Publications: Working papers

Publications: Working papers 2021

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2021-1 "Walking the tightrope: avoiding a lockdown while containing the virus"

Balázs Egert, Yvan Guillemette, Fabrice Murtin, David Turner

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Abstract
Empirical work described in this paper explains the daily evolution of the reproduction rate, R, and mobility for a large sample of countries, in terms of containment and public health policies. This is with a view to providing insight into the appropriate policy stance as countries prepare for a potentially protracted period characterised by new infection waves. While a comprehensive package of containment measures may be necessary when the virus is widespread and can have a large effect on reducing R, they also have effect on mobility and, by extension, economic activity. A wide-ranging package of public health policies – with an emphasis on comprehensive testing, tracing and isolation, but also including mask-wearing and policies directed at vulnerable groups, especially those in care homes – offer the best approach to avoiding a full lockdown while containing the spread of the virus. Such policies may, however, need to be complemented by selective containment measures (such as restricting large public events and international travel or localised lockdowns) both to contain local outbreaks and because implementing some of the recommended public health policies may be difficult to achieve or have unacceptable social costs.
Classification-JEL
C50, H10, H12, I18
Mot(s) clé(s)
Covid-19, lockdown, non-pharmaceutical interventions, mobility
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2021-2 "What do bankrupcty prediction models tell us about banking regulation? Evidence from statistical and learning approaches"

Pierre Durand, Gaëtan Le Quang

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Abstract
Prudential regulation is supposed to strengthen financial stability and banks' resilience to new economic shocks. We tackle this issue by evaluating the impact of leverage, capital, and liquidity ratios on banks default probability. To this aim, we use logistic regression, random forest classification, and artificial neural networks applied on the United-States and European samples over the 2000-2018 period. Our results are based on 4707 banks in the US and 3529 banks in Europe, among which 454 and 205 defaults respectively. We show that, in the US sample, capital and equity ratios have strong negative impact on default probability. Liquidity ratio has a positive effect which can be justified by the low returns associated with liquid assets. Overall, our investigation suggests that fewer prudential rules and higher leverage ratio should reinforce the banking system's resilience. Because of the lack of official failed banks list in Europe, our findings on this sample are more delicate to interpret.
Classification-JEL
C44, G21, G28
Mot(s) clé(s)
Banking regulation ; Capital requirements ; Basel III ; Logistic ; Statistical learning classification ; Bankruptcy prediction models.
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2021-3 "The policy drivers of self-employment: New evidence from Europe"

Mark Baker, Balázs Egert, Gábor Fülöp, Annabelle Mourougane

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Abstract
Using cross-country time series panel regressions for the last two decades, this paper seeks to identify the main policy and institutional factors that explain the share of self-employment across European countries. It looks at the aggregate share of self-employed as well as its breakdown by age, skill and gender. The generosity of unemployment benefits, and to a lesser extent, spending on active labour market policies appear to be robust determinants of the long-term share of self-employed in European countries. No significant relation could be identified between the stringency of employment protection and aggregate self-employment. However, there are significant, and oppositely signed, impacts on high- and low-skilled self-employed separately. Both the tax wedge and the minimum wage appear to be related positively to the share of self-employed in the long term, but the relation holds for some categories of workers only.
Classification-JEL
J01, J21, J41, J48
Mot(s) clé(s)
self-employment, labour market, labour market regulations, labour market institutions, Europe
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2021-4 "Public vs. Private Investments In Network Industries"

Marc Bourreau, Jean-Marc Zogheib

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Abstract
We study the competition between a private firm and public firms on prices and
investment in new infrastructures. While the private firm maximizes its profits,
public firms maximize the sum of their profits and consumer surplus, subject to a
budget constraint. We consider two scenarios of public intervention, with a national
public firm and with local public firms. In a monopoly benchmark, we find that the
national public firm has the highest coverage and charges a uniform price allowing
cross-subsidies between high-cost and low-cost areas. Moreover, the private firm
covers as much as local public firms. In a mixed duopoly, a stronger competitive
pressure drives firms' prices up while it drives down (up) the national public (private)
firm's coverage.
Classification-JEL
D43; H44; L20; L33.
Mot(s) clé(s)
public firms, investment, network industries, mixed duopoly.
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2021-5 "Les effets de l’interaction entre les marchés financiers et la réglementation bancaire sur la structure des flux bancaires internationaux vers les pays émergents"

Samira Hellou

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Abstract
The development of financial markets and banking activity coupled with the strengthening of banking regulations has largely affected the new structure of external financing of emerging countries. Indeed, the financial markets influence the behavior of international banks in a context of regulatory strengthening which implies a contraction of the bank flows volume and a decrease in the maturity of these flows. The empirical results, for 37 emerging countries, confirm that financial markets have influenced differently the volume and the term structure of bank flows from developed to emerging countries according to the regulatory context.
Classification-JEL
E22, O16, G11
Mot(s) clé(s)
Financial markets, Banking flows, Emerging countries
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2021-6 "Do IMF Reports Affect Market Expectations ? A Sentiment Analysis Approach"

