Macroeconomics : Publications

La réforme du salaire journalier de référence est entrée en vigueur le 1er octobre 2021 dans le cadre d’une refonte globale de l’Assurance chômage en France. Pour les demandeurs d’emploi ayant alterné périodes travaillées et de non-travaillées avant d’accéder à une indemnisation, cette réforme allonge la durée maximale des allocations chômage tout en en réduisant le montant. Cette étude évalue l’impact de cette réforme sur les trajectoires professionnelles, en tenant compte de l’exposition hétérogène des individus à la réforme. Celle-ci dépend directement du temps passé sans emploi entre le premier et le dernier jour travaillé au cours des deux dernières années.

The importance of the literature on present bias may have overlooked some other forms of temporal inconsistencies anchored in the smoothing properties of consumption. The article first clarifies how a list of axioms enable the obtention of time-dependent recursive utility functions. The properties of the latters are analysed in light of the well-known present bias but also through a temporal smoothing bias that emerges when two successives selves do no share the same aversion to fluctuations. It is shown that this new concept relates to a time-varying Morishima intertemporal elasticity of substitution. The second part of the article brings an axiomatic construction providing a parametric representation that is aimed at a careful account of future and present bias, how they relate to each other or to substitution mechanisms and is finally concerned with the testable implications of the current framework. The theory is finally applied by considering intertemporal choices with Markovian strategies and temporally consistent solutions. For some parameters configurations, there exists a multiplicity of Nash equilibria, and then an indeterminacy in the agent behaviour.

There is a lot of expectation surrounding energy sufficiency as part of the energy transition. It may result from an increase in energy prices, but it could also be a conscious choice. In this case, it would be the consequence of an adjustment in preferences or a reduction in behavioural biases. Changes in preferences can be modelled as an adjustment to the relative weights attributed by individuals to durable goods, energy or even non‑durable goods. Here, we show that the macroeconomic impacts differ largely based on the type of adjustment, which we can use to guide public policy decisions. This then leads to the question of how to bring these preference adjustments in practice. In addition to nudges to reduce behavioural biases, preference changes can stem from a collective organisation and better information, in particular regarding the co‑benefits of energy sufficiency.

We decompose the “China shock” into two components that induce different adjustments for firms exposed to Chinese exports: an output shock affecting firms selling goods that compete with similar imported Chinese goods, and an input supply shock affecting firms using inputs similar to the imported Chinese goods. Combining French accounting, customs, and patent information at the firm level, we show that the output shock is detrimental to firms’ sales, employment, and innovation. Moreover, this negative impact is concentrated in low-productivity firms. On the other hand, the impact of the input supply shock is reversed.

We analyze how demand conditions faced by a firm in its export markets affect its innovation decisions. We exploit exogenous firm-level export demand shocks and find that firms respond by patenting more; furthermore, this response is driven by the subset of initially more productive firms. The patent response arises two to five years after the shock, highlighting the time required to innovate. In contrast, the demand shock raises contemporaneous sales and employment for all firms regardless of their productivity. This skewed innovation response to common demand shocks arises naturally from a model of endogenous innovation and competition with firm heterogeneity.

We look at how the arrival of an invention affects wage returns and the probability of moving out of employment for white- and blue-collar co-workers of the inventor. First results suggest that older workers are hurt by the arrival of an invention. This negative effect disappears when we control for education and, in particular, for the time since obtaining the last formal degree, that is, distance to human capital frontier. If anything, this effect is slightly higher for non-STEM than STEM-educated co-workers. This result suggests that retraining programs could be helpful in making the process of creative destruction and economic growth more inclusive.

Innovation is a key source of sustainable growth, but it can affect inequalities in many ways—increasing some inequalities and decreasing others. The impact of any particular innovation on inequalities will depend importantly on who controls the property rights to exploit the innovation and what they decide to do with it. The introduction of an innovation can affect the power of different actors in a market, the way markets work, and the returns to different attributes of actors in the market. All of these factors and more will influence how innovation affects inequalities. We would like policy to encourage innovation while making sure that yesterday’s innovators do not use their rents to deter innovation by new entrants, thereby eventually undermining productivity growth and social mobility, and increasing inequalities. This requires a combination of regulation, progressive taxation, and enlightened competition policy.

Après avoir tiré les leçons de l’histoire des cycles économiques avant et après Keynes, les aspects méthodologiques relatifs à la mesure et à la modélisation des cycles font l’objet d’une description approfondie. Se centrant ensuite sur la France, l’ouvrage propose une détermination des dates des phases de récession et d’expansion de l’économie française depuis 1970. La méthodologie retenue est originale, mêlant approches économétriques et narrative, et permet d’obtenir une datation précise des points de retournement du cycle économique français.

Après avoir tiré les leçons de l’histoire des cycles économiques avant et après Keynes, les aspects méthodologiques relatifs à la mesure et à la modélisation des cycles font l’objet d’une description approfondie. Se centrant ensuite sur la France, l’ouvrage propose une détermination des dates des phases de récession et d’expansion de l’économie française depuis 1970. La méthodologie retenue est originale, mêlant approches économétriques et narrative, et permet d’obtenir une datation précise des points de retournement du cycle économique français.

Episodes of low natural interest rates, even transitory, pose a challenge to monetary policy, by possibly causing the effective lower bound (ELB) on the policy rate to bind. Those episodes are more likely to occur not only when the natural rate is low on average but also when fluctuations around its average level are large. We study the responsiveness of the natural interest rate to structural aggregate shocks affecting the aggregate supply of and demand for savings. Using a quantitative overlapping-generations model, we trace back this responsiveness to the slopes of aggregate savings supply and demand curves and argue that both curves have likely flattened over the past four decades in the US This implies a greater sensitivity of the natural interest rate to structural shocks affecting the supply of and demand for aggregate savings – making it more likely, all else equal, that it fall into negative territory.

Imagine a cohort of economic experts appraising long-term projects through the quasi-hyperbolic discounting criterion. The parameters (long-run and short-run discount rates) used by each expert may differ, which implies different policy recommendations. Subsequently, a decision maker is faced with the task of selecting an efficient aggregation from these varied opinions. This paper proposes a solution to reconcile these conflicting recommendations, taking into account the decision maker’s adoption of a “prudent” behavior.

We document two stylized facts in expectational data. First, professional forecasters overrevise their macroeconomic expectations. Second, such overrevisions mask evidence of both over- and underreactions to public signals. We show that the first fact is inconsistent with standard models of noisy rational expectations, but consistent with behavioral and strategic models. The second fact, in contrast, presents a puzzle for existing theories. We propose an extension of noisy rational expectations that allows forecasters to be overconfident in their information. We show that this feature when combined with the endogeneity of public signals leads to over- and undereactions consistent with the data.

We use administrative data on individual balance sheets in Denmark to document how an individual’s financial position affects job search behavior. We look at the effect of wealth at the entry into unemployment on the exit rate from unemployment as well as the effect on the subsequent match quality. The detailed data allows us not only to distinguish between liquid and illiquid parts, but also to decompose each of them into assets and liabilities. The decomposition of wealth into these four components is key to understanding how wealth affects job finding rates. In particular, we show that liquid assets reduce the probability of becoming re-employed, but we do not see an effect of liquid liabilities or the illiquid wealth components, while interest payments speed up re-employment. The results on subsequent match quality in form of job duration and wages are mixed.

We analyse how the combination of firm-level financial fragility and country-level financial constraints affect productivity growth in France, Italy and Spain. We first show that, although high leverage weighs on firm-level productivity in all three countries, more leveraged firms seem to suffer more from financial constraints only in Italy. In a second step, we show that this apparent specificity of Italian firms is related to the relatively short maturity of their debt. These results highlight the importance of liquidity constraints during periods of financial stress such as the Global Financial Crisis of 2008 or the European sovereign debt and banking crisis of 2011-13.

We adapt the wage contracting structure in Chari (1983) to a dynamic, balanced-growth setting with recontracting as in Calvo (1983). The resulting wage-rigidity framework dampens income effects in the short run, thus allowing significant responses of hours to aggregate shocks. In reduced form, the model dynamics are similar to that in Jaimovich and Rebelo (2009), with their habit parameter replaced by our probability of wage-contract resetting. That is, if wage contracts are reset frequently, labor supply behaves in accordance with King, Plosser, and Rebelo (1988) preferences, whereas if they are never reset, we obtain the setting in Greenwood, Hercowitz, and Huffman (1988).

This paper proposes a reference quarterly chronology for periods of expansion and recession in France since 1970, carried out by the Dating Committee of the French Economic Association. The methodology is based on two pillars: 1) econometric estimations from various key data to identify candidate periods, and 2) a narrative approach that describes the economic background that prevailed at that time to finalize the dating chronology. Starting from 1970, the Committee has identified four economic recession periods: the two oil shocks 1974-1975 and 1980, the investment cycle of 1992-1993, and the Great Recession 2008-2009. For the Covid recession, the peak is dated in the last quarter of 2019 and the trough in the second quarter of 2020.

We study optimal monetary policy in an analytically tractable heterogeneous agent New Keynesian model with rich cross-sectional heterogeneity. Optimal policy differs from a representative agent benchmark because monetary policy can affect consumption inequality, by stabilizing consumption risk arising from both idiosyncratic shocks and unequal exposures to aggregate shocks. The trade-off between consumption inequality, productive efficiency, and price stability is summarized in a simple linear-quadratic problem yielding interpretable target criteria. Stabilizing consumption inequality requires putting some weight on stabilizing the level of output, and correspondingly reducing the weights on the output gap and price level relative to the representative agent benchmark.

Giannoni and Woodford (2003) found that the equilibrium determined by commitment to a super-inertial rule (where the sum of the parameters of lags of interest rate exceed ones and does not depend on the auto-correlation of shocks) corresponds to the unique bounded solution of Ramsey optimal policy for the new-Keynesian model. By contrast, this note demonstrates that commitment to an inertial rule (where the sum of the parameters of lags of interest rate is below one and only depends on the auto-correlation of shocks) corresponds to the unique bounded solution.

Should we fear or welcome automation? On the one hand, fear may prevail if we believe that human workers will be replaced by machines which perform their tasks, thereby increasing unemployment and reducing the labor share. On the other hand, we may welcome automation since it spurs growth and prosperity, as illustrated by the big technological revolutions – steam engine in the early 1800s, electricity in the 1920s – none of which generated the mass unemployment anticipated by some.

We investigate the effects of consumers’ environmental concerns and market competition on firms’ decisions to innovate in “clean” technologies. Agents care about their consumption and environmental footprint; firms pursue greener products to soften price competition. Acting as complements, these forces determine R&D, pollution, and welfare. We test the theory using panel data on patents by 7,060 automobile sector firms in 25 countries, environmental willingness to pay, and competition. As predicted, exposure to prosocial attitudes fosters clean innovation, all the more so where competition is strong. Plausible increases in both together can spur it as much as a large fuel price increase.

Confronted with political opposition to the implementation of efficient carbon pricing, climate policy relies on alternative policy interventions, at a cost in terms of welfare and public finance. In order to evaluate this cost, this paper studies, in the context of the energy transition, second best climate policies constrained to keeping a constant level of the carbon tax and combining it with subsidies to carbon-free electricity generation. This subsidies can take the form of a feed-in premium paid to electricity produced from carbon-free sources, or of subsidies to investment in green capacity. Within a stylized dynamic model where energy may be produced with fossil or carbon-free sources and climate policy aims at satisfying a carbon budget, we define and characterize the carbon pricing gap. We show that if the constant carbon tax is small and therefore the carbon pricing gap large, the subsidy to carbon-free sources should be so large to foster rapid build up of green capacity that it would imply large investment costs and huge financial burden on the public budget, and a large welfare loss. We calibrate the model to the European energy market to obtain orders of magnitude of the effects.

