Publications: Working papers

Publications: Working papers 2019

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2019-1 "Fostering, Child Welfare, and Ethnic Cultural Values"

Eliane El Badaoui, Lucia Mangiavacchi

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Abstract
This article examines the interdependence of the fostering status of children, their school attendance and their labour supply in host families in Niger. We appreciate the ethnic cultural heritage of fostering, a phenomenon assumed to be rooted in the long run and transmitted along generations. The focus is on the effects of fostering on children's outcomes. We specify a simultaneous equations model with three outcomes for children (school attendance, hours of market work and hours of domestic work) and a treatment variable (fostering). The results show that foster children are more likely to attend school and to have longer hours of domestic work than biological children. Importantly, we find evidence of a schooling fostering for boys and a domestic fostering for girls. All in all, ethnic inherited values and behaviours are found to have an important role in perpetuating fostering institution and on children's welfare.
Classification-JEL
J13; J22; O12; C34
Mot(s) clé(s)
Child fostering; Culture; Child labour; Domestic work; Schooling; Niger
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2019-2 "Evaluating the Macroeconomic Effects of the ECB's Unconventional Monetary Policies"

Sarah Mouabbi, Jean-Guillaume Sahuc

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Abstract
We quantify the macroeconomic effects of the European Central Bank’s unconventional monetary policies using a DSGE model which includes a set of shadow interest rates. Extracted from the yield curve, these shadow rates provide unconstrained measures of the overall stance of monetary policy. Counterfactual analyses show that, without unconventional measures, the euro area would have suffered (i) a substantial loss of output since the Great Recession and (ii) a period of deflation from mid-2015 to early 2017. Specifically, year-on-year inflation and GDP growth would have been on average about 0.61% and 1.09% below their actual levels over the period 2014Q1-2017Q2, respectively.
Classification-JEL
E32, E44, E52.
Mot(s) clé(s)
Unconventional monetary policy, shadow policy rate, DSGE model, euro area.
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2019-3 "Mitigation strategies under the threat of solar radiation management"

Fabien Prieur, Martin Quaas, Ingmar Schumacher

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Abstract
The option to tackle climate change by means of Solar Radiation Management (SRM) is mostly thought to reduce efforts of mitigating greenhouse gas emissions. Here we hypothesize that (i) a unilateral threat to employ SRM can induce players to commit to strategies with increased mitigation effort compared to what would be observed at the Nash equilibrium in emission strategies only and (ii) there exists a way to share the burden imposed by commitment to avoid SRM that Pareto dominates an alternative that would involve too high current emission levels then followed by future SRM deployment. To study these hypotheses we develop a two-region, two-stage, two-period game where regions choose mitigation and SRM. While SRM targets regional climate preferences, in line with current scientific evidence its deployment leads to uncertain damages on the other region. We first develop the general theory and then study a more specific linear-quadratic application. Finally we calibrate the model to real-world data and find that hypothesis (ii) holds for plausible values.
Classification-JEL
C72, Q54
Mot(s) clé(s)
climate change, solar radiation management, heterogeneous damages, strategic interaction, commitment
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2019-4 "On the impact of capital and liquidity ratios on financial stability"

Pierre Durand

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Abstract
In response to the 2007-2008 global financial crisis, the G20 mandated the Basel Committee to put in place prudential regulations capable of ensuring financial stability: the Basel III agreements. This paper tackles this issue by investigating the impact of capital and liquidity ratios on financial stability for a sample of 1600 banks from 23 countries over the 2005-2016 period. We pay particular attention to the nonlinear character of this potential effect through the estimation of a polynomial model with interaction terms and a panel smooth transition regression. Distinguishing between different types of banks depending on their level of systemicity, we find evidence of a nonlinear effect of prudential ratios on financial stability: a low level of capital improves financial stability, but its effect tends to diminish for higher values. Finally, we show that bank profitability is a significant determinant of financial stability.
Classification-JEL
C33, G21, G38
Mot(s) clé(s)
Basel III ratios ; financial stability ; interaction effects ; Panel Smooth Transition Regression
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2019-5 "Mind the Conversion Risk: a Theoretical Assessment of Contingent Convertible Bonds"

