Forecasting U.S. Recessions and Economic Activity

Rachidi Kotchoni, Dalibor Stevanovic

This paper proposes a framework to produce real time multi-horizon forecasts of business cycle turning points, average forecasts of economic activity as well as conditional forecasts that depend on whether the horizon of interest belongs to a recession episode or not. Our forecasting models take the form of an autoregression of order one that is augmented with either a probability of recession or an inverse Mills ratio. Our empirical results suggest that a static Probit model that uses only the Term Spread as regressor provides comparable fit to the data as more sophisticated non-static Probit models. We also find that the dynamic patterns of the Term Structure of recession probabilities are quite informative about business cycle turning points. Our most parsimonious augmented autoregressive model delivers better out-of-sample forecasts of GDP growth than the benchmark models considered. We construct several Term Structures of recession probabilities since the last official NBER turning point. The results suggest that there has been no harbinger of a recession for the US economy since 2010Q4 and that there is none to fear at least until 2018Q1. GDP growth is expected to rise steadily between 2016Q3 and 2018Q1 in the range [2.5%,3.5%].
Mot(s) clé(s)
Augmented Autoregressive Model, Conditional Forecasts, Economic Activity, Inverse Mills Ratio, Probit, Recession.

Growth-enhancing effect of openness to trade and migrations: What is the effective transmission channel for Africa?

Dramane Coulibaly, Blaise Gnimassoun, Valérie Mignon

This paper investigates the growth-enhancing effect of openness to trade and to migration by focusing on African countries. Relying on robust estimation techniques dealing with both endogeneity and omitted variables issues, our results put forward the importance of accounting for the type of the partner country. We find evidence that while trade between Africa and industrialized countries has a clear and robust positive impact on Africa's standards of living, trade with developing countries fails to be growth-enhancing. Moreover, our findings show that migration has no significant effect on per capita income in Africa regardless of the partner. Finally, exploring the trade openness transmission channel, we establish that the growth-enhancing effect of Africa's trade with industrialized countries mainly occurs through an improvement in total factor productivity.
Mot(s) clé(s)
F22, F4, O4, O55.

Media Coverage and ECB Policy-Making: Evidence from a New Index

Hamza Bennani

Using a novel index measuring media's uncertainty regarding the effectiveness of European Central Bank's (ECB) policy actions, this paper estimates the interest rate policy of the ECB with respect to media coverage of its monetary policy decisions. Our results suggest that the monetary institution implements a restrictive (accommodative) monetary policy, through its repo rate, in response to an increase (decrease) of the uncertainty expressed by the media concerning the effectiveness of its past policy actions, in particular since the global financial crisis. These results are robust when considering an alternative proxy of central bank's perceived effectiveness and ECB's unconventional policy measures in the estimation procedure. Our findings thus shed some light on the decision-making procedure of the ECB when the latter has to deal with the uncertain impact of its policy decisions as expressed by media coverage, and thus, address a critical issue related to the political economy of central banking.
Mot(s) clé(s)
Monetary Policy, ECB, Public Media, Taylor Rule

Measuring Knowledge with Patent Data: an Application to Low Carbon Energy Technologies

Clément Bonnet

We estimate a latent factor model (LFM) to compute an index that measures the quality of an extensive data set of inventions related to Low Carbon Energy Technologies (LCETs) and patented by seven countries during 1980-2010. We use the quality index to compute the stock of knowledge accumulated in the fifteen analyzed LCETs. We investigate the composition of the stock of knowledge and find that important substitutions between technologies have taken place: technologies such as solar thermal and nuclear have been progressively replaced by wind power, solar photovoltaic and to a less extent by few other technologies. This substitution effect can be decomposed into quantity (the number of inventions) and quality (the quality of inventions). Investigating the latter, the quality of nuclear-related inventions has decreased whereas it has increased for solar photovoltaic (PV), wind power and energy storage inventions. Few newer technologies, i.e. hydrogen and sea energy, also show signs of an increase of their average quality of inventions over the last years of the data set. We go further and investigate the inventions distribution in terms of quality and conclude that the potential for signifcant inventions related to nuclear technology has decreased over time whereas higher levels of quality have been reached in newer technological areas. A cross-country comparison is conducted to assess the innovation performance of the seven countries covered by our study. We conclude that technology policies are less efficient when demand-pull and supply-push approaches are not coupled.
Mot(s) clé(s)
patent data; latent factor model; energy technologies; carbon.

The falling sperm counts story": A limit to growth?

Johanna Etner, Natacha Raffin, Thomas Seegmuller

We develop an overlapping generations model of growth, in which agents differ through their ability to procreate. Based on epidemiological evidence, we assume that pollution is a cause of this health heterogeneity, affecting sperm quality. Nevertheless, agents with impaired fertility may incur health treatments in order to increase their chances of parenthood. In this set-up, we analyse the dynamic behaviour of the economy and characterise the situation reached in the long run. Then, we determine the optimal solution that prevails when a social planner maximises a Millian utilitarian criterion and propose a set of available economic instruments to decentralise the optimal solution. We underscore that to correct for both the externalities of pollution and the induced-health inefficiency, it is necessary to tax physical capital while it requires to overall subsidy mostly harmed agents within the economy. Hence, we argue that fighting against the sources of an altered reproductive health is more relevant than directly inciting agents to incur health treatments.
Mot(s) clé(s)
Pollution; Growth; Fertility; Health.