Using an event study methodology and comprehensive micro data from the French manufacturing sector, we analyze the local labor market effects of investments in modern manufacturing capital, including modern automation technologies. We estimate that commuting zones with higher investments in modern manufacturing capital and automation benefit from higher labor demand, with an increase in both local employment and wages. Our findings are consistent with a task-based model where the productivity effects of modern capital investments and automation outweigh their displacement effect.

With the usual estimation methods of factor models, the estimated factors are notoriously difficult to interpret, unless their interpretation is imposed via restrictions. This paper considers different methods to identify the factor structure and interpret the factors without imposing their interpretation: sparse PCA and factor rotations. We establish a new consistency result for the factors estimated by sparse PCA. Monte Carlo simulations show that our exploratory methods accurately estimate the factor structure, even in small samples. We also apply them on two standard large datasets about international business cycles and the US economy: for each empirical application, they identify the same factor structure, offering a clear economic interpretation of the estimated factors. These exploratory methods can be useful to justify or complement approaches in which the factor structure is imposed a priori.

We use an analytically tractable heterogeneous‐agent (HANK) version of the standard New Keynesian model to show how the size of fiscal multipliers depends on (i) the distribution of factor incomes, and (ii) the source of nominal rigidities. With sticky prices but flexible wages, the standard representative‐agent (RANK) model predicts large multipliers because profits fall after a fiscal stimulus and the resulting negative income effect makes the representative worker work harder. Our HANK model, where workers do not own stock, and thus do not receive profit income, predicts smaller fiscal multipliers. In fact, they are smaller with sticky prices than with flexible prices. When wages are the source of nominal rigidity, in contrast, fiscal multipliers are close to one, independently of income heterogeneity and price stickiness.

International trade contributes directly to global greenhouse gas emissions, as the carbon content of high-emission products is priced differently in different countries. This phenomenon is termed carbon leakage. Thus, not putting a price on carbon is theoretically equivalent to an export subsidy, although that would be difficult to challenge in the context of multilateral trade law. Leakage can be alleviated by pricing the carbon embedded in imported products through a border carbon adjustment (BCA), be it a tax, a carbon tariff, or a regulation requiring the purchase of emissions allowances. The design of a BCA is a compromise between environmental effectiveness in preventing leakage, economic effectiveness in preserving competitiveness and ensuring acceptability, technical feasibility of the implementation, and World Trade Organization compatibility. An import-limited BCA is more effective than free emissions allowances in reducing leakage, but it does not preserve the export competitiveness of the country imposing it.

Growth has fallen in the U.S. amid a rise in firm concentration. Market share has shifted to low labour share firms, while within-firm labour shares have actually risen. We propose a theory linking these trends in which the driving force is falling overhead costs of spanning multiple products or a rising efficiency advantage of large firms. In response, the most efficient firms (with higher markups) spread into new product lines, thereby increasing concentration and generating a temporary burst of growth. Eventually, due to greater competition from efficient firms, within-firm markups and incentives to innovate fall. Thus our simple model can generate qualitative patterns in line with the observed trends.

Confronted with political opposition to the implementation of efficient direct carbon pricing, climate policy relies on alternative policy interventions, such as subsidies to renewables. This paper uses a dynamic macroeconomic model under a carbon budget to study climate policies constrained to keeping a constant level of the carbon tax. We find that it is possible to implement the optimal trajectory by combing an increasing tax on electricity consumption with a feedin-premium paid to electricity produced from renewable sources. Otherwise, when the climate policy relies on the second instrument only, the subsidy to renewables should be so large to foster rapid build up of specialized capital, that it would imply large investment costs and financial burden on the public budget, unless the carbon tax level could be initially set at a high level. Unfortunately, the two solutions with no or low welfare losses raise concerns on their political acceptability too.

Confronted with political opposition to the implementation of efficient direct carbon pricing, climate policy relies on alternative policy interventions, such as subsidies to renewables. This paper uses a dynamic macroeconomic model under a carbon budget to study climate policies constrained to keeping a constant level of the carbon tax. We find that it is possible to implement the optimal trajectory by combing an increasing tax on electricity consumption with a feedin-premium paid to electricity produced from renewable sources. Otherwise, when the climate policy relies on the second instrument only, the subsidy to renewables should be so large to foster rapid build up of specialized capital, that it would imply large investment costs and financial burden on the public budget, unless the carbon tax level could be initially set at a high level. Unfortunately, the two solutions with no or low welfare losses raise concerns on their political acceptability too.

The last two years have been marked by an extremely dense literature inviting us to reinvent or rethink capitalism and, more broadly, our social models. What do you think the current crisis says about our economy and our social model? Is capitalism under threat today? Faced with the ‘rise in inequality’, the ‘concentration of rents’, the ‘casualisation of work’ and the ‘deterioration of health and the environment’, you call in your latest book for a better regulation of capitalism in order to direct creative destruction towards the objective of fairer and greener growth. What would be the essential features of this? You also see civil society as playing an important role in the implementation of an ‘incomplete contract’. What seems to undermine the cohesion of civil society today is inequality. Traditionally, it is considered that fiscal policy is the tool of choice for the redistribution of wealth, so that all stakeholders benefit from the economic system. Would you say that tax policy is still the main instrument for reducing inequality today? The calls for the development of a new industrial policy is becoming increasingly strong in Europe. Should European competition policy be reviewed to meet these new ambitions? Beyond the case of industrial policy, do you think that competition law needs to be more widely reformed to take into account the new characteristics of our economies?

Renewable energy generation and storage requires specialized capital goods, embedding critical raw materials (CRM). The scarcity of CRM therefore affects the transition from a fossil based energy system to one based on renewables, necessary to cope with climate change. We consider the issue in a theoretical model, where we allow for a very costly potential substitute, reflecting a backstop technology, and for partial and costly recycling of materials in capital goods. We characterize the main features of the efficient energy transition, and their dependence on the relative abundance of CRM and on the recycling technology. Recycling reduces the cost of the transition. It also calls for having a large stock of recyclable CRM embedded in specialized capital at the time of adoption of the backstop technology. Moreover, we consider constraints on policy tools and myopic regulation, and show how abstracting from the scarcity of CRM, or tightly linking subsidies for renewables to the carbon tax revenue, is misleading in designing climate policy.

We propose one of the first dynamic models of the optimal transition from fossil fuels to renewables in electricity generation that takes into account the variability and intermittency of renewable energy sources as well as storage. We take as an example solar energy, which is variable (no sun at night) and intermittent (few or no sun at day when there are clouds). We show that when the clouds phenomenon is not too severe, intermittency can be safely ignored and the planner just needs to take into account the deterministic variability of the renewable source. In this case, the optimal transition consists in using fossil fuels at day and night and complement them by solar electricity at day while investing to build up solar capacity; then abandoning fossils at day and keeping them for night electricity generation only; then, when solar capacity is large enough, starting to store electricity; and finally abandoning totally fossils when the carbon budget is exhausted. However, if the cloud problem is severe, intermittency matters a lot and precaution requires to start storage earlier, before fossils have been abandoned at day. We show that renewable electricity generation and storage are complement: absent storage devices, the long run solar capacity is smaller, and so is electricity consumption. We finally provide a quantitative illustration for the case of the Spanish energy transition. We show that in Spain intermittency can be safely ignored. We compute the carbon value corresponding to a 2 C carbon budget, the dates at which storage starts, and the path of investment in solar capacity.

We revisit the standard theoretical model of tax competition to consider imperfect mobility of both capital and labor. We show that the mobility of one factor affects the taxation of both factors and that the ”race-to-the-bottom” narrative (with burden shifting) applies essentially to capital-exporting countries. We validate our predictions using a panel of 29 OECD countries over the period of 1997–2017. The quantitative contribution of rising capital mobility to the decline of corporate income tax rates over our sample period is nonetheless less than that of population ageing.

With the usual estimation methods of factor models, the estimated factors are notoriously difficult to interpret, unless their interpretation is imposed via restrictions. This paper considers different approaches for identifying the factor structure and interpreting the factors without imposing their interpretation: sparse PCA and factor rotations. We establish a new consistency result for the factors estimated by sparse PCA. Monte Carlo simulations show that our exploratory methods accurately estimate the factor structure, even in small samples. We also apply them to two standard large datasets about international business cycles and the US economy: for each empirical application, they identify the same factor structure, offering a clear economic interpretation of the estimated factors. These exploratory methods can justify or complement approaches which impose the factor structure a priori, and can also be useful for applications in which factor interpretation is usually overlooked.

We use comprehensive data from Denmark that merge online job advertisements with a matched employer-employee dataset and a firm-level dataset with information on revenues and value added to study the relationship between vacancy-posting and various firm outcomes. Vacancy-posting is associated with a 4.4 percentage point increase in a firm’s hiring rate and 85% of the additional hiring occurs within two months. The response of hiring from employment is twice as large as the response of hiring from non-employment. Firms that are smaller, low-wage and fast-growing are associated with larger hiring responses and that response materializes faster at larger firms, low-wage firms and fast-growing firms. We also find that separations are associated with subsequent vacancy-posting and this effect is stronger for separations to employment, consistent with replacement hiring and the presence of vacancy chains. Growth in revenue and value added strongly predict vacancy-posting, with negative shocks having a stronger effect than positive shocks and larger shocks having less-than-proportional responses.

Confronted with political opposition to the implementation of efficient direct carbon pricing, climate policy relies on alternative policy interventions, such as subsidies to renewables. This paper uses a dynamic macroeconomic model under a carbon budget to study climate policies constrained to keeping a constant level of the carbon tax. We find that it is possible to implement the optimal trajectory by combing an increasing tax on electricity consumption with a feedin-premium paid to electricity produced from renewable sources. Otherwise, when the climate policy relies on the second instrument only, the subsidy to renewables should be so large to foster rapid build up of specialized capital, that it would imply large investment costs and financial burden on the public budget, unless the carbon tax level could be initially set at a high level. Unfortunately, the two solutions with no or low welfare losses raise concerns on their political acceptability too.

In the COVID-19 pandemic many countries required COVID certificates, proving vaccination, recovery, or a recent negative test, to access public and private venues. We estimate their effect on vaccine uptake for France, Germany, and Italy using counterfactuals constructed via innovation diffusion theory. The announcement of COVID certificates during summer 2021 were associatedalthough causality cannot be directly inferredwith increased vaccine uptake in France of 13.0 (95% CI 9.7-14.9) percentage points (p.p.) of the total population until the end of the year, in Germany 6.2 (2.6-6.9) p.p., and in Italy 9.7 (5.4-12.3) p.p. Based on these estimates, an additional 3979 (3453-4298) deaths in France, 1133 (−312-1358) in Germany, and 1331 (502-1794) in Italy were averted; and gross domestic product (GDP) losses of €6.0 (5.9-6.1) billion in France, €1.4 (1.3-1.5) billion in Germany, and €2.1 (2.0-2.2) billion in Italy were prevented. Notably, in France, the application of COVID certificates averted high intensive care unit occupancy levels where prior lockdowns were instated.

Solutions to macroeconomic models with wealth inequality and aggregate shocks often rely on the assumption of limited but common information among households. We show that this assumption is inconsistent with rational information choice for plausible information costs. To do so, we embed information choice into the workhorse heterogeneous-agent model with aggregate risk (Krusell and Smith, 1998). First, we demonstrate that the benefits of acquiring more precise information about the state of the economy depend crucially on household wealth. Second, we show that such heterogeneous incentives to acquire information combine with the strategic substitutability of savings choices to imply that equilibria in which households acquire the same information do not exist for plausible information costs. Finally, we document that a representative-agent equilibrium may not exist even in the absence of exogenous sources of wealth heterogeneity.