Gaëtan Le Quang

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Abstract
We develop a theoretical model to assess the merits of principal-write down contingent convertible (CoCo) bonds. The conversion risk is the key feature of CoCo bonds. Because of this conversion risk, CoCo bonds are hard to price and an equilibrium price does not necessarily exist. In our model, for such a price to exist, the bank needs to hold a minimum amount of equity and/or the expected return associated with its asset portfolio needs to be large enough. When an equilibrium price exists, it is a decreasing function in the amount of equity held by the bank. Well-capitalized banks can thus issue CoCo bonds at a lower price than least-capitalized banks. This is the reason why CoCo bonds are to be thought of more as a complement to equity than as a substitute. In addition, because of the conversion risk, self-fulfilling panics may occur in the CoCo bonds' market. We indeed define a game between CoCo bonds' holders and the Central Bank that allows us to exhibit situations where a panic occurs in the CoCo bonds' market. Using the global game technique, we show that the probability of crisis can be expressed as a function of the return associated with the asset portfolio of the bank. The probability of crisis is shown to be sensitive to the precision of the information available to CoCo bonds' holders. Taken together, our results call for cautiousness when assessing the relevance of regulatory requirements in CoCo bonds, especially concerning their systemic impact.
Classification-JEL
G13; G21; G28; G32; G33
Mot(s) clé(s)
convertible contingent bonds; conversion risk; equity; banks; systemic risk
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2019-6 "Heterogeneity within the euro area: New insights into an old story"

Virginie Coudert, Cécile Couharde, Carl Grekou, Valérie Mignon

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Abstract
We assess cross-country heterogeneity within the eurozone and its evolution over time by measuring the distances between the equilibrium exchange rates’ paths of member countries. These equilibrium paths are derived from the minimization of currency misalignments, by matching real exchange rates with their economic fundamentals. Using cluster and factor analyses, we identify two distinct groups of countries in the run-up to the European Monetary Union (EMU), Greece being clearly an outlier at that time. Comparing the results with more recent periods, we find evidence of rising dissimilarities between these two sets of countries, as well as within the groups themselves. Overall, our findings illustrate the building-up of macroeconomic imbalances within the eurozone before the 2008 crisis and the fragmentation between its member countries that followed.
Classification-JEL
F33, F45, E5, C38
Mot(s) clé(s)
Euro area; Equilibrium exchange rates; Cluster analysis; Factor analysis; Macroeconomic imbalances
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2019-7 "Les déterminants locaux de la participation numérique au Grand débat national : une analyse économétrique"

Hamza Bennani, Pauline Gandré, Benjamin Monnery

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Abstract
This paper analyses the local determinants of the electronic participation to the "Grand débat". First, we highlight the spatial heterogeneity of the participants using their zip code. Second, we use an econometric approach to assess the local determinants of the general participation and the participation on each of the four topics of the "Grand débat". The results show that the median standard of living and the education level are the main determinants of the general participation, whereas some specific variables explain the participation of each of the four topics.
Classification-JEL
C21, D72
Mot(s) clé(s)
Grand débat, electronic participation, local determinants
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2019-8 "Equity Risk Premium and Time Horizon: what do the French secular data say ?"

David Le Bris, Georges Prat

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Abstract
We consider a representative investor whose wealth is shared between a replica of the equity market portfolio and the riskless asset, and who maximizes the expected utility of their future wealth. For a given time-horizon, the solution of this program equalizes the required risk premium to the product of price of risk by the expected variance of stock returns. As a tentative to capture exogenous disturbing effects, the term spread of interest rates and US equity risk premia complement this relationship. Two traditional horizons are considered: the one-period-ahead horizon characterizing the ‘short-term’ investor and the infinite-time horizon characterizing the ‘long-term’ investor. For each horizon, expected returns are represented by mixing the three traditional adaptive, extrapolative and regressive process, expected variance is represented by a GARCH process, while the unobservable time-varying price of risk is estimated according to the Kalman filter methodology. Based on annual French data established by Le Bris and Hautcoeur (2010), large disparities in the dynamics of the short- and long term observed premia are evidenced from 1872 to 2018, while, due to risky arbitrage and transaction costs, the observed premia appeared to gradually converge towards their required values. Overall, although the French market had experienced very strong historical shocks, our model provides both measurements and explanations of French short- and long-term risk premia and so shed some additional light on the existence of a time-varying term structure of equity risk premia. Despite differences, results on the French market are rather in accordance with those by Prat (2013) based on US secular data.
Classification-JEL
D81; D84; E44; G11; G12
Mot(s) clé(s)
equity risk premium, time horizon, France
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2019-9 "Les banques coopératives ont-elles été plus performantes pendant les crises récentes ?"