On the link between current account and oil price fluctuations in diversified economies: The case of Canada

Blaise Gnimassoun, Marc Joëts, Tovonony Razafindrabe

This study revisits the important relationship between oil prices and current account for oil exporting countries by paying particular attention to the time-varying nature of this link. To this end, we rely on an innovative method, the time-varying parameter vector autoregressive (TVP-VAR) model with sign restriction. We find that while an oil supply shock has non-significant impact on the current account, an oil demand shock has a positive and significant effect, which tends to increase over time. In addition, by studying the economic factors underlying the evolution of this relation, we show that the propensity to spend oil revenues on imports has a significant negative infuence on the pass-through of oil demand shocks on current account. However, a deepening of the domestic financial market and an accumulation of foreign exchange reserves have a significant positive effect on this relationship.
Mot(s) clé(s)
Current account, Oil prices, Time-varying parameters.

Revisiting the optimal patent policy tradeoff for environmental technologies

Clément Bonnet

The invention and the diffusion of environmental process of production and consumption goods are impeded by two market failures: the first on environment and the second on knowledge. The question arises whether the instruments aiming at correcting these market failures should be jointly designed or not. We investigate this question for a major instrument of support to innovation: the patent system. We demonstrate that a patent system and a discriminating environmental taxation that are jointly defined provide for a greater efficiency. We conclude that the two externalities interact with each other through the patent system.
Mot(s) clé(s)
environmental innovation, double externality, patent policy.

Bank interest margins and regulation in Central America and the Caribbean

Anthony Birchwood, Michael Brei, Dorian Noel

This paper examines empirically the determinants of bank interest margins in Central America and the Caribbean over the period 1998-2014. A particular focus is set on the impact of differences in the regulatory environment and market structure across countries in explaining the interest margins of individual banks. Our results suggest that bank market power, cost inefficiency, credit risk, liquid asset holdings, and interest rate risk increase the margin between loan and deposit rates, while increased income diversification and GDP growth are associated with lower loan-deposit spreads. When considering information on banking regulation, we find strong evidence to support our main hypothesis that improvements in market quality and liberalization have a significant effect on interest margins. More specifically, reductions in entry requirements to banking, higher involvement of foreign banks, and increased financial statement transparency are associated with significant reductions in interest margins.
Mot(s) clé(s)
Bank margin; bank spread; Central America; Caribbean.

Estimation des échelles d’équivalence des ménages seniors et d’âge actif en France

Ikpidi Badji

Pour fixer les barèmes des prélèvements obligatoires et les prestations sociales pour des ménages de taille et de composition différentes, les pouvoirs publics s’appuient sur les échelles d’équivalence. En considérant les économies d’échelles réalisées au sein des ménages (partage de biens collectifs), l’échelle d’équivalence permet de calculer le montant de dépenses ou de revenu supplémentaires d’un ménage de taille et de composition donnée, pour atteindre le niveau d’utilité d’un ménage composé d’une seule personne. La valeur des échelles d’équivalence dépend de la structure de consommation ou du mode de vie des ménages. Est-ce que l’échelle d’équivalence utilisée actuellement (applicable à l’ensemble de la population) et mise en œuvre dans les années 1990 demeure pertinente suite aux évolutions des modes de vies ? Sont-elles adaptées aux ménages seniors (60 ans et plus) et aux ménages d’âge actif (moins de 60 ans) dont la structure de consommation est différente de l’ensemble de la population ? Comment les échelles spécifiques aux postes de consommation ont-elles évolué depuis les années 1990 ? Ce papier mobilise les enquêtes budget des familles de 1979 à 2010 pour estimer les échelles d’équivalence globales applicables à l’ensemble de la population, les échelles d’équivalence pour les sous-populations de seniors et les ménages d’âge actif, les échelles spécifiques aux postes de consommation. Nos résultats suggèrent que l’échelle mise en œuvre au milieu des années 1990 est toujours adaptée au mode de vie actuel. Toutefois, cette échelle sous-estime le niveau de vie et les économies d’échelles réalisées au sein des ménages seniors et surestime le niveau de vie et les économies d’échelles réalisées dans les ménages d’âge actif.
Mot(s) clé(s)
modèle de consommation, échelle d’équivalence, économie d’échelle, doubles moindres carrés

Currency Misalignments in emerging and developing countries: reassessing the role of Exchange Rate Regimes

Cécile Couharde, Carl Grekou

This paper re-examines empirically the relationship between exchange rate regimes and currency misalignments in emerging and developing countries. Using alternative de facto exchange rate regime classifications over the period 1980-2012, it finds strong evidence that performance of exchange rate regimes is conditional on the de facto classification. In particular, this paper shows that the effect of monetary arrangements on currency misalignments depends critically on the ability of these classification schemes to capture adequately dysfunctional monetary regimes.
Mot(s) clé(s)
Currency misalignments; Exchange rate regimes; Emerging and developing countries.