In the discrete-time new-Keynesian model with public debt, Ramsey optimal policy eliminates the indeterminacy of simple-rules multiple equilibria between the fiscal theory of the price level versus new-Keynesian versus an unpleasant equilibrium. If public debt volatility is taken into account into the loss function, the interest rate responds to public debt besides inflation and output gap. Else, the Taylor rule is identical to Ramsey optimal policy when there is zero public debt. The optimal fiscal-rule parameter implies the local stability of public-debt dynamics (“passive” fiscal policy).

Confronted with political opposition to the implementation of efficient direct carbon pricing, climate policy relies on alternative policy interventions, such as subsidies to renewables. This paper uses a dynamic macroeconomic model under a carbon budget to study climate policies constrained to keeping a constant level of the carbon tax. We find that it is possible to implement the optimal trajectory by combing an increasing tax on electricity consumption with a feedin-premium paid to electricity produced from renewable sources. Otherwise, when the climate policy relies on the second instrument only, the subsidy to renewables should be so large to foster rapid build up of specialized capital, that it would imply large investment costs and financial burden on the public budget, unless the carbon tax level could be initially set at a high level. Unfortunately, the two solutions with no or low welfare losses raise concerns on their political acceptability too.

This paper highlights two drawbacks with respect to the current use of rational expectations in new-Keynesian dynamic stochastic general equilibrium models. The first drawback is that a rational expectation model unobservable autoregressive shocks has the same predictions for given observations than an adaptive expectations model with white noise shocks. The second drawback is related to interest rate rules responding to inflation where both inflation and interest rate are non-predetermined variables. In this case, a unique rational expectations solution implies that the parameter in the interest rate rules destabilises inflation with a positive-feedback effects. However, these inflation or deflation spirals do not show off because the autocorrelation of inflation is the one of unobservable cost-push shocks. However this destabilizing stabilization paradox disappears if one assumes that the interest rate is a predetermined variable when inflation is a non- predetermined variable. Then, the rational expectations unique solution implies a policy rule parameter which stabilizes inflation.

In this paper, we give axiomatic foundations for a social planner objective function that takes the form of the maxmin of quasi-hyperbolic criteria. The minimum is taken over a set Q of possible pairs of discount rates δ and present bias parameters p0. When there is no present bias, we recover Chambers and Echenique’s axiomatization of maxmin exponential preferences, and when Q reduces to a singleton, we get Montiel Olea and Strzalecki’s axiomatization of quasi-hyperbolic preferences. To prove our main result, we provide some intertemporal variational representation results of interest for its own sake.

Renewable energy generation and storage requires specialized capital goods, embedding critical raw materials (CRM). The scarcity of CRM therefore affects the transition from a fossil based energy system to one based on renewables, necessary to cope with climate change. We consider the issue in a theoretical model, where we allow for a very costly potential substitute, reflecting a backstop technology, and for partial and costly recycling of materials in capital goods. We characterize the main features of the efficient energy transition, and their dependence on the relative abundance of CRM and on the recycling technology. Recycling reduces the cost of the transition. It also calls for having a large stock of recyclable CRM embedded in specialized capital at the time of adoption of the backstop technology. Moreover, we consider constraints on policy tools and myopic regulation, and show how abstracting from the scarcity of CRM, or tightly linking subsidies for renewables to the carbon tax revenue, is misleading in designing climate policy.

For static panel data models that include endogenous time-invariant variables corre- lated with individual e¤ects, exogenous averages over time of time-varying variables can be internal instruments. To pretest their exogeneity, we .rst estimate a random e¤ects model that includes all averages over time of time-varying variables (Mundlak, 1978; Kr- ishnakumar, 2006). Internal instruments are then selected if their parameter is statistically di¤erent from zero (Mundlak, 1978; Hausman and Taylor, 1981). Finally, we estimate a Hausman-Taylor (1981) model using these internal instruments. We then evaluate the bi- ases of currently used alternative estimators in a Monte-Carlo simulation: repeated between, ordinary least squares, two-stage restricted between, Oaxaca-Geisler estimator, .xed e¤ect vector decomposition, and random e¤ects (restricted generalized least squares).

As the global response to the Covid-19 pandemic undoubtedly complicates economic forecasting for the eurozone, it is all the more important to try and predict the pace for its recovery: placing the bet right on a v-shaped or a swoosh-shaped recovery will have huge implications for businesses and economic policy actors alike, as well as on companies’ resilience building in the long run. Nevertheless, one specific outcome is bound to emerge as the legacy of the present crisis: a surge in sovereign debt, thus a threat to financial stability. In this chapter, we therefore examine the different policy outcomes and their aftermath, especially concerning risks, opportunities and means for dealing with the Covid-19 legacy within the existing monetary institutions and mechanisms of the European Union.

Réussir notre transition énergétique vers un monde à zéro émissions nettes (ZEN) va être difficile et coûteux, mais nous n’avons pas le choix. Si nous voulons que la planète soit vivable pour nos enfants, nous devons basculer la production d’énergie depuis les sources fossiles vers les sources décarbonées et transformer l’économie. L’horloge climatique tourne très vite : une telle transition ne peut pas attendre. Progrès technologique, changement de préférences individuelles et de normes sociales, politiques fiscale et réglementaires, finance verte… – les leviers pour faire baisser les émissions de carbone sont nombreux. Certains sont plus efficaces, d’autres plus faciles à mettre en place, mais aucun, utilisé seul, ne peut être suffisant. Il nous faut les mobiliser tous, au sein d’un ensemble de mesures structuré autour d’un prix du carbone qui reflète la diminution du budget y afférant.

What is the optimal form of firm organization during “bad times”? The greater turbulence following macro shocks may benefit decentralized firms because the value of local information increases (the “localist” view). On the other hand, the need to make tough decisions may favor centralized firms (the “centralist” view). Using two large micro datasets on decentralization in firms in ten OECD countries (WMS) and US establishments (MOPS administrative data), we find that firms that delegated more power from the central headquarters to local plant managers prior to the Great Recession outperformed their centralized counterparts in sectors that were hardest hit by the subsequent crisis (as measured by export growth and product durability). Results based on measures of turbulence based on product churn and stock market volatility provide further support to the localist view. This conclusion is robust to alternative explanations such as managerial fears of bankruptcy and changing coordination costs. Although decentralization will be suboptimal in many environments, it does appear to be beneficial for the average firm during bad times.

A minimal central bank credibility, with a non-zero probability of not renegning his commitment (“quasi-commitment”), is a necessary condition for anchoring inflation expectations and stabilizing inflation dynamics. By contrast, a complete lack of credibility, with the certainty that the policy maker will renege his commitment (“optimal discretion”), leads to the local instability of inflation dynamics. In the textbook example of the new-Keynesian Phillips curve, the response of the policy instrument to inflation gaps for optimal policy under quasi-commitment has an opposite sign than in optimal discretion, which explains this bifurcation.

Innovation can affect inequalities in many ways – increasing some inequalities and decreasing others. An innovation can introduce a new good, improve the quality of existing goods, or lead to new ways of doing things. It can be produced by large firms, by small firms, by individuals working in their garden shed, by the public sector or by charities or non-governmental agencies. The impact of any particular innovation on inequalities will depend importantly on who controls the property rights to exploit the innovation and what they decide to do with it. The introduction of an innovation can affect the power of different actors in a market, the way markets work, and the returns to different attributes of actors in the market. All of these factors and more will influence how innovation affects inequalities.

A general setup is considered where quasi-hyperbolic discounting agents differ in assuming heterogeneous bias for the present as well as heterogeneous discounting parameters, consumptions being, moreover, subject to a standard feasibility constraint. A collective utility function is defined as a linear combination of the inter-temporal utilities of the selves of the different agents, the elementary unit being thus the self of a given period of a given agent. Such a framework generating a tension between Pareto-optimality and time consistency for the optimal allocations, a new approach is introduced in order to tackle this issue. This builds from an a priori time-inconsistent collective utility function where the benevolent planner is to be apprehended in terms of a sequence of successive incarnations, any of these incarnations being endowed with its own objective. The associated optimal policy is the equilibrium of a game between the successive incarnations of the planner when the players follow Markovian strategies. This is compared with a more standard approach where restrictions would be imposed on the collective utility function that ensure the time consistency of the optimal decisions.

From one of the world’s leading economists and his coauthors, a cutting-edge analysis of what drives economic growth and a blueprint for prosperity under capitalism. Crisis seems to follow crisis. Inequality is rising, growth is stagnant, the environment is suffering, and the COVID-19 pandemic has exposed every crack in the system. We hear more and more calls for radical change, even the overthrow of capitalism. But the answer to our problems is not revolution. The answer is to create a better capitalism by understanding and harnessing the power of creative destruction—innovation that disrupts, but that over the past two hundred years has also lifted societies to previously unimagined prosperity. To explain, Philippe Aghion, Céline Antonin, and Simon Bunel draw on cutting-edge theory and evidence to examine today’s most fundamental economic questions, including the roots of growth and inequality, competition and globalization, the determinants of health and happiness, technological revolutions, secular stagnation, middle-income traps, climate change, and how to recover from economic shocks. They show that we owe our modern standard of living to innovations enabled by free-market capitalism. But we also need state intervention with the appropriate checks and balances to simultaneously foster ongoing economic creativity, manage the social disruption that innovation leaves in its wake, and ensure that yesterday’s superstar innovators don’t pull the ladder up after them to thwart tomorrow’s. A powerful and ambitious reappraisal of the foundations of economic success and a blueprint for change, The Power of Creative Destruction shows that a fair and prosperous future is ultimately ours to make.

We examine an open economy’s strategy to reduce its carbon emissions by replacing its consumption of coal—very carbon intensive—with gas—less so. Unlike the standard theoretical approach to carbon leakage, we show that unilateral CO2 reduction policies generate a higher leakage rate in the presence of more than one carbon energy source and may turn counterproductive, ultimately increasing world emissions. We establish testable conditions as to whether a unilateral tax on domestic CO2 emissions increases the domestic exploitation of gas and whether such a strategy increases global emissions. We also characterize this strategy’s implications for climate policy in the rest of the world. Finally, we present an illustrative application of our results to the United States.

Although a carbon value has often been integrated in the frameworks established to guide public decision-making, benefit-cost analysis (BCA) has played no more than a minor role in the design of climate policies. It is urgently necessary to promote BCA in this area, and there is currently a unique opportunity for doing so. Major countries are designing new packages in order to meet their commitments, as illustrated by the European Green Deal, recent decisions on the part of the Biden Administration, and the creation of a Chinese national carbon market. These constructive processes must be based on BCA. BCA is absolutely necessary in order to achieve net-zero emissions by 2050 at a reasonable cost. Indeed, abatement costs across and within sectors, and across and within countries, are extremely heterogeneous, and many of the policy instruments in use (subsidies, feed-in tariffs, technical standards, etc.) overlap inefficiently. The instrumental debate between carbon pricing and other instruments is sterile if it merely remains at the level of stating principles. BCA can help on this point too, by specifying comparisons between alternatives, identifying complementarities, and selecting the most relevant combinations of instruments. Its scope should therefore range from setting benchmarks for carbon pricing to assessing, e.g., green investments or measures to enhance carbon sinks. When applied to decarbonization policies, BCA requires firstly the selection of a carbon value, in order to monetize the climate benefits of investments and policies. However, the whole assessment framework must be updated, including the time horizon, the discount rate, the cobenefits of climate mitigation actions, and the pricing of climate risks. We show that such an updated framework leads to an upward revision in the assessment of the climate benefits of mitigation actions, and that combining the valuation of damages and cost-effectiveness approaches is necessary in order to meet the needs of policy assessment. Finally, there is a need to extend analysis beyond the efficiency criterion in order to deal with other dimensions of climate policies, particularly their distributive impacts. This requires specific analyses, which should be articulated with BCA and carried out at an early stage for a better implementation of climate policies than we have seen to date.

