We analyse the redistribution channel of a money-financed versus debt-financed fiscal stimulus in a Borrower-Saver frammework. The redistribution channel is larger when we consider a money-financed fiscal stimulus. However, it generates also larger welfare losses than a debt-financed fiscal stimulus, particularly in a borrower-saver framework due to the additional presence of the consumption gap with respect to a representative agent model.
{"title":"Is a Money-financed Fiscal Stimulus Desirable?","authors":"C. Punzo, L. Rossi","doi":"10.2139/ssrn.3868958","DOIUrl":"https://doi.org/10.2139/ssrn.3868958","url":null,"abstract":"We analyse the redistribution channel of a money-financed versus debt-financed fiscal stimulus in a Borrower-Saver frammework. The redistribution channel is larger when we consider a money-financed fiscal stimulus. However, it generates also larger welfare losses than a debt-financed fiscal stimulus, particularly in a borrower-saver framework due to the additional presence of the consumption gap with respect to a representative agent model.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"64 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121605298","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Banque de France RPS Submitter, Antoine Berthou, JEAN‐STÉPHANE Mésonnier, T. Mayer
In this paper, we show that exporters react more strongly to a cut in tariffs by a distant country when their banks have already been specializing in funding exports to this country. To make our case, we build upon a theoretical model where an informational advantage provided by the exporter's bank results in a lower distribution cost in the destination country. We test the implications of this model for French exporters using the 2011 free trade agreement between the European Union and South-Korea as a quasi-natural experiment. We measure a bank's specialization in Korea using granular information on bank-firm credit lines and firm-level exports in the years preceding the agreement. We assess how customers of different banks react to this trade liberalization episode using detailed information on the bilateral tariff cuts and disaggregated data on French export flows at the firm-product level. We find robust evidence that the specialized lenders help exporters to respond more strongly to changes in tariffs. The effect is strong for all firms along the extensive margin, but only for less productive exporters along the intensive margin.
{"title":"Good Connections: Bank Specialization and the Tariff Elasticity of Exports","authors":"Banque de France RPS Submitter, Antoine Berthou, JEAN‐STÉPHANE Mésonnier, T. Mayer","doi":"10.2139/ssrn.3854831","DOIUrl":"https://doi.org/10.2139/ssrn.3854831","url":null,"abstract":"In this paper, we show that exporters react more strongly to a cut in tariffs by a distant country<br>when their banks have already been specializing in funding exports to this country. To make our<br>case, we build upon a theoretical model where an informational advantage provided by the<br>exporter's bank results in a lower distribution cost in the destination country. We test the<br>implications of this model for French exporters using the 2011 free trade agreement between the<br>European Union and South-Korea as a quasi-natural experiment. We measure a bank's<br>specialization in Korea using granular information on bank-firm credit lines and firm-level exports<br>in the years preceding the agreement. We assess how customers of different banks react to this trade<br>liberalization episode using detailed information on the bilateral tariff cuts and disaggregated data<br>on French export flows at the firm-product level. We find robust evidence that the specialized<br>lenders help exporters to respond more strongly to changes in tariffs. The effect is strong for all<br>firms along the extensive margin, but only for less productive exporters along the intensive margin.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"42 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117271798","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Banque de France RPS Submitter, Grégory Levieuge, Marie-Pierre Horry, D. Onori
Abstract In this paper, we demonstrate that the size of the fiscal multiplier depends both on currency mismatch and home bias. Our demonstration is based on a real two-country dynamic stochastic general equilibrium model with incomplete and imperfect international financial markets, external debt and domestic financial frictions. We show that if home bias is high, the terms of trade improve following a fiscal stimulus. This reduces the private real debt burden denominated in foreign currency, decreases the external finance premium born by firms, and stimulates investment. Thus, the larger the proportion of firms’ debt denominated in foreign currency is, the higher the fiscal multiplier. In contrast, the terms of trade deteriorate when home bias is low. This increases the real debt burden and external finance premium. Hence, in this case, the fiscal multiplier decreases as the share of firms’ debt denominated in foreign currency increases.
