the stock and housing markets in the United States based on structural, econometric and statistical approaches. We find that the effects of monetary policy are asymmetric so the responses to restrictive and expansionary shocks must be differentiated. Restrictive monetary policy is not able to deflate asset price bubbles contrary to the “leaning against the wind” policy recommendations. Expansionary interest rate policies would inflate stock price bubbles whereas expansionary balance-sheet measures would not.
Mot(s) clé(s)
Booms and busts, Mispricing, Price deviations, Interest rate policy, Unconventional monetary policy, Quantitative Easing, Federal Reserve
2018-4

Impact du financement par fonds de pension sur la performance des entreprises du CAC 40.

Pierre Durand

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Abstract
As pension saving managers, pension funds are able to finance long term investment, R&D and innovation while assuring their role as traditional institutional investors (activism, outsourcing of internal management bias...). As such pension funds can play a crucial role in the French investment dynamic which is mostly characterized by the use of credit. However, among the studies on the influence of institutional investors, few are those specifically interested in pension funds, and none focuses on the French case. This article aims to fill this gap in the literature by studying the impact of pension fund investments of CAC 40 firms' performance. Our results, over the period 2004-2016, highlight a negative influence of pension funds' participation. We explain those findings by the weakness of pension funds' participation and their foreign origin.
Mot(s) clé(s)
Pension funds, CAC 40, Tobin's Q, Panel, GMM
2018-3

Upward Price Pressure in Two-Sided Markets: Incorporating Feedback Effects

Andreea Cosnita-Langlais, Bjørn Olav Johansen, Lars Sorgard

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Abstract
In two-sided markets it is important to consider feedback effects following a merger, i.e. how a price change on one side of the market affects the price change on the other side of the market. Affeldt et al. (2013) introduced the Upward Pricing Pressure (UPP) for two-sided markets, and we extend their approach to take into account such feedback effects. We then discuss the implications of our results for the assessment of two-sided mergers.
Mot(s) clé(s)
merger assessment, two-sided markets, Upward Pricing Pressure
2018-2

Global Financial interconnectedness: A non-linear assessment of the uncertainty channel

Bertrand Candelon, Laurent Ferrara, Marc Joëts

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Abstract
The role of uncertainty in the global economy is now widely recognized by policy-makers but its effects on the international fi…nancial system are less understood. In this paper we assess the impact of uncertainty on the interconnectedness within the international system of equity prices. In this respect, we extend the measure of connectedness put forward by Diebold and Yilmaz (2009) by allowing for non-linear effects through the estimation of a non-linear Threshold VAR model whose regimes depend on the level on uncertainty. Results clearly show that high uncertainty tends to generate more connectedness among equity indexes of a set of advanced and emerging countries. From an economic policy point of view, this result suggests that in the presence of high uncertainty, an adverse …financial shock in a speci…fic country is likely to propagate more widely and more strongly to the whole fi…nancial system. This result advocates for a close real-time monitoring of uncertainty measures.
Mot(s) clé(s)
Financial markets, Network interconnectedness, Uncertainty, Non-linear model
2018-1

Réduction du ratio de dette publique : quels instruments pour quels effets ?

Benjamin Egron

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Abstract
In the wake of the economic crisis in 2007-2008, european sovereign debt showed a large increase.
As a consequence, the possibility of starting a stabilization or a reduction of public debt ratio has
become a critical issue for the coming years to restore fiscal sustainability and to ensure compliance
with the european treaties. Against this background, the identification of the most appropriate
policies to reduce public debt ratio represents a major economic issue, especially in times of low
economic growth. The purpose of this article is to assess the ability of different fiscal policies instruments
to reduce public debt ratio. From a methodological point of view, we estimate, based on
French data, a non-linear model (Threshold VAR) including the main determinants of public debt
ratio : public spending, tax revenues, GDP and price index. The threshold VAR model allows us
to distinguish economic expansion from economic recession and therefore to take into account the
variability of the multipliers over time. We couple the TVAR model with the public debt accounting
equation in order to "transfer" the effect of a shock from a endogeneous variable to public debt
ratio. We then show that a cut in public spending can result in an increase in the public debt
ratio in the short term, moreover this effect is significantly higher in recession times. Inversely, an
increase in tax revenues lead to a decrease in the public debt ratio, in the short term, whatever the
considered regime.
Mot(s) clé(s)
Public debt, fiscal consolidation, multipliers, fiscal policy.
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