We revisit the standard theoretical model of tax competition to consider imperfect mobility of both capital and labor. We show that the mobility of one factor affects the taxation of both factors, and that the “race-to-the-bottom” narrative (with burden shifting) applies essentially to capital-exporting countries. We validate our predictions using a panel of 29 OECD countries over the period 1997-2017. The quantitative contribution of rising capital mobility to the decline of corporate income tax rates over our sample period is nonetheless less than that of population ageing.

This paper presents a first model integrating the relation between biodiversity loss and zoonotic pandemic risks in a general equilibrium dynamic economic set-up. The occurrence of pandemics is modeled as Poissonian leaps in economic variables. The planner can intervene in the economic and epidemiological dynamics in two ways: first (prevention), by deciding to conserve a greater quantity of biodiversity to decrease the probability of a pandemic occurring, and second (mitigation), by reducing the death toll through a lockdown policy, with the collateral effect of affecting negatively labor productivity. The policy is evaluated using a social welfare function embodying society’s risk aversion, aversion to fluctuations, degree of impatience and altruism towards future generations. The model is explicitly solved and the optimal policy described. The dependence of the optimal policy on natural, productivity and preference parameters is discussed. In particular the optimal lockdown is more severe in societies valuing more human life, and the optimal biodiversity conservation is larger for more “forward looking” societies, with a small discount rate and a high degree of altruism towards future generations. Moreover, societies accepting a large welfare loss to mitigate the pandemics are also societies doing a lot of prevention. After calibrating the model with COVID-19 pandemic data we compare the mitigation efforts predicted by the model with those of the recent literature and we study the optimal prevention–mitigation policy mix.

Les crises ont profondément transformé la politique économique. La tempête financière de 2008, la Grande Récession qui a suivi et les déboires de la zone euro ont ébranlé les certitudes passées et appellent de nouvelles réponses. Le niveau très faible de l’inflation, la baisse des taux d’intérêt, le ralentissement de la croissance, la hausse des dettes publiques, la montée de l’urgence écologique et l’augmentation des inégalités ont mis en cause l’ordre des priorités. Des chapitres oubliés de la théorie économique ont été relus et des instruments nouveaux ont été mis en place. Pour tenter d’endiguer la crise économique déclenchée par la pandémie de Covid-19, il est indispensable de s’appuyer sur un cadre analytique clair. Comment distinguer les chocs qui affectent l’offre et la demande ? Quelles sont les limites de l’endettement public ? Que peut la politique monétaire lorsque l’inflation est voisine de zéro et comment doit-elle s’articuler avec la politique budgétaire ? Comment stimuler l’emploi ? Comment limiter les inégalités et relancer l’activité en verdissant la croissance ? Si chaque crise est spécifique, les instruments à la disposition des gouvernements et des banques centrales se sont bâtis au fil des décennies et leurs effets sont de mieux en mieux compris. Au croisement de la recherche économique et de la pratique, Politique économique rend compte de ce savoir accumulé et dresse l’inventaire des nouvelles questions. Ce manuel s’est imposé depuis plus de dix ans comme la référence pour comprendre les politiques économiques d’aujourd’hui. Cette cinquième édition a été mise à jour.

For static panel data models that include endogenous time-invariant variables correlated with individual effects, exogenous averages over time of time-varying variables can be internal instruments. To pretest their exogeneity, we first estimate a random effects model that includes all averages over time of time-varying variables (Mundlak, 1978; Krishnakumar, 2006). Internal instruments are then selected if their parameter is statistically different from zero (Mundlak, 1978; Hausman and Taylor, 1981). Finally, we estimate a Hausman-Taylor (1981) model using these internal instruments. We then evaluate the biases of currently used alternative estimators in a Monte-Carlo simulation: repeated between, ordinary least squares, two-stage restricted between, Oaxaca-Geisler estimator, fixed effect vector decomposition, and random effects (restricted generalized least squares).

Survey respondents disagree strongly about the dispersion of future returns and, increasingly, macroeconomic uncertainty. Such disagreement about risk may raise asset prices when collateralized debt products allow investors to realize perceived gains from trade. Investors who expect low volatility in collateral cash-flow appreciate senior debt as riskless. Those who expect high volatility, in contrast, value the upside potential in junior debt or equity claims. We show how such self-selection may have had a sizeable effect on the prices of RMBS and CDOs before the crisis, as investors disagreed about the volatility of aggregate economic conditions and their importance for default rates in collateral pools.

The debate on trade and currency wars has reemerged since the Global Financial Crisis. We study the two forms of noncooperative policies within a single framework. First, we compare the elasticity of trade flows to import tariffs and to the real exchange rate, based on product-level data for 110 countries over the 1989–2013 period. We find that a 1% depreciation of the importer’s currency reduces imports by around 0.5% in current dollar, whereas an increase in import tariffs by 1 percentage point reduces imports by around 1.4%. Hence, the two instruments are not equivalent. Second, we build a stylized short-term macroeconomic model where the government aims at internal and external balance. We find that, in this setting, monetary policy is more stabilizing for the economy than trade policy. One implication is that, in normal times, a country will more likely react to a trade “aggression” through monetary easing rather than through a tariff increase. However, both instruments are (imperfect) substitutes in the short term, when only one of them is available.

We develop a simple theoretical model showing that, by adding to the adjustment costs associated with permanent contracts, local social pressure against dismissals creates an incentive for CEOs to rely on fixed-term contracts, in an attempt to escape social pressure. Using linked employer-employee data, we show that establishments located closer to headquarters have higher shares of fixed-term contracts in hiring than those located further away whenever firms’ headquarters are located in self-centered communities and the CEO not only works but also lives there. We show that these findings can only be explained by local social pressure.

How can decentralized individual decisions inefficiently reduce the ability of biodiversity to mitigate ecological and environmental variability and then its “natural insurance” role? In this article we present a simple theoretical setup to address this question and to evaluate some policy options. We study a model of strategic competition among farmers for the conversion of a natural forest to agricultural land. Unconverted forest land allows to conserve biodiversity, which contributes to reducing the volatility of agricultural production. Agents’ utility is given in terms of a Kreps Porteus stochastic differential utility capable of disentangling risk aversion and aversion to fluctuations. We characterize the land used by each farmer and her welfare at the Nash equilibrium, we evaluate the overexploitation of the land and the agents’ welfare loss compared to the socially optimal solution and we study the drivers of the inefficiencies of the decentralized equilibrium. After characterizing the value of biodiversity in the model, we use it to obtain a decomposition which helps to study the policy implications of the model by identifying in which cases the allocation of property rights is preferable to the introduction of a tax on land conversion. Our results suggest that enforcing property rights is more relevant in case of stagnant economies while taxing land conversion may be more suited for rapidly developing economies.

With the usual estimation methods of factor models, the estimated factors are notoriously difficult to interpret, unless their interpretation is imposed via restrictions. This paper considers different methods to identify the factor structure and interpret the factors without imposing their interpretation: sparse PCA and factor rotations. We establish a new consistency result for the factors estimated by sparse PCA. Monte Carlo simulations show that our exploratory methods accurately estimate the factor structure, even in small samples. We also apply them on two standard large datasets about international business cycles and the US economy: for each empirical application, they identify the same factor structure, offering a clear economic interpretation of the estimated factors. These exploratory methods can be useful to justify or complement approaches in which the factor structure is imposed a priori.

This paper compares different implementations of monetary policy in a new-Keynesian setting. We can show that a shift from Ramsey optimal policy under short-term commitment (based on a negative feedback mechanism) to a Taylor rule (based on a positive feedback mechanism) corresponds to a Hopf bifurcation with opposite policy advice and a change of the dynamic properties. This bifurcation occurs because of the ad hoc assumption that interest rate is a forward-looking variable when policy targets (inflation and output gap) are forward-looking variables in the new-Keynesian theory.

We quantitatively evaluate a model of insurance with limited commitment where the requirement that contracts be immune to deviations by subcoalitions makes group size endogenous, as proposed by Genicot and Ray. We compare the model’s predictions to panel data from rural Indian villages. Apart from predicting a realistic degree of insurance, the model captures the evidence along two new dimensions: First, the largest coalition-proof groups are substantially smaller than typical villages. Second, with strong insurance in small groups, individual consumption responds symmetrically to income rises and falls, while alternative models predict strong counterfactual asymmetry.

This paper is a study of the history of the transplant of mathematical tools using negative feedback for macroeconomic stabilisation policy from 1948 to 1975 and the subsequent break of the use of control for stabilisation policy which occurred from 1975 to 1993. New-classical macroeconomists selected a subset of the tools of control that favoured their support of rules against discretionary stabilisation policy. The Lucas critique and Kydland and Prescott’s time-inconsistency were over-statements that led to the “dark ages” of the prevalence of the stabilisation-policy-ineffectiveness idea. These over-statements were later revised following the success of the Taylor rule.

I study optimal monetary policy in a sticky-price economy wherein households precautionary-save against uninsured, endogenous unemployment risk. In this economy greater unemployment risk raises desired savings, causing aggregate demand to fall and feed back to greater unemployment risk. This deflationary spiral is constrained inefficient and calls for an accommodative monetary policy response: after a contractionary aggregate shock the policy rate should be kept significantly lower and for longer than in the perfect-insurance benchmark. For example, the usual prescription obtained under perfect insurance of a hike in the policy rate in the face of a bad supply (i.e., productivity or cost-push) shock is easily overturned. The optimal policy breaks the deflationary spiral and takes the dynamics of the imperfect-insurance economy close to that of the perfect-insurance benchmark. These results are derived in an economy with zero asset supply (zero liquidity) and are thus independent of any redistributive effect of monetary policy on household wealth.

There is no doubt that the Covid-19 crisis represents a challenge for European unity and another crash test for the euro. Europe has been, and will likely remain, one of the most Covid-infected regions in the world and, while doing nothing was not an option and would itself have disrupted economic activity, the forceful reactions of national governments to the pandemic, through various strategies combining social distancing, testing/quarantining and lockdowns, have triggered an economic crisis at least twice the size of the 2009 crisis. Furthermore, the recovery is likely to be slow due to depressed consumption and investment, and it will require fast reallocations in both the labour market and the capital market.A small positive observation in this crisis has been the degree of engagement of economists in an intense debate with policymakers on the appropriate responses to ‘flatten the economic recession curve’ and to safeguard the most impacted groups from the economic fallout of the health crisis.This eBook is an illustration of the intense effort of the academic community during this time. In a selection of columns, analysis and policy proposals that were published on VoxEU between the end of March and the middle of May 2020 it provides a remarkable example of the response of economists to the unfolding crisis and of the value of VoxEU as the platform for such high quality exchange of views. Within each section, the articles are sorted by their date of appearance, which gives the reader a sense of how the debate progressed over a short period of time.

La destruction créatrice est le processus par lequel de nouvelles innovations viennent constamment rendre les technologies et activités existantes obsolètes. C’est le processus par lequel les emplois nouvellement créés viennent sans cesse remplacer les emplois existants. Ce livre invite le lecteur à repenser l’histoire et les énigmes de la croissance à travers le prisme de la destruction créatrice et à remettre en cause nombre d’idées reçues. Pourquoi les révolutions technologiques et l’automatisation créent plus d’emplois qu’elles n’en détruisent. Pourquoi concurrence et politique industrielle ne sont pas antinomiques. Pourquoi l’impôt n’est pas le seul moyen de rendre la croissance plus juste. Pourquoi la croissance n’est pas correctement mesurée. Pourquoi la stagnation séculaire n’est pas une fatalité. Pourquoi l’industrialisation n’est pas une étape indispensable dans le processus de développement. Pourquoi la taxe carbone n’est pas l’unique levier d’une croissance plus verte. Pourquoi, avec des politiques publiques appropriées, la destruction créatrice ne nuit pas à la santé et au bonheur. Pourquoi l’innovation a besoin du marché, de l’État, mais également d’une intervention active de la société civile. Le Pouvoir de la destruction créatrice est à la fois une exploration des ressorts de la prospérité économique et un guide pour penser l’avenir du capitalisme.