{"title":"Public spending, currency mismatch and financial frictions","authors":"Banque de France RPS Submitter, Grégory Levieuge, Marie-Pierre Horry, D. Onori","doi":"10.2139/ssrn.3854724","DOIUrl":"https://doi.org/10.2139/ssrn.3854724","url":null,"abstract":"Abstract In this paper, we demonstrate that the size of the fiscal multiplier depends both on currency mismatch and home bias. Our demonstration is based on a real two-country dynamic stochastic general equilibrium model with incomplete and imperfect international financial markets, external debt and domestic financial frictions. We show that if home bias is high, the terms of trade improve following a fiscal stimulus. This reduces the private real debt burden denominated in foreign currency, decreases the external finance premium born by firms, and stimulates investment. Thus, the larger the proportion of firms’ debt denominated in foreign currency is, the higher the fiscal multiplier. In contrast, the terms of trade deteriorate when home bias is low. This increases the real debt burden and external finance premium. Hence, in this case, the fiscal multiplier decreases as the share of firms’ debt denominated in foreign currency increases.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"66 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115515213","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Banque de France RPS Submitter, Hervé le Bihan, J. Matheron, P. Andrade, J. Gaĺı
Abstract We address this question using an estimated New Keynesian DSGE model of the Euro Area with trend inflation, imperfect indexation, and a lower bound on the nominal interest rate. In this setup, a decrease in the steady-state real interest rate, r ★ , increases the probability of hitting the lower bound constraint, which entails significant welfare costs and warrants an adjustment of the monetary policy strategy. Under an unchanged monetary policy rule, an increase in the inflation target of eight tenths the size of the drop in the real natural rate of interest is warranted. Absent an increase in the inflation target, and assuming the effective lower bound prevents the ECB from implementing more aggressive negative interest rate policies, adjusting the monetary strategy requires considering alternative instruments or policy rules, such as committing to make-up for recent, below-target inflation realizations.
{"title":"Should the ECB Adjust its Strategy in the Face of a Lower R*?","authors":"Banque de France RPS Submitter, Hervé le Bihan, J. Matheron, P. Andrade, J. Gaĺı","doi":"10.2139/ssrn.3840251","DOIUrl":"https://doi.org/10.2139/ssrn.3840251","url":null,"abstract":"Abstract We address this question using an estimated New Keynesian DSGE model of the Euro Area with trend inflation, imperfect indexation, and a lower bound on the nominal interest rate. In this setup, a decrease in the steady-state real interest rate, r ★ , increases the probability of hitting the lower bound constraint, which entails significant welfare costs and warrants an adjustment of the monetary policy strategy. Under an unchanged monetary policy rule, an increase in the inflation target of eight tenths the size of the drop in the real natural rate of interest is warranted. Absent an increase in the inflation target, and assuming the effective lower bound prevents the ECB from implementing more aggressive negative interest rate policies, adjusting the monetary strategy requires considering alternative instruments or policy rules, such as committing to make-up for recent, below-target inflation realizations.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116862692","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We estimate the intergenerational correlation in homeownership status between two generations for cohorts covering the 20th century. First, we find higher intergenerational correlation in France compared to previous results obtained for the U.K. for similar cohorts. Second, the intergenerational correlation is increasing across cohorts, with a relatively stable probability of being a homeowner for children of homeowners over time, and a decreasing probability for children whose parents were not homeowners. Third, the effect of parents’ tenure status is persistent over the children’s life cycle. Fourth, when isolating two subpopulations based on the receipt of intergenerational transfers, we find significant intergenerational correlation in tenure status for children who did not receive any gift or inheritance, as well as for children who received intergenerational transfers, suggesting that other factors such as intergenerational income correlation or the transmission of preferences might also explain this intergenerational correlation.
{"title":"Intergenerational Homeownership in France over the 20th Century","authors":"Bertrand Garbinti, Frédérique Savignac","doi":"10.2139/ssrn.3800751","DOIUrl":"https://doi.org/10.2139/ssrn.3800751","url":null,"abstract":"We estimate the intergenerational correlation in homeownership status between two generations for cohorts covering the 20th century. First, we find higher intergenerational correlation in France compared to previous results obtained for the U.K. for similar cohorts. Second, the intergenerational correlation is increasing across cohorts, with a relatively stable probability of being a homeowner for children of homeowners over time, and a decreasing probability for children whose parents were not homeowners. Third, the effect of parents’ tenure status is persistent over the children’s life cycle. Fourth, when isolating two subpopulations based on the receipt of intergenerational transfers, we find significant intergenerational correlation in tenure status for children who did not receive any gift or inheritance, as well as for children who received intergenerational transfers, suggesting that other factors such as intergenerational income correlation or the transmission of preferences might also explain this intergenerational correlation.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"123 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115186752","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
M. Dietsch, H. Fraisse, Mathias Lé, Sandrine Lecarpentier
Starting in 2014 with the implementation of the European Commission Capital Requirement Directive, banks operating in the Euro area were benefiting from a 25% reduction (the Supporting Factor or "SF" hereafter) in their own funds requirements against Small and Medium-sized enterprises ("SMEs" hereafter) loans. We investigate empirically whether this reduction has supported SME financing and to which extent it is consistent with SME credit risk. Economic capital computations based on multifactor models do confirm that capital requirements should be lower for SMEs. Taking into account the uncertainty surrounding their estimates and adopting a conservative approach, we show that the SF is consistent with the difference in economic capital between SMEs and large corporates. As for the impact on credit distribution, our differences-in-differences specification enables us to find a positive and significant impact of the SF on the credit supply.