Mind the employment gap: an impact evaluation of the Czech “multi-speed” parental benefit reform

Alzbeta Mangarella

Parental leave is a key policy tool for addressing work-life reconciliation issues inherent to parenthood, including maternal employment and its continuity. The 2004 Czech accession to the EU shed light on the scope of the employment gap between women with and without children at pre-school age, highest among all the OECD countries (41 pp). This is due to very long universal paid parental leave: 4 years per child. In order to tackle this gap and to conform to the EU trend, a major reform was designed in 2008, and this paper investigates its effects on mothers’ participation and employment. I use the Labour Force Survey to assess the effect of this reform on maternal employment and activity levels, thanks to a difference-in-differences identification strategy. The reform provided an extensive change in financial incentives in favour of shorter leaves, and I show that effects on return-to-work timing are large and significant. However, if mothers do respond to the incentive by advancing the timing of the return to work by one year, the eligibility restrictions as well as the public childcare shortage narrow - de facto - the scope of the effect, which merely compensates for the massive opposite trend induced in the 1990s.
Mot(s) clé(s)
Policy Evaluation, Female Labour Force Participation, Parental Leave, European Social Integration

Energy transition in transportation under cost uncertainty- an assessment based on robust optimization

Emmanuel Hache, Claire Nicolas, Stéphane Tchung-Ming

To improve energy security and ensure the compliance with stringent climate goals, the European Union is willing to step up its efforts to accelerate the development and deployment of electrification, and in general, of alternative fuels and propulsion methods. Yet, the costs and benefits of imposing norms on vehicle or biofuel mandates should be assessed in light of the uncertainties surrounding these pathways, in terms of e.g. cost of these new technologies. By using robust optimization, we are able to introduce uncertainty simultaneously on a high number of cost parameters without notably impacting the computing time of our model (a French TIMES paradigm model). To account for the different nature of the uncertain parameters we model two kinds of uncertainty propagation with time. We then apply this formal setting to French energy system under carbon constraint. As uncertainty increases, as does technology diversification to hedge against it. In the transportation sector, low-carbon alternatives (CNG, electricity) appear consistently as hedges against cost variations, along with biofuels. Policy implications of diversification strategies are of importance; in that sense, the work undertaken here is a step towards the design of robust technology-oriented energy policies.
Mot(s) clé(s)
Robust optimization; Climate change; Energy transition; Transportation policy.

The land use change time-accounting failure

Marion Dupoux

Land use change (LUC) is the second largest human-induced source of greenhouse gases. While LUC impacts are mostly immediate, policy makers consider it to be evenly spread over time. In the context of public evaluation of projects, I theoretically show that, as long as the discounting process perfectly offsets the rise of carbon prices, cost-benefit analysis outcomes are not affected. When this condition does not hold, which is particular to the global warming issue, the uniform time-accounting of LUC distorts present values by emphasizing both the discounting process and the increase in the carbon price over time. This induced bias is quantified in a case study of bioethanol in France. Depending on the type of impact and discounting and carbon pricing assumptions, a downward/upward bias between + or - 15% and + or - 30% of the LUC value is found. Two simple decision tools are provided to improve accounting of LUC impacts.
Mot(s) clé(s)
cost-benefit analysis, public evaluation of projects, land use change, discounting, relative carbon price, non-constant impacts, bioethanol

The Risk Parity Principle applied on a Corporate Bond Index using Duration Times Spread

Lauren Stagnol

In this paper, we apply the principle of Equal Risk Contribution (ERC) to a corporate bond index, an asset class so far left behind in this literature. Specifically, we rely on the Duration Time Spread (DTS) and demonstrate that it is an coherent metric for bond risk. We construct indexes based on sector - issuer - and bond level using structured block correlation matrices, weights being inversely proportional to DTS. Our results provide evidence that applying ERC using DTS in the index design significantly improves corporate bond index risk-adjusted returns. It appears that the higher the granularity is, the higher will be the risk adjusted performance enhancements. More generally, the ERC application we present appears to be a valuable trade-off between heuristic and more complex risk-modeling based weighting schemes.
Mot(s) clé(s)
Equal Risk Contribution, Risk Parity, Smart Beta, Risk Measure, Risk-Based Indexing, Alternative Corporate Bond Index.

Does the exchange rate regime shape currency misalignments in emerging and developing countries?

Carl Grekou

Relying on a panel of 73 emerging and developing countries and on de facto exchange rate regimes’ classification —over the 1980-2012 period, we re-examine empirically the relationship between exchange rate regimes and currency misalignments. Overall our results suggest that no exchange rate regime performs better than the others as currency misalignments do not substantially and significantly differ across exchange rate regimes. This finding is in contrast to the different arguments (both theoretical and empirical) in favor or against any particular regime and instead supports the exchange regime neutrality view.
Mot(s) clé(s)
Currency misalignments; Exchange rate regimes; Emerging and developing countries.