Hamza Bennani, Cécile Couharde, Yoan Wallois

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Abstract
We introduce an original dataset based on the qualitative content of the Regional Economic Outlook (REO) reports published by the International Monetary Fund (IMF). Exploiting this rich database, we gauge several measures of IMF sentiment based on the REO reports towards 16 countries in three regions, Asia and Pacific, Europe and Western Hemisphere, from 2007 to 2018 and examine their impact on financial markets. We find that the qualitative content of the REO reports has significant repercussions on stock market returns in Europe and bond yields in Asia and Pacific over short time horizons, these impacts disappearing over time. We also demonstrate that the impact of IMF sentiment is robust to the use of an
alternative sentiment measure that focuses exclusively on negative words.
Classification-JEL
F53, G15, Z13
Mot(s) clé(s)
Financial markets, High frequency, IMF, Sentiment index, Text analysis
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2021-7 "Corruption and distortion of public expenditures: Evidence from Africa"

Luc-Désiré Omgba, Harouna Sedgo

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Abstract
This study investigates the effect of corruption on the trade-off between capital and current expenditures in a panel of 48 African countries over the period 2000-2016.
Based on statistical yearbooks, we compile disaggregated data on public finances for African countries and find that a high prevalence of corruption distorts the composition of public expenditures at the expense of the share of capital expenditure. Specifically, an increase in corruption by one standard deviation is associated with a decrease in the proportion of capital expenditure from 29\% to 16\%. The results are robust to various specifications and estimation methods, including the fixed effects and instrumental variables approach. The supportive argument demonstrates that it seems more beneficial for corrupted bureaucrats to manipulate public spending in favor of current rather than capital expenditures. The latter relies on formal and traceable procedures, whereas current expenditure is known to be more open to the use of discretionary allocation.
Classification-JEL
D73, E62, H5, O55
Mot(s) clé(s)
Corruption; capital expenditure; current expenditure; public expenditure; Africa
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2021-8 "Monetary Policy and the Racial Unemployment Rates in the US"

Hamza Bennani

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Abstract
This paper analyses the effects of monetary policy on labor market responses of different racial groups in the US from 1970-2013. Employing a narrative approach to identify monetary policy shocks and local projections, we find that monetary policy has a significant impact on White's unemployment rate. Empirical evidence indicates that an accommodative monetary shock affects positively and significantly White workers, while the effect on African-American workers is more uncertain and not significant for the Hispanic workers. These results are robust when considering unconventional monetary policy measures in the specification and when exploring the impact of monetary policy on different genders and age groups. Finally, we highlight that these results are mainly driven by a \enquote{recession effect}, whereby as a result of occupational, segregation minorities do not benefit from the Federal Reserve's accommodative monetary policy during recessions. Our findings suggest that monetary policy is ineffective in reducing the unemployment gap among minorities in the US, and that the Fed should specifically target the African-American unemployment rate in its reaction function. Finally, structural policies that aim to improve the skills of minorities and the fight against racial discrimination in the labor market, in particular during recessions, are also likely to mitigate the racial unemployment gap.
Classification-JEL
E52, E58
Mot(s) clé(s)
minorities; monetary policy; employment.
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2021-9 "Green consumption: The impact of trust and pessimism"

Maria José Montoya Villalobos

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Abstract
This paper proposes a green consumption model under uncertainty, where we consider green goods as impure public goods and analyze the comparative statics of green consumption. We consider that the environmental efficacity of green goods is uncertain, and we model uncertainty with risk perceptions, specifically with trust (defined as a belief about the veracity of the available information) and pessimism/optimism (which represents the consumer's probability estimation of the realization of the worst possible outcome when consuming green goods). We study their respective impact on green consumption and consider individuals with heterogeneous beliefs. Pessimism has a negative impact on green demand; meanwhile, an increase in trust does not always imply an increase in green demand. We determine the impact of uncertainty on the equilibrium and the socially optimal level of private voluntary provision and show that green consumption decreases with pessimism at the equilibrium. Meanwhile, at the optimum, an increase in pessimism will
decrease the individual's contributions for both the pessimist and optimist consumers. Moreover, we also fi nd that the sub-optimality of the Nash equilibrium, in the presence of an impure public good, is not straightforward under uncertainty.
Classification-JEL
D83, D9, H41, Q5.
Mot(s) clé(s)
Green consumption, trust, pessimism, uncertainty, impure public goods.
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