{"title":"Lower Bank Capital Requirements as a Policy Tool to Support Credit to SMEs: Evidence From a Policy Experiment?","authors":"M. Dietsch, H. Fraisse, Mathias Lé, Sandrine Lecarpentier","doi":"10.2139/ssrn.3771271","DOIUrl":"https://doi.org/10.2139/ssrn.3771271","url":null,"abstract":"Starting in 2014 with the implementation of the European Commission Capital Requirement Directive, banks operating in the Euro area were benefiting from a 25% reduction (the Supporting Factor or \"SF\" hereafter) in their own funds requirements against Small and Medium-sized enterprises (\"SMEs\" hereafter) loans. We investigate empirically whether this reduction has supported SME financing and to which extent it is consistent with SME credit risk. Economic capital computations based on multifactor models do confirm that capital requirements should be lower for SMEs. Taking into account the uncertainty surrounding their estimates and adopting a conservative approach, we show that the SF is consistent with the difference in economic capital between SMEs and large corporates. As for the impact on credit distribution, our differences-in-differences specification enables us to find a positive and significant impact of the SF on the credit supply.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"23 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124993879","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The Covid-19 crisis has shown how high-frequency data can help tracking economic turning points in real-time. Our paper investigates whether high-frequency data can also improve the nowcasting performances for world GDP growth on quarterly or annual basis. To this end, we select a large dataset of 151 monthly and 39 weekly series for 17 advanced and emerging countries representing 68% of world GDP. Our approach builds on a Factor-Augmented MIxed DAta Sampling (FA-MIDAS) which allows us to take advantage of our large database and to combine different frequencies. Models that include weekly data significantly outperforms other models relying on monthly or quarterly indicators, both in- and out-of-sample. Breaking down our sample, we show that models with weekly data have similar nowcasting performances relative to other models during “normal” times but strongly outperform them during “crisis” episodes (2008-2009 and 2020). We finally construct a nowcasting model of annual world GDP growth incorporating weekly data which give timely (one every week) and accurate forecasts (close to IMF and OECD projections, but with a 1 to 3 months lead). Policy-wise, this model can provide an alternative “benchmark” projection for world GDP growth during crisis episodes when sudden swings in the economy make the usual “benchmark” projections (from the IMF or the OECD) rapidly outdated
{"title":"Nowcasting World GDP Growth with High-Frequency Data","authors":"C. Jardet, Baptiste Meunier","doi":"10.2139/ssrn.3749139","DOIUrl":"https://doi.org/10.2139/ssrn.3749139","url":null,"abstract":"The Covid-19 crisis has shown how high-frequency data can help tracking economic turning points in real-time. Our paper investigates whether high-frequency data can also improve the nowcasting performances for world GDP growth on quarterly or annual basis. To this end, we select a large dataset of 151 monthly and 39 weekly series for 17 advanced and emerging countries representing 68% of world GDP. Our approach builds on a Factor-Augmented MIxed DAta Sampling (FA-MIDAS) which allows us to take advantage of our large database and to combine different frequencies. Models that include weekly data significantly outperforms other models relying on monthly or quarterly indicators, both in- and out-of-sample. Breaking down our sample, we show that models with weekly data have similar nowcasting performances relative to other models during “normal” times but strongly outperform them during “crisis” episodes (2008-2009 and 2020). We finally construct a nowcasting model of annual world GDP growth incorporating weekly data which give timely (one every week) and accurate forecasts (close to IMF and OECD projections, but with a 1 to 3 months lead). Policy-wise, this model can provide an alternative “benchmark” projection for world GDP growth during crisis episodes when sudden swings in the economy make the usual “benchmark” projections (from the IMF or the OECD) rapidly outdated","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"28 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123594683","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We develop a model of house prices and household indebtedness and include it in the Banque de France's semi-structural macroeconomic model in order to analyse the implications of mortgage debt dynamics on economic fluctuations and financial stability in France. Our results show that accounting for household financial vulnerability in the distribution of loans is key to prevent large credit and house price fluctuations from reinforcing each other in the long term. Moreover, our model shows that measures constraining the indebtedness of households (regarding the maturity of loans or borrower-based caps) helps reducing short- to medium-term financial instability dynamics.