The aim of the present paper is to provide criteria for a central bank of how to chooseamong different monetary-policy rules when caring about a number of policy targetssuch as the output gap and expected inflation. Special attention is given to the questionif policy instruments are predetermined or only forward looking. Using the new-Keynesian Phillips curve with a cost-push-shock policy-transmission mechanism, theforward-looking case implies an extreme lack of robustness and of credibility of stabi-lization policy. The backward-looking case is such that the simple-rule parameters canbe the solution of Ramsey optimal policy under limited commitment. As a conse-quence, we suggest to model explicitly the rational behavior of the policy maker with Ramsey optimal policy, rather than to use simple rules with an ambiguous assumptionleading to policy advice that is neither robust nor credible.

The Great Recession and the subsequent period of subdued GDP growth in most advanced economies have highlighted the need for macroeconomic forecasters to account for sudden and deep recessions, periods of higher macroeconomic volatility, and fluctuations in trend GDP growth. In this paper, we put forward an extension of the standard Markov-Switching Dynamic Factor Model (MS-DFM) by incorporating two new features: switches in volatility and time-variation in trend GDP growth. First, we show that volatility switches largely improve the detection of business cycle turning points in the low-volatility environment prevailing since the mid-1980s. It is an important result for the detection of future recessions since, according to our model, the US economy is now back to a low-volatility environment after an interruption during the Great Recession. Second, our model also captures a continuous decline in the US trend GDP growth that started a few years before the Great Recession and continued thereafter. These two extensions of the standard MS-DFM framework are supported by information criteria, marginal likelihood comparisons and improved real-time GDP forecasting performance.

We present a tractable heterogeneous-agent version of the New Keynesian model that allows us to study the interaction between inequality and monetary policy. Though formulated as a precautionary-saving model à la Huggett–Aiyagari, its reduced form is a two-agent model with a highly concentrated wealth distribution. When prices are sticky and wages flexible, as in the textbook representative-agent model, monetary policy affects the distribution of consumption, but has no effect on output as workers choose not to change their hours worked in response to wage movements. This highlights a transmission mechanism of the textbook model that we find implausible: in response to a monetary stimulus, the representative worker’s labor supply is greatly affected by the profits she receives. First, the lower profits induced by higher wages raise labor supply through a wealth effect and, secondly, the mere presence of profits reduces the negative income effect of a wage rise. When wages are rigid, in contrast, our model exhibits plausible responses of output and hours worked to monetary policy shocks.

We consider a frictionless constant endowment economy based on Leeper (1991). In this economy, it is shown that, under an ad-hoc monetary rule and an ad-hoc fiscal rule, there are two equilibria. One has active monetary policy and passive fiscal policy, while the other has passive monetary policy and active fiscal policy. We consider an extended set-up in which the policy maker minimizes a loss function under quasi-commitment, as in Schaumburg and Tambalotti (2007). Under this formulation there exists a unique Ramsey equilibrium, with an interest rate peg and a passive fiscal policy.

This paper compares different implementations of monetary policy in a new- Keynesian setting. We can show that a shift from Ramsey optimal policy under short term commitment (based on a negative-feed back mechanism) to a Taylor rule (based on a positive-feed back mechanism) corresponds to a Hopfbifurcation with opposite policy advice and a change of the dynamic properties. This bifurcation occurs because of the ad hoc assumption that interest rate is a forward-looking variable when policy targets (inflation and out put gap) a reforward-looking variables in the new-Keynesian theory.

We consider a frictionless constant endowment economy based on Leeper (1991). In this economy, it is shown that, under an ad-hoc monetary rule and an ad-hoc fiscal rule, there are two equilibria. One has active monetary policy and passive fiscal policy, while the other has passive monetary policy and active fiscal policy. We consider an extended setup in which the policy maker minimizes a loss function under quasi-commitment, as in Schaumburg and Tambalotti (2007). Under this formulation there exists a unique Ramsey equilibrium, with an interest rate peg and a passive fiscal policy. We thank John P. Conley, Luis de Araujo and one referree for their very helpful comments.

Beyond its public health dimension, the unfolding coronavirus epidemic also represents a severe economic stress test for Europe that comes from a totally unexpected side. This time, it is primarily a shock to the real economy hitting all European countries more or less equally (time lags will soon become a footnote). The buffers and firewalls put in place after the global financial crisis and the euro crisis have been designed to fight a different sort of crisis, originating in the financial sector or in a particular sovereign. This time is different.

We study the cross-sectional dispersion of prices paid by EMU importers for French products. We document a significant level of dispersion in unit values both within product categories across exporters, and within exporters across buyers. This latter source of price discrepancies, which we call price discrimination, reflects the ability of exporters to sell similar or differentiated varieties of a given product at different prices to different buyers. Price discrimination (i) is substantial within the EU, within the euro area, and within EMU countries; (ii) has not decreased over the last two decades; (iii) is more prevalent among the largest firms and for more differentiated products; (iv) is lower among retailers and wholesalers; (v) is also observed within almost perfectly homogenous product categories, which suggests that a non-negligible share of price discrimination is partly triggered by heterogeneous markups rather than quality or composition effects. We then estimate a rich statistical decomposition of the variance of prices to shed light on exporters’ pricing strategies.

With non-controllable auto-regressive shocks, the welfare of Ramsey optimal policy is the solution of a single Riccati equation of a linear quadratic regulator. The existing theory by Hansen and Sargent (2007) refers to an additional Sylvester equation but miss another equation for computing the block matrix weighting the square of non-controllable variables in the welfare function. There is no need to simulate impulse response functions over a long period, to compute period loss functions and to sum their discounted value over this long period, as currently done so far. Welfare is computed for the case of the new-Keynesian Phillips curve with an auto-regressive cost-push shock.

Chaque auteur exprime dans cet ouvrage son parcours, sa vision de la société et les actions qu’il propose d’entreprendre pour agir face aux dérèglements auxquels le monde doit faire face.Les lauréats du Prix du meilleur jeune économiste livrent dans cet ouvrage leur perception, leur compréhension, leurs analyses et leurs propositions de ce que pourrait ou devrait être l’avenir du monde. Ils répondent aux questions fondamentales que se posent aujourd’hui les économistes et les principaux dirigeants. Les inégalités qui se creusent depuis la fin du siècle dernier sont-elles encore tolérables ? L’État social a-t-il encore un avenir ? La mondialisation est-elle vraiment la cause de tous les maux ? L’Europe reste-t-elle un espace économique pertinent ? La science économique s’ouvre-t-elle enfin aux autres disciplines ? Chaque auteur exprime dans cet ouvrage son parcours, sa vision de la société et les actions qu’il propose d’entreprendre pour agir face aux dérèglements auxquels le monde doit faire face. Créé en 2000 par le Cercle des économistes et le journal Le Monde, le Prix du meilleur jeune économiste est décerné chaque année à un économiste de moins de 40 ans, sélectionné en raison de la reconnaissance de son expertise et de sa participation active au débat public et économique.

With non-controllable auto-regressive shocks, the welfare of Ramsey optimal policy is the solution of a single Riccati equation of a linear quadratic regulator. The existing theory by Hansen and Sargent (2007) refers to an additional Sylvester equation but miss another equation for computing the block matrix weighting the square of non-controllable variables in the welfare function. There is no need to simulate impulse response functions over a long period, to compute period loss functions and to sum their discounted value over this long period, as currently done so far. Welfare is computed for the case of the new-Keynesian Phillips curve with an auto-regressive cost-push shock. JEL classi…cation numbers: C61, C62, C73, E47, E52, E61, E63.

A policy target (for example inflation) may depend on the persistent component of exogenous shocks, such as the cost-push shock of oil, energy or imported prices. The larger the persistence of these exogenous shocks, the larger the welfare losses and the larger the response of policy instrument to this exogenous shock in a feedback rule, in order to decrease the sensitivity of the policy target to this shock.

After an increase of the number of students, French University is facing competition on a local and international level since 2000 (Benhenda Dufour 2015). In the same period, Internet and the digital choose began to change communication , learning, teaching, cooperation between teachers and the skills required to teach (Baron Bruillard 2000). In this context, various injunctions are made to teachers to improve their teaching efficiency using digital technology and be more innovative. Some recent decree (2016) also defined the role of educational engineer to help French Universities to adapt to ICTs. Thus, a research team composed of an educational engineer, a researcher in sociology of Education, a professor of Macro-Economics and a phD candidates in economy who also was a teacher assistant designed an experiment on making videos and active pedagogy (Green 2014, Fiorella Mayer 2014) based on Epstein Beauchamps (2014) hoping that, according to the SoTL framework (Brew 2011), both the students and the teachers would improve their learning/teaching. The experiment took place at bachelor level in Macro-Economy where courses are organized as an ex cathedra amphitheater in large groups of students followed by exercise classes in smaller groups. The expected outcomes of the experiment was to improve the learners’ grades at the exam, long term learning, and to increase the “21rst century’s skils” such as creativity, critical thinking or cooperation. Also, we expected teachers and teachers’ assistants to develop their own abilities. Over the 2018-19 academic year, two groups of students taught by the same assistant were identified. One of them was “treated” whereas the other one was kept as the control group. The tested students were asked to make short videos on defined technical aspects of the program, instead of the exercises normally solved during these classes. After the experiment was over, the grades obtained at the final exam were compared. After controlling for a number of factors explaining the grades at individual level (age, gender, past results), the tested group was found to perform significantly better than the control group. Online surveys and qualitative interviews were also carried out and analyzed according to the grounded theory approach. They suggest that treated students felt they were less prepared to the final test than regular students (cf Deslauriers and al 2019). However they were happy with their experience, especially due to more social interactions within the group. Over the 2019-20 academic year, the experiment was extended to 5 tested groups and 5 control groups – hence a total of 300 students out of 700 in the amphitheater. This extension allowed to assign different teaching assistants (one for each pair of tested-control), with differing skills. The quantitative results are not yet available. The qualitative interviews suggest that teaching assistants found the format relatively demanding but more rewarding and less stressful than the standard format. Their role in class was completely transformed. This feature is also important with respect to the attractiveness of the job for young talented scholars and training of teachers. The experiment was carried out in a class of International monetary economics taught by an experimented Professor who has already developed several interaction tools in amphitheater. International monetary economics is a mandatory discipline, usually considered as demanding and technical by the students. The challenges of the experiment are quite general in terms of activation of leaning skills and deep learning. We are trying to understand how the digital tools and the active pedagogy work to improve the students’ results, to confirm to what extent we can generalize the experiment to other contexts and what did work for the teachers’assistants self developpement.

This paper is a study of the history of the transplant of mathematical tools using negative feedback for macroeconomic stabilization policy from 1948 to 1975 and the subsequent break of the use of control for stabilization policy which occurred from 1975 to 1993. New-classical macroeconomists selected a subset of the tools of control that favored their support of rules against discretionary stabilization policy. The Lucas critique and Kydland and Prescott’s time-inconsistency were overstatements that led to the “dark ages” of the prevalence of the stabilization-policy-ineffectiveness idea. These overstatements were later revised following the success of the Taylor (1993) rule.

Dynamic factor models are parsimonious representations of relationships among time series variables. With the surge in data availability, they have proven to be indispensable in macroeconomic forecasting. This chapter surveys the evolution of these models from their pre-big-data origins to the large-scale models of recent years. We review the associated estimation theory, forecasting approaches, and several extensions of the basic framework.

We analyse the impact of both the Global Financial Crisis of 2008 and the European sovereign and banking crisis of 2011-13 on firm-level productivity in France, Italy and Spain. We show that relying on a single break date in 2008 misses both the Eurozone crisis and countries’ institutional specificities. Although leverage and financial constraints affect firm-level productivity negatively, high-leverage firms suffer more from financial constraints only in Italy, when they are relatively small or when their debt is of short maturity. These results call for approaches taking into consideration country-level characteristics of financial institutions and time varying financing constraints of the firms, instead of pooling data and adopting a common break date. One size does not fit all when it comes to identifying the impact of financial crises on firm level productivity.

