Working papers

2025-5

Loick Dubois, Jean-Guillaume Sahuc, Gauthier Vermandel

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Abstract: We study the general equilibrium effects of carbon permit banking during the transition to a climate-neutral economy by 2050. To this end, we develop an environmental dynamic stochastic general equilibrium model, in which the business sector is regulated by a generic emission trading system (ETS). Firms are authorized to transfer unused permits from one period to the next (banking), but the reverse direction (borrowing) is prohibited. Allowing for positive banking gives firms the opportunity to smooth their permit demand along the business cycle. Applications inspired by recent European Union-ETS regulations underscore the critical role of permit banking in shaping policy outcomes. For example, the 2023 cap reform would result in a more significant reduction in both permit banking and carbon emissions, as well as a 40% to 50% increase in the carbon price compared to pre-reform projections, without substantial additional GDP loss by 2060. Importantly, forgetting about permit banking when assessing cap policies would lead to both a significant underestimation of the total macroeconomic effects and an inaccurate representation of the carbon emission trajectory.
Mot(s) clé(s): Emission trading systems, cap policies, carbon permit banking, environmental real business cycle model, occasionally-binding constraints, nonlinear estimation

2025-4

Michaël Guillossou

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Abstract: This paper examines how climate change and adaptation through irrigation have affected corn yield growth within the US Corn Belt since the 1960s. We combine corn yield and irrigation data from the USDA National Agricultural Statistics Service with ERA5-Land gridded temperature data. We adopt an augmented long-difference framework to i) assess the impact of extreme temperature trends from 1960 to 2023 on corn yield growth in Corn Belt counties since the 1960s and ii) estimate the potential of irrigation to mitigate this impact. Our findings reveal significant upward trends in extreme degree-days (EDD) above 29◦C across more than half of Corn Belt counties. We highlight that the varying magnitudes of these trends, alongside differential adoption rates of irrigation between counties, have played a crucial role in explaining the disparities in long-term corn yield trends within the region. Specifically, we show that irrigation offsets about 80% of the adverse impact of EDD on corn yields. Based on a counterfactual analysis, we find that current corn yields are about 6.5% lower, on average, than they would be in a non-climate change scenario.
Mot(s) clé(s): Climate Change, Yields, Irrigation, Corn Belt

2025-3

Hugo Oriola, Jamel Saadaoui

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Abstract: This research investigates the intricate dynamics between the catalytic and inhibitory effects of projects financed by international institutions and geopolitical interests. Thanks to the construction of a monthly dataset, we first examine the impact of the approval of a project financed by one out of five international institutions on the global macroeconomic situation on non-permanent members of the United Nations Security Council (UNSC). In particular, we study the potential catalytic effect or inhibitory effect of the International Monetary Fund, the World Bank, the Asian Development Bank, the European Investment Bank, and the Asian Infrastructure Investment Bank. We underline the existence of a catalytic effect and an inhibitory effect in non-permanent members of the UNSC that can significantly impact national macroeconomic situations in a positive or negative way. Second, we contribute to the literature by emphasizing the importance of the country's geopolitical preferences in the existence and nature of the catalytic effect. We measure these geopolitical preferences through the distance between one country's ideal point in the United Nations General Assembly and the ideal points of UNSC permanent members session after session.
Mot(s) clé(s): International institutions, United Nations, Geopolitical preferences, Catalytic effect, Inhibitory effect

2025-2

Hugo Oriola, Jamel Saadaoui

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Abstract: This research provides novel empirical evidence about the exchange rate reaction to international organization loans and geopolitical preferences using an unbalanced panel of 153 countries observed from February 1993 to December 2019. For elected temporary members of the UN Security Council, the IMF loans cause a sizeable appreciation in the exchange rate vis-à-vis the USD of around 2 percent at the 12-month horizon, after controlling for institutional quality. ADB loans cause an appreciation of around 0.25 percent at the 4-month horizons. These effects are stronger when the geopolitical distance with China is higher, indicating a higher credibility for these loans.
Mot(s) clé(s): Exchange rates, Geopolitical preferences, International organization loans, Institutional quality, Local projections

2025-1

Jean-Guillaume Sahuc, Frank Smets, Gauthier Vermandel

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Abstract: Climate change confronts central banks with two inflationary challenges: climateflation and greenflation. We investigate their implications for monetary policy by developing and estimating a tractable nonlinear New Keynesian Climate model featuring climate damages and mitigation policies for the global economy. We find that mitigation policies aligned with the Paris Agreement result in higher, more persistent inflation than laissez-faire policies. Central banks can attenuate this inflationary pressure by accounting for the rising natural rate of interest, at the cost of lower GDP during the transition. This short-term trade-off ensures long-term macroeconomic stability resulting from a net-zero emission world.
Mot(s) clé(s): Climate change, inflation, monetary policy, E-DSGE model, Bayesian estimation, stochastic growth

WORKING PAPERS 2025