A New Behavioral Framework to Analyze Preferences Construction and Decision Processes Within The Modal Choice

Hugo Bois

This paper discusses about a new framework to explain the decision-making process of modal choice. A specific approach, based on the behavioral framework developed by Ben-Akiva & Boccara (1987), is adopted to understand and analyze the decision processes of individuals. Precisely, we use the Analytic Hierarchy Process (AHP) to build the hierarchy of preferences from attitudes and perceptions. Through the preferences hierarchy, we can apply three different methods to better explain the decision processes; namely a standard compensatory model, a non-compensatory model based on the decision rules, and different possible weightings of the AHP method. The random utility maximization is predominantly used in the transportation literature because of its strong theoretical background, its success in predicting many types of human behavior, and the simplicity of mathematical and statistical analyses and model estimation it offers. Despite that, we believe that non-compensatory approaches are better suited to understand both travel behaviors and decision processes for transportation modes when taking active modes into account. These approaches allow us to better explain the impacts of each modal attributes on the one hand and to build psychological profiles with respect to decision rules on the other hand. Thus, it is possible to simulate shocks all things being equal.
Mot(s) clé(s)
Modal choice; Preferences; Decision rules; Hierarchical model; AHP.

Incentivising Lending to Smes with the Funding for Lending Scheme: Some Evidence from Bank-Level Data in the United Kingdom

Olena Havrylchyk

This study explores the effectiveness of the incentive mechanisms embedded within the UK’s Funding for Lending Scheme (FLS) for banks’ to expand their supply of lending to medium sized enterprises(SMEs). The FLS was announced by the Bank of England and HM Treasury in June 2012, with the aim of improving the supply of credit to the UK real economy. Despite the prevailing low level of riskfree interest rates, UK banks’ funding costs were elevated at the time of the Scheme's introduction, and the intention was to provide lenders with a stable source of lower-cost funding to support credit provision to the real economy. The Scheme’s design built in direct incentives for banks to support lending to the real economy, by linking both the price and quantity of funding available through the Scheme to their lending performance. This paper looks for evidence of the effectiveness of these incentives, exploiting a modification of the Scheme’s design for its extension in April 2013 to help identify changes in credit supply from credit demand. Specifically, the change sharpened incentives to lend to SMEs, relative to larger ones. This facilitates using a difference-in-difference approach, exploiting bank-level data on UK banking groups, to look for a direct impact of incentives on credit supply, considering larger companies as a control group. On the basis of the available dataset, it is not possible to identify that this change in the incentive structure of the FLS directly boosted loan growth to SMEs, relative to large firms, between the extension of the scheme and the end of 2013. The results seem robust to using different metrics of credit supply. However, the dataset is unavoidably small, both in terms of number of lenders covered and the length of the period after the modification of the design. More generally, reductions in lenders’ market funding costs since the FLS’ introduction may have lessened banks’ incentives to use draw on the Scheme, and so the impact of incentives within it.
Mot(s) clé(s)
SME lending; banks; unconventional monetary policy; monetary transmission

Expert opinion in a tort litigation game

Nathalie Chappe, Yves Oytana

We investigate the potential impact of various proposed reforms intended to improve the quality of expert testimony while reducing its cost, and to facilitate the work of judges in appointing experts and reading their reports. To do so, we present a unilateral care model under strict liability in which the court cannot perfectly observe the amount of harm a tortfeasor has caused to a victim. However, the judge may appoint an expert to improve his chance of reaching a correct decision. In this context, we find that the likelihood of a victim filing a lawsuit decreases with the quality of the expert testimony and with the cost of the expertise procedure, and increases with the non-monetary cost for the judge to appoint an expert. Moreover, we find that the effects of these parameters on the injurer's level of precaution are ambiguous. We also find that the injurer's level of care is suboptimal. Finally, we make some public policy recommendations in order to (i) increase the injurer's level of care and (ii) reduce the expected cost of a trial in the event of an accident. We find that the policy maker faces a trade-off between these two objectives.
Mot(s) clé(s)
Litigation; Expert; Expert testimony; Liability.

Post-reorganization survival: a semi-parametric and non-parametric analysis of firm characteristics

Lara Abdel Fattah, Sylvain Barthelemy, Nadine Levratto, Benjamin Trempont

This paper aims at bringing evidence on firm survival after bankruptcy. Instead of considering survival as a binary variable we take into account the duration of the reorganization procedure. We follow a sample of French firms throughout their restructuring process and document factors influencing the reorganization outcome. Based on the existing theoretical and empirical literature on the link between firm ownership structure and performance, we particularly focus on the influence of firm affiliation to a business group and business groups’ characteristics. Using a Cox proportional hazards model and a Random Forests model, we find that firm structural and financial characteristics have a strong power to explain survival at different time horizons, however, very few of firm financial characteristics used previously for bankruptcy prediction are useful for predicting the final outcome of reorganization once a reorganization plan is voted. In addition, we show that firm ownership structure proxied by firm affiliation to a business group and business group characteristics has no significant influence on the outcome and duration of reorganization.
Mot(s) clé(s)
Reorganization; bankruptcy; survival; business groups; Cox model; Random Forests