This article considers the long-run equilibrium distribution of an economy populated by heterogenous and present biased quasi-hyperbolic discounting agents. In a first configuration with logarithmic utility functions and Cobb-Douglas production technologies, this article establishes the existence and the uniqueness of the equilibrium : only one agent, determined by the highest value of a coefficient building from both the degree of present bias and the rate of discount, will have a positive long-run consumption and a positive long-run wealth. A second configuration with constant elasticities of substitution utilities and linear production technologies is then considered. This article similarly establishes the existence and the uniqueness of the equilibrium. There generically is a unique agent with the highest growth rate for his consumption and his wealth. This agent is determined by both preferences and technology parameters and may change following a technological shock.

In this paper we use cross-state panel data to show a positive and significant correlation between various measures of innovativeness and top income inequality in the United States over the past decades. Two distinct instrumentation strategies suggest that this correlation (partly) reflects a causality from innovativeness to top income inequality, and the effect is significant: for example, when measured by the number of patent per capita, innovativeness accounts on average across US states for around 17% of the total increase in the top 1% income share between 1975 and 2010. Yet, innovation does not appear to increase other measures of inequality which do not focus on top incomes. Next, we show that the positive effects of innovation on the top 1% income share are dampened in states with higher lobbying intensity. Finally, from cross-section regressions performed at the commuting zone (CZ) level, we find that: (i) innovativeness is positively correlated with upward social mobility; (ii) the positive correlation between innovativeness and social mobility, is driven mainly by entrant innovators and less so by incumbent innovators, and it is dampened in states with higher lobbying intensity. Overall, our findings vindicate the Schumpeterian view whereby the rise in top income shares is partly related to innovation-led growth, where innovation itself fosters social mobility at the top through creative destruction.

hifting our fossil-fuelled civilisation to clean modes of production and consumption requires deep transformations in our energy and economic systems. Innovation in physical technologies and social behaviours is key to this transformation. But innovation has not been at the heart of economic models of climate change. This chapter reviews the state of the art on the economics of innovation, applying recent insights to climate change. The core insight is that technological innovation is a path-dependent process in which history and expectations matter greatly in determining eventual outcomes. This insight has six important implications for climate policy design. First, efficient climate policy requires direct research subsidies for inducing and/or diffusing clean innovations, combined with carbon pricing (whether by taxes or trading). Second, both public and private sector involvement is required. Third, path dependence and system inertia imply that delaying policies that redirect innovation towards clean technologies significantly increases costs in the future. Fourth, more developed countries should act as leaders in clean technology and should subsidise access to such technologies for less developed countries. Fifth, if a transition from coal to clean energy is to be made via intermediates (for example, gas), the use of gas (without carbon capture) should be agreed to be on a time-limited basis. Finally, investment in coal should not be encouraged, as its continued use is only safe if we assume the cost-effectiveness of carbon capture and storage (CCS) technologies. While much greater efforts should be taken to reduce the costs of CCS, the speed that these technologies can be developed and deployed is uncertain.

We identify two counteracting effects of credit access on productivity growth: on the one hand, better access to credit makes it easier for entrepreneurs to innovate; on the other hand, better credit access allows less efficient incumbent firms to remain longer on the market, thereby discouraging entry of new and potentially more efficient innovators. We first develop a simple model of firm dynamics and innovation‐based growth with credit constraints, where the above two counteracting effects generate an inverted‐U relationship between credit access and productivity growth. Then we test our theory on a comprehensive French manufacturing firm‐level dataset. We first show evidence of an inverted‐U relationship between credit constraints and productivity growth when we aggregate our data at the sectoral level. We then move to firm‐level analysis, and show that incumbent firms with easier access to credit experience higher productivity growth, but that they also experience lower exit rates, particularly the least productive firms among them. To support these findings, we exploit the 2012 Eurosystem’s Additional Credit Claims programme as a quasi‐experiment that generated an exogenous extra supply of credits for a subset of incumbent firms.

What makes countries engage in reforms of mass education? Motivated by historical evidence on the relation between military threats and expansions of primary education, we assemble a panel dataset from the last 150 years in European countries and from the postwar period in a large set of countries. We uncover three stylized facts: (i) investments in education are associated with military threats, (ii) democratic institutions are negatively correlated with education investments, and (iii) education investments respond more strongly to military threats in democracies. These patterns continue to hold when we exploit rivalries in a country’s neighborhood as an alternative source of variation. We develop a theoretical model that rationalizes the three empirical findings. The model has an additional prediction about investments in physical infrastructures, which finds support in the data.

The literature on the growth effects of European integration remains inconclusive. This is due to severe methodological difficulties mostly driven by country heterogeneity. This paper addresses these concerns using the synthetic control method. It constructs counterfactuals for countries that joined the European Union (EU) from 1973 to 2004. We find that growth effects from EU membership are large and positive, with Greece as the exception. Despite substantial variation across countries and over time, we estimate that without European integration, per capita incomes would have been, on average, approximately 10% lower in the first ten years after joining the EU.

This paper emphasizes the role of land and technological progress in economic and population growth. The model is calibrated using historical data on England concerning both economic growth rate and the factor shares (land, capital, and labor) in total income, as well as mortality tables. It is able to reproduce the dynamics of population since 1760. Moreover, it is possible to disentangle the relative effect of technical changes and mortality fall on the evolution of population. We conduct a counterfactual analysis eliminating successively the increase in life expectancy and the technological bias. With no increase in life expectancy, population would have been respectively 10% and 30% lower in 1910 and in the long run. The figures would have been respectively 40% and 60% lower, with no bias in the technical progress. Finally, population would have been 45% smaller in 1910 and 70% smaller in the long run, neutralizing both the effect of life expectancy and technological bias. So the major part of population increase is due to the technological bias evolution between land and capital.

Ce livre est le dernier d’une série de trois volumes qui ont pour ambition de couvrir les principales questions économiques et sociales contemporaines, à l’échelle nationale, européenne et mondiale. Leur particularité est d’avoir été conçus et écrits par des spécialistes de ces questions – universitaires et chercheurs reconnus – pour des lycéens et des étudiants de premier cycle. Les textes ici réunis se distinguent par trois qualités majeures : il s’agit à chaque fois de synthèses de l’état des connaissances scientifiques ; leur clarté et leur lisibilité les rendent accessibles sans compromettre leur rigueur ; leur problématisation donne du sens aux questions traitées et suscite l’intérêt du lecteur.Afin de mieux répondre encore aux interrogations sur le monde et notre société, en particulier celles qui se rapportent aux multiples crises auxquelles nous sommes confrontés, l’ouvrage a été actualisé et remanié.

This paper presents a benchmark stochastic endogenous growth model of an agricultural economy. Producing food requires land, and increasing the share of total land devoted to farming mechanically reduces the share of land devoted to biodiversity conservation. However, safeguarding a greater number of species guarantees better ecosystem services, which in turn ensure lower volatility of agricultural productivity. The optimal conversion/conservation rule is explicitly characterized. Value of biodiversity is considered in its function of hedging against the volatility of agricultural production. Two aspects of biodiversity’s value are examined. We first consider the total value of biodiversity as the welfare gain from biodiversity conservation, that is, the percentage increase in consumption that the society is willing to accept to give up the optimal level of biodiversity in favor of no biodiversity at all. We then consider the insurance value of biodiversity, extending the usual concepts to our stochastic dynamic framework, defining the insurance value of biodiversity as the change of the risk premium due to a marginal change in the level of biodiversity. To highlight the impact of risk on the optimal decision as in the value of biodiversity, we use the Epstein-Zin-Weil specification of preferences and represent preferences by a recursive utility function. This allows us to disentangle the effects of risk aversion and aversion to fluctuations. Thus, the preference for some rather uncertain outcomes and the propensity to smooth consumption over time are represented by two distinct parameters, and the effect of each of them are studied.

Dynamic factor models are parsimonious representations of relationships among time series variables. With the surge in data availability, they have proven to be indispensable in macroeconomic forecasting. This chapter surveys the evolution of these models from their pre-big-data origins to the large-scale models of recent years. We review the associated estimation theory, forecasting approaches, and several extensions of the basic framework.

For exiting products, statistical agencies often impute inflation from surviving products. This understates growth if creatively-destroyed products improve more than surviving ones. If so, then the market share of surviving products should systematically shrink. Using entering and exiting establishments to proxy for creative destruction, we estimate missing growth in US Census data on non-farm businesses from 1983 to 2013. We find missing growth (i) equaled about one-half a percentage point per year; (ii) arose mostly from hotels and restaurants rather than manufacturing; and (iii) did not accelerate much after 2005, and therefore does not explain the sharp slowdown in growth since then.

We revisit the standard theoretical model of tax competition to consider imperfect mobility of both capital and labor. We show that the mobility of one factor a_ects the taxation of both factors, and that the race-to-the-bottom narrative (with burden shifting) applies essentially to capital exporting countries. We test our predictions for a panel of 28 OECD countries over 1997-2014. We _nd capital taxation to be less sensitive to capital mobility in net capital importing countries than for net capital exporters. Various robustness checks support this conclusion. Qantitatively, though, rising capital mobility contributes much less than population ageing to the decline of capital tax rates over the period studied.

We introduce nine papers on sustainable resource dynamics. In addition, we provide analytical results on the effect of stochastic damages on optimal economic growth, the effects of habits and loss aversion on the cost-benefit discount rate, and the effect of a carbon budget and carbon capture and storage (CCS) on optimal investment in technical change.

This paper compares Ramsey optimal policy for the new-Keynesian model with public debt with its .scal theory of the price level (FTPL) equilibrium. Both the fiscal theory of the price level and Ramsey optimal policy implies that a de.cit shock is instantaneously followed by an increase of in.ation and output gap. But each optimal policy parameters belongs in di¤erent sets with respect to FTPL. The optimal .scal rule parameter implies local stability of public debt dynamics (“passive fiscal policy”). The optimal Taylor rule parameter for in.ation is larger than one. The optimal Taylor rule parameter for output gap is negative, because of the intertemporal substitution e¤ect of interest rate on output gap. Both Taylor rule optimal parameters implies the local stability of inflation and output gap dynamics.

A number of macroeconomic theories, very popular in the 1980s, seem to have completely disappeared and been replaced by the dynamic stochastic general equilibrium (DSGE) approach. We will argue that this replacement is due to a tacit agreement on a number of assumptions, previously seen as mutually exclusive, and not due to a settlement by ‘nature’. As opposed to econometrics and microeconomics and despite massive progress in the access to data and the use of statistical software, macroeconomic theory appears not to be a cumulative science so far. Observational equivalence of different models and the problem of identification of parameters of the models persist as will be highlighted by examining two examples: one in growth theory and a second in testing inflation persistence.

Small and medium‐sized enterprises (SMEs) suffered a sharp contraction in their borrowing from banks during the Great Recession. Analyzing a large firm‐level database for European countries, the paper shows that trade credit amplified the liquidity squeeze on SMEs, with adverse effects on their real activity. SMEs sharply increased their net trade credit and thus transferred financial resources to larger firms. Given the large weight of SMEs in the economy of European countries, the liquidity squeeze of SMEs likely contributed to the depth of the output fall and the slow recovery in Europe during the Great Recession.

This article presents an algorithm that extends Ljungqvist and Sargent’s (2012) dynamic Stackelberg game to the case of dynamic stochastic general equilibrium models including forcing variables. Its first step is the solution of the discounted augmented linear quadratic regulator as in Hansen and Sargent (2007). It then computes the optimal initial anchor of “jump” variables such as inflation. We demonstrate that it is of no use to compute non-observable Lagrange multipliers for all periods in order to obtain impulse response functions and welfare. The algorithm presented, however, enables the computation of a history-dependent representation of a Ramsey policy rule that can be implemented by policy makers and estimated within a vector auto-regressive model. The policy instruments depend on the lagged values of the policy instruments and of the private sector’s predetermined and “jump” variables. The algorithm is applied on the new-Keynesian Phillips curve as a monetary policy transmission mechanism.