Ouafa Ouyahia

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Abstract
This paper compares the profitability of European cooperative banks with that of non-cooperative banks over the period 2005-2014 using the generalized method of moments (SYS-GMM). We consider traditional measures of bank performance which are: return on assets (ROA), return on equity (ROE), and net interest margin (NIM). Even if these measures are not adapted to cooperative banks, they remain the most used in the literature. Our results show that cooperative banks are no more or less performant than the rest of banks when the entire period is considered. However, the sovereign debt crisis in Europe had a relatively greater effect on the performance of cooperative banks as a whole, unlike the 2008 crisis. Conversely, systemic co-operative banks appear to be relatively more performant during the sovereign debt crisis. However, no distinction is made between systemic cooperative banks and other banks during the 2008 financial crisis.
Classification-JEL
G21 ; P13
Mot(s) clé(s)
Performance, cooperative banks, the 2008 financial crisis, the sovereign debt crisis in Europe
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2019-10 "Firm soundness and knowledge externalities: a comparative regional analysis"

Lara Abdel Fattah, Giuseppe Arcuri, Aziza Garsaa, Nadine Levratto

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Abstract
This paper investigates the role of regional context with regard to human capital and knowledge spillover effects in SMEs’ financial soundness. Our empirical setting is based on the multilevel analysis for panel data, which better allows for the treatment of hierarchical data. It is applied to firms belonging to the industrial sector and operating in four European countries over the 2010–2015 period. We find that a combination of individual- and regional-level characteristics explain firm soundness more accurately than individual features alone. Furthermore, we find that a higher local educational level and knowledge spillover improve the firm soundness.
Classification-JEL
I25, L26, R11, C33
Mot(s) clé(s)
Entreprise et territoire, capital humain, robustesse financière de l'entreprise, modèle multiniveau
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2019-11 "Banks’ Business Model and Credit Supply in Chile: The Role of a State-Owned Bank"

Felipe Córdova, Antonio Lemus, Biron Miguel

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Abstract
During the recent financial crisis, banks suffered losses on a scale not witnessed since the Great Depression, partly due to two structural developments in the banking industry; deregulation combined with financial innovation. The regulatory response concentrated on the Basel III recommendations, affected banks’ business model and funding patterns. Consequently, these changes have had implications on how banks grant loans, how they react to monetary policy shocks, and on how they respond to global shocks. We find evidence of significant interactions between banks’ lending and both monetary and global shocks in Chile. In particular, these interactions have been significantly shaped by the counter-cyclical behavior of the state-owned bank. The good governance of this institution along with a sound legal and economic environment, have propitiated this result.
Classification-JEL
E40, E44, E51, E52, E58, G21
Mot(s) clé(s)
bank lending channel, global factors, Banco Estado
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2019-12 "Lower bank capital requirements as a policy tool to support credit to SMEs: evidence from a policy experiment"

Michel Dietsch, Henri Fraisse, Sandrine Lecarpentier, Mathias Lé

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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.
Classification-JEL
C13, G21, G33
Mot(s) clé(s)
SME finance, Credit supply, Basel III, Credit risk modelling, SME Supporting Factor
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2019-13 "Having a child? Here is the bill - Parenthood, Earnings and Careers in an Internal Labor"