US Crashes of 2008 and 1929 How did the French market react? An empirical study

Raphaël Hekimian, David Le Bris

We compare the reaction of the Paris bourse to the US crashes during both the 2008 and the 1929 crises. We constitute a new dataset of daily French stock prices from February 1929 to March 1930 that we combine to the already existing daily series of the Dow Jones. We also use newspapers and minutes from the Banque de France and from the Paris Stock Exchange’s brokers syndicate in order to confront quantitative data with historical narratives. We finally run contagion tests in both periods, using adjusted correlation coefficients to test for pure contagion. In 1929, the Paris stock market does not exhibit any reaction to the New-York crash. The recent crisis is totally different with a clear contagion of the US crash. This study highlights a significant difference between the two crises and provides strong evidence that the transmission of the Great Depression used other channels than stock markets.
Mot(s) clé(s)
Financial history; Financial crisis; Stock market; Contagion

The Curse of Conflict: understanding the effect of terrorism on fiscal volatility

Urbain Thierry Yogo

This paper investigates the effect of terrorism on fiscal policy volatility in developing countries. Using panel data analysis of 66 countries from 1970 to 2012, we find that an increase in the number of terrorist incidents raises the volatility of the discretionary component of fiscal policy. In addition, the analysis shows that investment is more responsive to terrorist attacks than consumption. We then turn to the role played by fiscal rules which appears to reduce the effect of terrorism on fiscal policy volatility. Our results are robust to reverse causality, endogeneity bias and the presence of various controls. This paper complements and extends the previous literature by providing the evidence that terrorism substantially increases the uncertainty surrounding the conduct of fiscal policy in developing countries.
Mot(s) clé(s)
Fiscal policy; Terrorism; Fiscal rules

Do markets learn to rationally expect US interest rates? Evidence from survey data

Georges Prat, Remzi Uctum

Using Consensus Economics survey data on the US 3-month bill rate and the 10 years Treasury bonds expectations for the 3- and 12-month horizons over the period November 1989 – May 2015, this article aims at testing whether a group of rational forecasters coexists with or emerges over time beside a group of forecasters employing the traditional limited information-based rules that are the extrapolative, the adaptive, the regressive and the forward-market premium rules. We estimate the time-varying weights associated with the two groups using the Kalman filter methodology and find that the aggregate expectations fail to exhibit a learning process towards rationality both for short term and long term interest rates. While long term interest rate expectations appear to be explained only by limited information rules at any time, in the case of the short term interest rate a group of rational agents seems to have operated in the market over the whole period with a small but almost constant weight simultaneously with limited information-based forecasters. Overall, for both short and long term interest rates, our results strongly suggest that experts’ forecasts are essentially based on a combination of the four traditional processes. This is consistent with the economically rational expectations theory which suggests that information costs and agents’ aversion to misestimating future interest rates determine the optimal amounts of information on which they base their expectations.
Mot(s) clé(s)
expectation formation, interest rates, dynamic heterogeneity, survey data.

Exchange rate pass-through in emerging countries: Do the inflation environment, monetary policy regime and institutional quality matter?

Antonia Lopez Villavicencio, Valérie Mignon

In this paper, we estimate the exchange rate pass-through (ERPT) to consumer prices and assess its dynamics for a sample of 15 emerging countries over the 1994-2015 period. To this end, we augment the traditional bivariate relationship between the nominal effective exchange rate and inflation by accounting for the inflation environment, monetary policy regime, as well as domestic institutional factors. We show that both the level and volatility of inflation matter in the sense that declining ERPT is evidenced with more stable and anti-inflationary environment. Monetary policy also plays a key role since adopting an inflation target-especially de jure-leads to a significant reduction in ERPT for most countries. Adopting exchange rate targeting regime matters as well, contributing to a diminishing ERPT. Finally, we find evidence that transparency of monetary policy decisions clearly reduces ERPT, while this is not the case for central bank independence.
Mot(s) clé(s)
Exchange rate pass-through; inflation; emerging countries; monetary policy.

Spillover effects of global liquidity’s expansion on emerging countries: evidences from a Panel VAR approach

Nady Rapelanoro

The attention for the global liquidity concept has grown over the recent years insofar as its dramatic increase is considered among regulators and economists as one of the possible determinants of the last global financial crisis. Although global liquidity remains without a generally accepted definition in the literature, the destabilizing effects of its expansion are widely studied, especially for the advanced economies. However, empirical studies regarding the consequences in the emerging countries are scarcer and this paper is related to this topic. We rely on a Panel VAR approach to investigate those effects on emerging economies and we find that the consequences are in line with the results of the literature on advanced countries. Nevertheless, contrary to previous empirical studies, we find that the choice of the exchange rate regimes is not important, as the exchange rate regime does not fully isolate the countries from a surge of global liquidity in the issuing countries.
Mot(s) clé(s)
Global liquidity, emerging countries, international spillovers, Panel VAR model.