This article presents an algorithm that extends Ljungqvist and Sargent’s (2012) dynamic Stackelberg game to the case of dynamic stochastic general equilibrium models including forcing variables. Its first step is the solution of the discounted augmented linear quadratic regulator as in Hansen and Sargent (2007). It then computes the optimal initial anchor of “jump” variables such as inflation. We demonstrate that it is of no use to compute non-observable Lagrange multipliers for all periods in order to obtain impulse response functions and welfare. The algorithm presented, however, enables the computation of a history-dependent representation of a Ramsey policy rule that can be implemented by policy makers and estimated within a vector auto-regressive model. The policy instruments depend on the lagged values of the policy instruments and of the private sector’s predetermined and “jump” variables. The algorithm is applied on the new-Keynesian Phillips curve as a monetary policy transmission mechanism.

The aim of the present paper is to provide criteria for a central bank of how to choose among di¤erent monetary-policy rules when caring about a number of policy targets such as the output gap and expected in ‡ation. Special attention is given to the question if policy instruments are predetermined or only forward looking. Using the new-Keynesian Phillips curve with a cost-push-shock policy-transmission mechanism, the forward-looking case implies an extreme lack of robustness and of credibility of stabilization policy. The backward-looking case is such that the simple-rule parameters can be the solution of Ramsey optimal policy under limited commitment. As a consequence, we suggest to model explicitly the rational behavior of the policy maker with Ramsey optimal policy, rather than to use simple rules with an ambiguous assumption leading to policy advice that is neither robust nor credible.

We investigate the impact of local social pressure against dismissals on the choice of employment contracts made by firms using French linked employer-employee data. Taking into account the potential endogeneity of plant location, we show that establishments located closer to headquarters have higher shares of fixed-term contracts in hiring than those located further away whenever firms’ headquarters are located in self-centered communities. We also show that this relationship is driven by firms that are highly visible in the community of the headquarters and whose CEOs not only work but also live there. In contrast, when firms’ headquarters belong to communities that are not self-centered, the impact of distance to headquarters on the share of fixed-term contracts turns out to be positive. We show that these findings can only be explained by local social pressure. When the local community at the firm’s headquarters is self-centered, CEOs are under pressure to avoid dismissing workers close to headquarters. By adding to the adjustment costs associated with open-ended contracts, this creates an incentive for CEOs to rely more on fixed-term contracts, in an attempt to escape social pressure.

The debate on trade wars and currency wars has re-emerged since the Great recession of 2009. We study the two forms of non-cooperative policies within a single framework. First, we compare the elasticity of trade flows to import tariffs and to the real exchange rate, based on product level data for 110 countries over the 1989-2013 period. We find that a 1 percent depreciation of the importer’s currency reduces imports by around 0.5 percent in current dollar, whereas an increase in import tariffs by 1 percentage point reduces imports by around 1.4 percent. Hence the two instruments are not equivalent. Second, we build a stylized short-term macroeconomic model where the government aims at internal and external balance. We find that, in this setting, monetary policy is more stabilizing for the economy than trade policy, except when the internal transmission channel of monetary policy is muted (at the zero-lower bound). One implication is that, in normal times, a country will more likely react to a trade “aggression” through monetary easing rather than through a tariff increase. The result is reversed at the ZLB.

Dynamic Factor Models (DFMs) allow to take advantage of the information provided by a large dataset, which is summarized by a small set of unobservable latent variables, and they have proved to be very useful for short-term forecasting. Since most of their properties rely on the stationarity of the series, these models have been mainly used on data which have been di_erenciated to achieve stationarity. However estimation procedures for DFMs with I(1) common factors have been proposed by Bai (2004) and Bai and Ng(2004). Further, Banerjee and Marcellino (2008) and Banerjee, Marcellino and Masten (2014) have proposed to extend stationary Factor Augmented VAR models to the non-stationary case, and introduced Factor augmented Error Correction Models (FECM). We rely on this approach and conduct a pseudoreal time forecasting experiment, in which we compare short term forecasts of French GDP based on stationary and non-stationary DFMs. We mimic the timeliness of data, and use in the non-stationary framework the 2-step estimator proposed by Doz, Giannone and Reichlin(2011). In our study, forecasts based on stationary or non-stationary DFMs have a similar precision.

In this paper we merge individual income data, firm-level data, patenting data, and IQ data in Finland over the period 1988–2012 to analyze the returns to invention for inventors and their coworkers or stakeholders within the same firm. We find that: (i) inventors collect only 8 percent of the total private return from invention; (ii) entrepreneurs get over 44 percent of the total gains; (iii) bluecollar workers get about 26 percent of the gains and the rest goes to white-collar workers. Moreover, entrepreneurs start with significant negative returns prior to the patent application, but their returns subsequently become highly positive.

This paper emphasizes the role of land and technological progress in economic and population growth. The model is calibrated using historical data on England concerning both economic growth rate and the factor shares (land, capital, and labor) in total income, as well as mortality tables. It is able to reproduce the dynamics of population since 1760. Moreover, it is possible to disentangle the relative effect of technical changes and mortality fall on the evolution of population. We conduct a counterfactual analysis eliminating successively the increase in life expectancy and the technological bias. With no increase in life expectancy, population would have been respectively 10% and 30% lower in 1910 and in the long run. The figures would have been respectively 40% and 60% lower, with no bias in the technical progress. Finally, population would have been 45% smaller in 1910 and 70% smaller in the long run, neutralizing both the effect of life expectancy and technological bias. So the major part of population increase is due to the technological bias evolution between land and capital.

A number of macroeconomic theories, very popular in the 1980s, seem to have completely disappeared and been replaced by the dynamic stochastic general equilibrium (DSGE) approach. We will argue that this replacement is due to a tacit agreement on a number of assumptions, previously seen as mutually exclusive, and not due to a settlement by ‘nature’. As opposed to econometrics and microeconomics and despite massive progress in the access to data and the use of statistical software, macroeconomic theory appears not to be a cumulative science so far. Observational equivalence of different models and the problem of identification of parameters of the models persist as will be highlighted by examining two examples: one in growth theory and a second in testing inflation persistence.

For at least 5000 years, people have created, modified and used financial instruments, markets and intermediaries. Whether it was the use of money and debt to facilitate specialization and investment in Babylonia in 3000 BC (Van de Mieroop, 2005), the creation of market-traded securities in ancient Rome to mobilize capital for immense minig projets (Rostovotzeff, 1957; Malmendier, 2005).

In this paper we conduct a laboratory experiment to test the extent to which Moore and Repullo’s subgame perfect implementation mechanism induces truth-telling, both in a setting with perfect information and in a setting where buyers and sellers face a small amount of uncertainty regarding the good’s value. We find that Moore–Repullo mechanisms fail to implement truth-telling in a substantial number of cases even under perfect information about the valuation of the good. Our data further suggests that a substantial proportion of these lies are made by subjects who hold pessimistic beliefs about the rationality of their trading partners. Although the mechanism should—in theory—provide incentives for truth-telling, many buyers in fact believe that they can increase their expected monetary payoff by lying. The deviations from truth-telling become significantly more frequent and more persistent when agents face small amounts of uncertainty regarding the good’s value. Our results thus suggest that both beliefs about irrational play and small amounts of uncertainty about valuations may constitute important reasons for the absence of Moore–Repullo mechanisms in practice.

Douze scientifiques, dont Hubert Reeves, Jane Goodall, Étienne Klein, Jean-Claude Ameisen, le Prix Nobel de médecine Francoise Barré-Sinoussi, nous dévoilent leur vision du monde et nous font partager leur amour de la recherche. Tout en évoquant leurs travaux, qu’il s’agisse de la plasticité neuronale, de la découverte du VIH, de l’économie mondiale, du vol des oiseaux, de la théorie du chaos, du comportement des chimpanzés, de l’épigénétique, des tablettes cunéiformes, ils nous parlent de leur passion de comprendre ce qui les entoure, de chercher l’invisible dans le visible et de toucher le réel. La recherche est pour eux un élan vers le monde et vers les autres. Ces chercheurs reconnus nous offrent également les leçons de vie qu’ils ont apprises de la recherche scientifique : s’émerveiller de chaque chose, accueillir le doute, la surprise, parce que l’incertitude ouvre aux mystères de l’autre et de la vie, persévérer avec intelligence et savoir renoncer, ne pas s’enfermer dans son savoir et apprendre des autres disciplines, prendre aussi en compte l’intuition et même les rêves…

We design two laboratory experiments to analyze the causal effects of competition on step-by-step innovation. Innovations result from costly R&D investments and move technology up one step. Competition is inversely measured by the ex post rents for firms that operate at the same technological level, that is, for neck-and-neck firms. First, we find that increased competition leads to a significant increase in R&D investments by neck-and-neck firms. Second, increased competition decreases R&D investments by firms that are lagging behind, in particular if the time horizon is short. Third, we find that increased competition affects industry composition by reducing the fraction of sectors where firms are neck-and-neck. All these results are consistent with the predictions of step-by-step innovation models.

When the probability of not reneging commitment of optimal monetary policy under quasi-commitment tends to zero, the limit of this equilibrium is qualitatively and quantitatively different from the discretion equilibrium assuming a zero probability of not reneging commitment for the classic example of the new-Keynesian Phillips curve. The impulse response functions and welfare are different. The policy rule parameter have opposite signs. The inflation auto-correlation parameter crosses a saddlenode bifurcation when shit.ng to near-zero to zero probability of not reneging commitment. These results are obtained for all values of the elasticity of substitution between goods in monopolistic competition which enters in the welfare loss function and in the slope of the new-Keynesian Phillips curve.

We revisit the standard theoretical model of tax competition to consider imperfect mobility of both capital and labor. We show that the mobility of one factor affects the taxation of both factors, and that the race-to-the-bottom narrative (with burden shifting) applies essentially to capital exporting countries. We test our predictions for a panel of 28 OECD countries over 1997-2014. We find capital taxation to be less sensitive to capital mobility in net capital importing countries than for net capital exporters. We also show that labor mobility has a negative impact on labor taxation but a positive impact on capital taxation. Finally, we show evidence of a non-linear effect of labor mobility on capital taxation depending on the level of skills.

Statistical agencies typically impute inflation for disappearing products based on surviving products, which may result in overstated inflation and understated growth. Philippe Aghion, Antonin Bergeaud, Timo Boppart & Simon Bunel use the theory and methodology developed by Aghion et al. (2017) to quantify in the case of France how much of productivity growth is missed by statistical offices because of this. Using the census of plants in France, they find that from 2004 to 2015, about 0.5 percentage point of real output growth per year is not taken into account, which is about the same as what was found in the U.S. While this result suggests that missing growth from creative destruction could structurally be the same in different countries, the authors show that they in fact hide different underlying establishment and firm’s lifecycle dynamics in the two countries.

Giannoni and Woodford (2003) found that the equilibrium determined by com- mitment to a super-inertial rule (where the sum of the parameters of lags of interest rate exceed ones and does not depend on the auto-correlation of shocks) corresponds to the unique bounded solution of Ramsey optimal policy for the new-Keynesian model. By contrast, this note demonstrates that commitment to an inertial rule (where the sum of the parameters of lags of interest rate is below one and depends on the auto-correlation of shocks) corresponds to the unique bounded solution.