Claudio Lucifora, Dominique Meurs, Elena Vilar

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Abstract
Using a unique 12-years panel of personnel records from a large French company, we nd
that becoming mother (extensive fertility margins) largely a ects labor market outcomes.
Instead, fatherhood does not signi cantly impact on men's wages or careers. An event study
approach with the use of non-parents as control group enables us to show that, prior to
childbirth, future mothers' earnings are in line with that of non-mothers. However, one year
after birth, they start to fall, reaching -9% in total pay and -30% in individual bonuses.
This drop is persistent: 8 years after childbirth there is no evidence of a catching-up trend.
Mothers also have lower chances to climb-up the hierarchy of the rm and be promoted to
managerial positions. A decomposition of the motherhood penalty shows that these \missed
promotions", likely due to an increase in absenteeism during the child's pre-school age, are
the main determinants of mothers' lower outcomes within the rm.
Classification-JEL
J13 J16 J31
Mot(s) clé(s)
Children  Motherhood penalty  Gender inequalities  Event study
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2019-14 "Narrow-band Weighted Nonlinear Least Squares Estimation of Unbalanced Cointegration Systems"

Elena Ivona Dumitrescu, Gilles de Truchis

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Abstract
We discuss cointegration relationships when covariance stationary observables exhibit unbalanced integration orders. Least squares type estimates of the long run coefficient are expected to converge either to 0 or to infinity if one does not account for the true unknown unbalance parameter. We propose a class of narrow-band weighted non-linear least squares estimators of these two parameters and analyze its asymptotic properties. The limit distribution is shown to be Gaussian, albeit singular, and it covers the entire stationary region in the particular case of the generalized non-linear least squares estimator, thereby allowing for straightforward statistical inference. A Monte Carlo study documents the good finite sample properties of our class of estimators. They are further used to provide new perspectives on the risk-return relationship on financial stock markets. In particular, we find that the variance risk premium estimated in an appropriately rebalanced cointegration system is a better return predictor than existing risk premia measures.
Classification-JEL
C22, G10
Mot(s) clé(s)
Unbalanced cointegration, Long memory, Stationarity, Generalized Least Squares, Nonlinear Least Squares
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2019-15 "Local Whittle Analysis of Stationary Unbalanced Fractional Cointegration Systems"

Florent Dubois, Elena Ivona Dumitrescu, Gilles de Truchis

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Abstract
In this paper we propose a local Whittle estimator of stationary bivariate unbalanced fractional cointegration systems. Unbalanced cointegration refers to the situation where the observables have different integration orders, but their filtered versions have equal integration orders and are cointegrated in the usual sense. Based on the frequency domain representation of the unbalanced version of Phillips’ triangular system, we develop a semiparametric approach to jointly estimate the unbalance parameter, the long run coefficient, and the integration orders of the regressand and cointegrating errors. The paper establishes the consistency and asymptotic normality of this estimator. We find a peculiar rate of convergence for the unbalance estimator (possibly faster than root-n) and a singular joint limiting distribution of the unbalance and long-run coefficients. Its good finite-sample properties are emphasized through Monte Carlo experiments. We illustrate the relevance of the developed estimator for financial data in an empirical application to the information flowing between the crude oil spot and CME-NYMEX markets.
Classification-JEL
C22, G10
Mot(s) clé(s)
Unbalanced cointegration, Long memory, Stationarity, Local Whittle likelihood
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2019-16 "Exchange rate pass-through to import prices: Accounting for changes in the Eurozone trade structure"

Antonia Lopez Villavicencio, Valérie Mignon

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Abstract
This paper assesses whether the emergence of new trading partners (i.e., China and Eastern Europe) as suppliers reduces the exchange rate pass-through (ERPT) in Eurozone countries which differ regarding their external exposure. Using bilateral data on import prices at the two-digit sector level, we find that (i) pass-through is complete in many cases, (ii) ERPT from China is higher than from the United States, and (iii) there is no compelling evidence of a generalized link between ERPT and the increasing integration of some emerging markets in European imports. We also show that the launch of the single currency has not provoked a sufficient change in the part of trade exposed to exchange rate fluctuations and, therefore, has not affected the pass-through. Overall, the trend of liberalization in new players' markets has not altered the competitive environment such as to induce exporters of other countries to absorb exchange rate depreciations.
Classification-JEL
E31; F31; F4; C22
Mot(s) clé(s)
Exchange rate pass-through; import prices; China; Eastern Europe; Eurozone
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