Understanding the Decision Making Process of Sovereign Wealth Funds: The Case of Temasek

Jean-Yves Gnabo, Malik Kerkour, Christelle Lecourt, Hélène Raymond

Sovereign wealth funds (SWFs) have been increasingly active over the past decade, raising concern from governments regarding their actual motives and potential cross-border stakes in national strategic sectors. The aim of this paper is to contribute to the existing literature to understand better the decisions taken by this new class of investors. the whole process of investment decision strategy is complex in the sense where it combines several dimensions that may potentially interact. For that, we investigate the economic determinants of SWF's cross-border stakes while considering the whole sequence of choices involved in this decision: (i) the decision to invest abroad or not, (ii) the decision to invest in a listed versus unlisted firm, and (iii) the decision to make large versus small investment in target company. Using a nested logit approach on one of the biggest SWF, the Singaporean fund Temasek over the 1990 to 2010 period, we provide clear evidence of dependence in the three considered levels of decision. In addition, we show that Temasek's cross-border investment probability increases with the excess of FX reserves, tends to target unlisted firms when asymmetry of information is low between the target and the home countries and involves in large stakes depending on firm financial characteristics.
Mot(s) clé(s)
Sovereign Wealth Funds; Nested Logit model; Foreign Investment.

Predicting bank failures: The leverage versus the risk-weighted capital ratio

Xi Yang

This paper investigates the efficiency of leverage ratios and risk-weighted capital ratios as bank failure predictors during the global financial crisis. Analyzing 417 bank failures between 2008 and 2012, we find that the predictive power of different capital ratios is not homogeneous across banks. The simple leverage ratio outperforms the risk-weighted ratio in predicting failures of large banks, while both capital ratios are important in predicting the failure of smaller banks. The better performance of the leverage ratio in the case of large banks is especially important during the crisis period of 2008-2010. The findings support the regulatory reforms proposed by Basel Committee on Banking Supervision on the adoption of a supplementary minimum leverage ratio in order to strengthen the resilience of the bank sector.
Mot(s) clé(s)
leverage ratio, risk-weighted capital ratio, bank failure, CAMELS, Logit model

The Paradox of Plenty: A Meta-Analysis

Magali Dauvin, David Guerreiro

Since Sachs and Warner’s seminal paper in 1995, a conventional wisdom has spread in the academic literature stating that a high endowment in natural resources may be detrimental for growth. The great heterogeneity of development paths followed among resource-rich countries has shown that the resource curse was not always inevitable, and that there existed ways to make the most of one’s natural wealth. We identified three sources of heterogeneity in the literature: the use of abundance and intensity measures, the account for appropriability aspects of resources and finally, the role of institutions. In this paper, we aim at providing quantitative results on the magnitude of the link between natural resources and growth found in the literature, as well as discussing, on quantitative bases, whether the sources of heterogeneity are significant. To this end, we implement a meta-analysis based on 67 empirical studies that investigate the link between natural resources and growth, totaling 1405 estimates. The results show a "soft" curse that may be reverted together with the importance of institutions in mitigating the curse.
Mot(s) clé(s)
Meta-analysis; Resource Curse; Natural Resources; Appropriability; Institutions.

On Noncooperative Oligopoly Equilibrium in the Multiple Leader-Follower Game

Ludovic A. Julien

In this paper, we provide new proofs of existence and uniqueness of a Stackelberg market equilibrium for a multiple leader-follower noncooperative oligopoly model in which heterogeneous firms compete on quantities. To this end, we consider a two-step game of perfect and complete information in which many leaders interact strategically with many followers. The Stackelberg market equilibrium constitutes a pure strategy subgame perfect Nash equilibrium of this game. The existence (and uniqueness) problem is complexified in this framework since strategic interactions occur within each partial game but also between both partial games through sequential decisions. Then, to prove existence, we notably provide a new procedure to determine (the conditions under which) the optimal behavior of the followers (may be written) as functions of the leaders'strategy profile only. Some examples outline our procedure and discuss our assumptions.
Mot(s) clé(s)
Best response functions, existence, uniqueness.

Determinants of corruption: Can we put all countries in the same basket?

Blaise Gnimassoun, Joseph Keneck Massil

This paper aims to study the determinants of corruption by examining specificities relating to the region and the level of economic development. Starting from a cross-sectional study on 130 countries, we rely on the Bayesian Model Averaging (BMA) approach to address the issue of model uncertainty and identify the key determinants of corruption according to the level of development and the region. Our results highlight the need for specific remedies in the fight against corruption given the regional, sociocultural, economic and institutional specificities. Indeed, the key determinants of corruption in sub-Saharan Africa are not the most relevant in the East Asia and Pacific region. Similarly, the most important determinants in developed countries are not the most worrying in developing countries.
Mot(s) clé(s)
Corruption, Political Economy, Public Economics, Bayesian Model Averaging, Cross-Sectional Models.