{"title":"House Prices, Mortgage Debt Dynamics and Economic Fluctuations in France: A Semi-Structural Approach","authors":"S. Dées, Guillaume Bove, C. Thubin","doi":"10.2139/ssrn.3749114","DOIUrl":"https://doi.org/10.2139/ssrn.3749114","url":null,"abstract":"We develop a model of house prices and household indebtedness and include it in the Banque de France's semi-structural macroeconomic model in order to analyse the implications of mortgage debt dynamics on economic fluctuations and financial stability in France. Our results show that accounting for household financial vulnerability in the distribution of loans is key to prevent large credit and house price fluctuations from reinforcing each other in the long term. Moreover, our model shows that measures constraining the indebtedness of households (regarding the maturity of loans or borrower-based caps) helps reducing short- to medium-term financial instability dynamics.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"138 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116353723","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Banque de France RPS Submitter, Matthieu Lemoine, J. Lindé
Recent influential work argue that a gradual increase in sales tax stimulates economic activityin a liquidity trap by boosting inflation expectations. Higher public infrastructure investmentshould also be more expansive in a liquidity trap than in normal times by raising the potentialinterest rate and increasing aggregate demand. We analyze the relative merits of these policiesin New Keynesian models with and without endogenous private capital formation andheterogeneity when monetary policy does not respond by raising policy rates. Our key findingis that the effectiveness of sales tax hikes differs notably across various model specifications,whereas the benefits of higher public infrastructure investment are more robust in alternativemodel environments. We therefore conclude that fiscal policy should consider publicinvestment opportunities and not merely rely on tax policies to stimulate growth during theCOVID-19 crisis.3
{"title":"Fiscal Stimulus in Liquidity Traps: Conventional or Unconventional Policies?","authors":"Banque de France RPS Submitter, Matthieu Lemoine, J. Lindé","doi":"10.2139/ssrn.3840157","DOIUrl":"https://doi.org/10.2139/ssrn.3840157","url":null,"abstract":"Recent influential work argue that a gradual increase in sales tax stimulates economic activityin a liquidity trap by boosting inflation expectations. Higher public infrastructure investmentshould also be more expansive in a liquidity trap than in normal times by raising the potentialinterest rate and increasing aggregate demand. We analyze the relative merits of these policiesin New Keynesian models with and without endogenous private capital formation andheterogeneity when monetary policy does not respond by raising policy rates. Our key findingis that the effectiveness of sales tax hikes differs notably across various model specifications,whereas the benefits of higher public infrastructure investment are more robust in alternativemodel environments. We therefore conclude that fiscal policy should consider publicinvestment opportunities and not merely rely on tax policies to stimulate growth during theCOVID-19 crisis.3","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"25 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124023813","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We propose a novel approach to quantify spillovers on financial markets based on a structural version of the Diebold-Yilmaz framework. Key to our approach is a SVARGARCH model that is statistically identified by heteroskedasticity, economically identified by maximum shock contribution and that allows for time-varying forecast error variance decompositions. We analyze credit risk spillovers between EZ sovereign and bank CDS. Methodologically, we find the model to better match economic narratives compared with common spillover approaches and to be more reactive than models relying on rolling window estimations. We find, on average, spillovers to explain 37% of the variation in our sample, amid a strong variation of the latter over time.
{"title":"Structural Estimation of Time-Varying Spillovers: an Application to International Credit Risk Transmission","authors":"B. Lukas, Arthur Stalla-Bourdillon","doi":"10.2139/ssrn.3827913","DOIUrl":"https://doi.org/10.2139/ssrn.3827913","url":null,"abstract":"We propose a novel approach to quantify spillovers on financial markets based on a structural version of the Diebold-Yilmaz framework. Key to our approach is a SVARGARCH model that is statistically identified by heteroskedasticity, economically identified by maximum shock contribution and that allows for time-varying forecast error variance decompositions. We analyze credit risk spillovers between EZ sovereign and bank CDS. Methodologically, we find the model to better match economic narratives compared with common spillover approaches and to be more reactive than models relying on rolling window estimations. We find, on average, spillovers to explain 37% of the variation in our sample, amid a strong variation of the latter over time.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"16 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116959761","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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