Sovereign spreads in emerging economies: do natural resources matter?

Magali Dauvin

Natural resource prices have been plunging since early 2014, constituing a threat to emerging markets whose revenues mainly stem from commodity exports. Within this context, the purpose of this paper is to investigate to what extent commodities are reflected in financial markets’ assessment of emerging country risk, and if a special premium is added for commodity exporters. We focus on 22 emerging markets sovereign spreads and assess how prices and their commodity trade structure are gauged by investors. Our results indicate that commodity prices are relevant for exporters, as they help relaxing the credit constraint in periods of increasing prices. As for resourcepoor countries, they are of no importance when assessing sovereign risk. Also, global financial markets do not pay attention to dependence on natural resources although they are now suffering from collapsing prices. Finally, high variations in commodity prices are not particularly reflected in the way markets assess sovereign risk.
Mot(s) clé(s)
Sovereign spreads, emerging markets, commodity exporters, commodity prices.

Reject inference in application scorecards: evidence from France

Ha Thu Nguyen

Credit scoring models are commonly developed using only accepted Known Good/Bad (G/B) applications, called KGB model, because we only know the performance of those accepted in the past. Obviously, the KGB model is not indicative of the entire through-the-door population, and reject inference precisely attempts to address the bias by assigning an inferred G/B status to rejected applications. In this paper, we discuss the pros and cons of various reject inference techniques, and pitfalls to avoid when using them. We consider a real dataset of a major French consumer finance bank to assess the effectiveness of the practice of using reject inference. To do that, we rely on the logistic regression framework to model probabilities to become good/bad, and then validate the model performance with and without sample selection bias correction. Our main results can be summarized as follows. First, we show that the best reject inference technique is not necessarily the most complicated one: reweighting and parceling provide more accurate and relevant results than fuzzy augmentation and Heckman’s two-stage correction. Second, disregarding rejected applications significantly impacts the forecast accuracy of the scorecard. Third, as the sum of standard errors dramatically reduces when the sample size increases, reject inference turns out to produce an improved representation of the population. Finally, reject inference appears to be an effective way to reduce overfitting in model selection.
Mot(s) clé(s)
Reject inference, sample selection, selection bias, logistic regression, reweighting,parceling, fuzzy augmentation, Heckman’s two-stage correction.

Are the Laffer curve and the Green Paradox mutually exclusive?

Stefano Bosi, David Desmarchelier

To study the relationship between a Laffer Curve and the Green Paradox, we consider a Ramsey model with endogenous labor supply, where pollution increases the consumption demand (compensation effect). In the long run, the conditions for a Laffer curve and the Green Paradox are mutually exclusive: the curve exists under a weak compensation effect while the paradox under a strong effect. In the short run, limit cycles arise only if a Laffer curve exists but never occur in the case of Green Paradox.
Mot(s) clé(s)
Ramsey model, Pollution, Laffer Curve, Green Paradox, Hopf bifurcation.

Gender inequalities in pensions: Are determinants the same in the private and public sectors?

Carole Bonnet, Dominique Meurs, Benoît Rapoport

While the average gender gap in pensions is quite well documented, gender differences in the distribution of pensions have rarely been explored. We show in this paper that pension dispersion is very similar for men and women within the French pension system of a given sector (public or private). However, the determinants of these gender inequalities are not the same. Using a regression-based decomposition of the Gini coefficient, we find that pension dispersion is mainly due to dispersion of the reference wage. Gender differences are less marked among civil servants. For women, pension dispersion is also due to dispersion in contribution periods. We also decompose the Gini coefficient by source of income to measure the impact of institutional rules on the extent of pension inequality. Unexpectedly, we find that the impact of pension minima is limited, although slightly larger for civil servants than for private sector employees.
Mot(s) clé(s)
Pension, Private and Public sector, Gender gap, Gini coefficient, Decomposition.

The Private Value of Plant Variety Protection and the Impact of Exemption Rules

Marc Baudry, Adrien Hervouet

Plant Breeders Rights (PBRs) are sui generis IPRs intended to promote plant variety creation. Two characteristics distinguish PBRs from patents: the research and the farmers’ exemptions. This article attempts to assess the impact of these exemption rules on the private value of PBRs. For this purpose, a microeconometric model of PBRs renewals is developed and estimated. This model extends previous models of patents renewals by allowing the use of PBRs-specific variables. It is argued that simple tests on the coefficients associated to key PBRs-specific variables can provide insights into the impact of the two exemption rules. Implementation to PBRs in France over the period 1973-2011 for six major crops suggests that neither the farmers’ exemption nor the research exemption have a clear cut effect on the private value of PBRs. We conclude that there is no evidence to argue in favor of a reform of PBRs.
Mot(s) clé(s)
IPRs, Inventors’ exemption, Farmers’ exemption, Plant variety creation, Renewals.

Beyond average energy consumption in the French residential housing market: A household classification approach

Emmanuel Hache, Déborah Leboullenger, Valérie Mignon

The need to reduce Green House Gases emissions has jointly lead to increasing concerns regarding the efficiency of national mitigation agendas and the potential exposure of certain households to energy poverty. Hence, the comprehension of the key determinants that influence the energy demand appears to be crucial for the effectiveness and fairness of energy policies. We particularly consider that targeting specific households’ groups rather than looking for a unique national target level of energy consumption would be more effective. This article explores the scope of having a disaggregated energy consumption market to design policies aimed at curbing residential energy consumption or lowering its carbon intensity. Using a clustering method based on CHAID (Chi Square Automatic Interaction Detection) methodology, we find that the different levels of energy consumption in the French residential sector are related to socio-economic, dwelling and regional characteristics. Then, we build a typology of energy-consuming households where targeted groups (fuel poor, high income and high consuming households) are clearly and separately identified through a simple and transparent set of characteristics. This classification represents an efficient tool for energy efficiency programs and energy poverty policies but also for potential investors, which could provide specific and tailor-made financial tools for the different groups of consumers. Furthermore, our approach is helpful to design an energy efficiency score that could reduce the rebound effect uncertainty for each identified household group.
Mot(s) clé(s)
Energy consumption, residential sector, clustering method, France.

The Effect of Biofuels on the Link between Oil and Agricultural Commodity Prices: A Smooth Transition Cointegration Approach

Anthony Paris

Given the few studies highlighting the existence of an oil-price effect on agricultural commodity prices in the last decade, we sought to demonstrate the role of first-generation biofuel production in such a relationship. Relying on a smooth transition cointegration approach, we show that biofuel development has led to an increase in the long-term price effect of oil on agricultural commodity prices. Thus, the increasing production of biofuels contributes to the price rise of agricultural commodities. This result underlines the importance of accelerating second-generation biofuel production to replace first-generation biofuels
Mot(s) clé(s)
Biofuel, Oil price, Agricultural commodity,Nonlinear econometrics.

Institutions, théories du changement institutionnel et déterminant de la qualité des institutions: les enseignements de la littérature économique

Joseph Keneck Massil

Face à l’absence de définition universellement acceptée des institutions et à la complexité de les cerner, l’étude du changement institutionnel et des facteurs déterminants de la qualité des institutions constitue un exercice difficile. Ainsi, cet article poursuit trois objectifs. Premièrement, il propose une définition de ce qu’est une institution. Deuxièmement, il présente l’abondante littérature sur les théories du changement institutionnel. Troisièmement, il met en évidence les travaux empiriques sur les déterminants de la qualité des institutions.
Mot(s) clé(s)
Institutions, Théorie du changement institutionnel, Déterminants de la qualité des institutions.

Fluctuations in emerging economies: regional and global factors.

Zouhair Aït Benhamou

Discrepancies in output fluctuations between emerging and developed economies are welldocumented in the literature. Differences however within developing economies have not been sufficiently scrutinised. This paper argues that global and regional shocks primarily drive the business cycle in emerging economies, and provides estimated results for cycle variance decomposition. The paper also offers a theoretical framework to check on the set of stylised facts common and specific to emerging economies. It finds that the proposed model is robust in accounting for region-specific features.
Mot(s) clé(s)
International Business Cycles, Global Factors, Regional Factors, Emerging Economies.

Reassessing the empirical relationship between the oil price and the dollar

Virginie Coudert, Valérie Mignon

This paper aims at reassessing the empirical relationship between the real price of oil and the U.S. dollar real effective exchange rate over the 1974-2015 period. We find that changes in both variables are now linked by a negative relationship, going from the dollar exchange rate to the real oil price. However, the same relationship is found positive when ending the sample in the mid-2000s, in line with the previous literature. To understand and investigate this evolution, we rely on a nonlinear, smooth transition regression model in which the oil pricedollar nexus depends on the dynamics followed by the U.S. currency. Our results show that the relationship is negative most of the times but turns positive when the dollar hits very high values, as in the early eighties
Mot(s) clé(s)
oil price, dollar real effective exchange rate, causality, nonlinearity.

On the impact of dollar movements on oil currencies

Gabriel Gomes

This paper investigates to which extent dollar real exchange rate movements have a nonlinear impact on the short term dynamics of the real exchange rate of oil exporting economies. Estimating a panel cointegrating model for 11 OPEC and 5 major oil exporting countries over the 1980-2014 period, we find evidence to support their currencies can be considered as oil price driven. In fact, on the long run a 10% increase in the price of oil leads to a 2.1% appreciation of their real exchange rate. To analyse how dollar movements interact with the real exchange rate of those countries in the short run, we then estimate a panel smooth transition regression model. Results show that the real exchange rate of oil exporting economies is influenced by oil price fluctuations only if the dollar appreciation is lower than 2.6%. After the dollar appreciates beyond this threshold, their currencies are rather affected by other variables.
Mot(s) clé(s)
Oil price, Oil currencies, Oil exporting, Non-linearities.
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