Suite à la crise financière mondiale de 2008 et, plus encore, à la crise de la zone euro, plusieurs innovations ont été introduites dans l’architecture des politiques économiques en Europe, notamment les politiques macroprudentielles et la procédure pour déséquilibres macroéconomiques. Cependant, l’articulation des différents dispositifs de coordination et de surveillance n’est pas optimale. Chacun des dispositifs devrait être clarifié en précisant son objectif, ses instruments, son horizon, son indicateur synthétique et l’institution en charge de la surveillance.

The determinacy of dynamic stochastic general equilibrium models including fiscal, macro-prudential or Taylor rules relies on the assumption that policy instruments are forward-looking when policy targets are also forward-looking. Blanchard and Kahn (1980) determinacy condition does not forbid to assume that policy instruments are backward-looking when policy targets are forward-looking, as it is the case for Ramsey optimal policy under quasi-commitment. There is indeterminacy of determinacy unless six criteria are considered which are in favor of assuming that policy instruments are backward-looking when policy targets are forward-looking.

This article examines the recent literature on macroeconomics and the environment from the perspective of the methodological approach, the questions asked and the types of responses given. It also reviews the place of the environment in textbooks and major macroeconomics journals. It shows that almost no space is given to environmental issues in short-term macroeconomics. Environmental issues are perceived as affecting the long-term and the structure of economies rather than the current situation. It can therefore be expected that studies on growth and the teaching of theories of growth would give them an important role. The article shows that while this is partly the case with regard to the literature, it does not hold at all with regard to teaching. The road ahead for truly integrating environmental issues into macroeconomics remains long.

This article considers the long-run equilibrium distribution of an economy populated by heterogenous and present biased quasi-hyperbolic discounting agents. In a first configuration with logarithmic utility functions and Cobb-Douglas production technologies, this article establishes the existence and the uniqueness of the equilibrium: only one agent, determined by the highest value of a coefficient building from both the degree of present bias and the rate of discount, will have a positive long-run consumption and a positive long-run wealth. A second configuration with constant elasticities of substitution utilities and linear production technologies is then considered. This article similarly establishes the existence and the uniqueness of the equilibrium. There is generically a unique agent with the highest growth rate for his consumption and his wealth. This agent is determined by both preferences and technology parameters and may change following a technological shock.

Comprehensive and systematic approach to economic policy – Covers key issues: fiscal deficits, unconventional monetary policies, global imbalances, growth strategies, tax reform design, inequality in both breadth and depth – Provides insight into both real-world dilemmas and analytical tools to evaluate possible policies – Written by leading economists with policy experience

Using US data, we estimate optimal policy with a probability below one that the Fed reneges on its commitment (“limited credibility”) versus discretionary policy where the Fed reneges on its commitment at all periods with a probability equal to one (“zero credibility”). The transmission mechanism is the new-Keynesian Phillips curve with auto-correlated cost-push shock. It includes the labor cost channel or the working capital channel. Discretion with zero credibility of the Fed is rejected. The working capital channel fits the data before Volcker’s mandate. The labor cost channel fits the data since Volcker’s mandate.

La crise de 2008 a ravivé les doutes sur la croissance et ressuscité le débat sur la stagnation séculaire, initié par Hansen dès 1938. En particulier dans un contexte post-crise de croissance nulle ou très faible, la théorie schumpétérienne a pu sembler dépassée. Pourtant, dans cet article, nous montrons qu’elle demeure un cadre de pensée valide. Nous commençons par rappeler les principaux faits saillants du modèle schumpétérien de la croissance. Nous défendons ensuite l’idée que ce cadre de pensée demeure pertinent sur plusieurs aspects liés à la croissance ; nous nous intéressons plus particulièrement à la stagnation séculaire, aux réformes structurelles et au débat sur les inégalités. Nous montrons qu’à cause de la destruction créatrice, la croissance de la productivité induite par l’innovation est sous-estimée. Par ailleurs, nous expliquons pourquoi le cadre schumpétérien plaide pour une complémentarité entre réformes structurelles et politique macroéconomique. Enfin, nous montrons l’impact positif de l’innovation et de la destruction créatrice sur la mobilité sociale.

Clair, rigoureux et complet : la référence indispensable pour comprendre la politique économique.Les crises ont profondément transformé la politique économique. La tempête fi nancière de 2008, la Grande Récession qui a suivi, les déboires de la zone euro, le niveau très faible de l’inflation, le ralentissement de la croissance, la hausse des dettes publiques et l’augmentation des inégalités ont ébranlé les certitudes passées et appellent de nouvelles réponses.Des chapitres oubliés de la théorie économique ont été relus et des instruments nouveaux ont été mis en place.Les questions qui se posent sont plus pressantes que jamais. Dans quelles circonstances la politique budgétaire est-elle efficace pour combattre une récession ? Quelles sont les limites de l’endettement public ? Que peut la politique monétaire lorsque l’inflation est voisine de zéro ? Comment contrôler la finance ? Quelles politiques faut-il mener ensemble, et lesquelles faut-il conduire séparément ? Comment taxer le capital ? Comment stimuler l’emploi ? Comment changer la qualité de la croissance ?Parce qu’il réunit, dans un seul volume, les principaux enseignements théoriques et l’analyse des débats actuels, Politique économique s’est imposé depuis plus de dix ans comme la référence pour comprendre les politiques économiques d’aujourd’hui. Cette quatrième édition a été entièrement refondue pour prendre en compte les derniers développements et débats sur la politique économique. Elle propose notamment un nouveau chapitre consacré à l’instabilité fi nancière et aux politiques susceptibles d’y répondre.L’ouvrage s’adresse à un public large : étudiants en licence ou master d’économie, de gestion ou de sciences politiques, candidats aux concours administratifs, praticiens et observateurs de la politique économique, acteurs de la vie économique.

A general setup is considered where agents are characterised by quasi-hyperbolic discounting and by heterogeneous bias for the present and heterogenous discounting parameters. Consumptions are moreover subject to a standard feasibility constraint. A collective utility function is defined as a function of the intertemporal utilities of the selves of the different agents, the elementary unit being thus the self of a given period for a given agent. The analysis is further specialized to time-independent collective utility functions. Such a framework generating a tension between Pareto-optimality and time-consistency for the optimal allocations, two approaches are suggested in order to tackle this issue. The first one imposes restrictions on the collective utility function that ensure the timeconsistency of the optimal decisions. The second one builds from an a priori time-inconsistent collective utility function. The benevolent planner is then to be considered as a sequence of successive incarnations, any of these incarnations being endowed with its own objective. The associated optimal policy is the equilibrium of a game between the successive incarnations of the planner when the players follow Markovian strategies. The results obtained for both solution concepts are compared through an example that also shows how they can be recovered through a competitive equilibrium.

The purpose of this paper is to show that both Schumpeterian growth theory and Schumpeter’s own thinking can be helpful in order to think about growth policy design and the role of the state. This reflection offers an economic policy roadmap and gives rise to concrete proposals in terms of an adequate mix of demand and supply-side options depending on the country’s distance to the world technology frontier.

This article explores the implications of the introduction of self-control costs and temptation motives in intertemporal preferences in an elementary competitive equilibrium. We let heterogeneous agents differ in both their discount parameters and their temptation motives, and the degree of financial-market imperfections vary, and establish their implications for the long-run value of the capital stock and the underlying long-run distribution of consumption and wealth. The results differ from those obtained in a standard Ramsey benchmark model, in that long-run distributions are commonly non-degenerate.

This article offers a theoretical analysis of the impact that the introduction of aquaculture has on wild fish stocks and consumer utility, taking into account three key components: (1) the dependence of aquaculture on reduction fisheries for the feeding of the farmed species; (2) biological interactions between the wild edible species—the predator—and the wild feed species—the prey; and (3) consumer preferences for wild and farmed fish. Fisheries are in open access, while the aquaculture sector is competitive. We show that when biological interactions are moderate, the introduction of aquaculture is beneficial in the long run: it improves consumer utility and alleviates the pressure on the edible fish stock. Results are deeply modified when biological interactions are strong: the stock of edible wild fish is reduced and the introduction of aquaculture may even cause a decrease in consumer utility. We then explore the consequences of improving aquaculture efficiency and the sensitivity of consumer preferences to the farmed fish characteristics, in the case where biological interactions are absent. Lastly, we analyze how our outcomes on the entry of aquaculture are affected when the wild edible fishery is optimally regulated, in combination with different assumptions on the regulation of the feed fishery. Results are again conditional on the intensity of biological interactions.

Now more than ever, the EU needs to address concerns about the significant decline in productivity growth and the increasing perception of unfairness. Completing the single market would unlock the EU’s growth potential. At the same time, the EU should empower member states to fight inequality by helping them better distribute the gains arising from economic integration

To limit greenhouse-gas emissions, is it necessary to restrict international trade? By dissociating where products are produced from where they are consumed, international trade contributes significantly to greenhousegas emissions worldwide, especially when goods are transported. It also displaces the location of emissions: the consumption-induced carbon footprint of OECD countries is higher than their level of emissions. Large emerging countries find themselves in the opposite case. However, halting international trade would be particularly ineffective to reduce GHG emissions. According to oursimulations, raising average import tariffs to 17% (as opposed to current 5%, except for agricultural products) and accepting a fall in aggregate production of 1.8% would only lead to 3.5% GHG emission reduction by 2030. We confirm that a uniform and moderate import tariff imposed by a “club” of countries adopting ambitious and binding policies to fight climate change, against all imports from countries outside of the club, would be effective.

This paper presents a dissonant view on post-war British economic performance. A defining feature is the decline of the UK relative to the six founding members of the European Union after 1945. However, this relative decline stopped. The conventional view is that a turning point occurs in the mid-1980s when Mrs Thatcher implements far-reaching structural reforms. This paper asks whether econometric evidence supports this conventional view and finds it does not. We then examine an alternative hypothesis: this turning point occurs around 1970 when the UK joined the European Community. We find strong econometric support for this view. The intuition we offer is that EU membership signalled the prominence of business groups that chose to compete at the high-tech end of the common European market against those business groups that preferred comparative advantage-driven Commonwealth markets (mostly former colonies). Those pro-Europe business groups later become the constituency that provides support for Mrs Thatcher’s reforms. Without this vital support, we argue Mrs Thatcher’s structural reforms would not have been nearly as effective, if proposed and implemented at all.

We construct, and then estimate by maximum likelihood, a tractable dynamic stochastic general equilibrium model with incomplete insurance and heterogenous agents. The key feature of our framework is that cross‐sectional heterogeneity remains finite dimensional. The solution to the model thus admits a state‐space representation that can be used to recover the distribution of the model’s parameters. Household heterogeneity expands the set of observables to cross‐sectional moments available at the business‐cycle frequency (in addition to the usual macro and monetary time series). Incomplete insurance gives rise to a precautionary motive for holding wealth that propagates aggregate shocks via (i) a stabilizing aggregate supply effect, working through the supply of capital, and (ii) a destabilizing aggregate demand effect coming from the feedback loop between unemployment risk and precautionary saving. Using the estimated model to measure the contribution of precautionary savings to the propagation of recent recessions, we find strong aggregate demand effects during the Great Recession and, to a lesser extent, during the 1990–1991 recession. In contrast, the supply effect at least offsets the demand effect during the 2001 recession.

The Markov-Switching Dynamic Factor Model (MS-DFM) has been used in different applications, notably in the business cycle analysis. When the cross-sectional dimension of data is high, the Maximum Likelihood estimation becomes unfeasible due to the excessive number of parameters. In this case, the MS-DFM can be estimated in two steps, which means that in the first step the common factor is extracted from a database of indicators, and in the second step the Markov-Switching autoregressive model is fit to this extracted factor. The validity of the two-step method is conventionally accepted, although the asymptotic properties of the two-step estimates have not been studied yet. In this paper we examine their consistency as well as the small-sample behavior with the help of Monte Carlo simulations. Our results indicate that the two-step estimates are consistent when the number of cross-section series and time observations is large, however, as expected, the estimates and their standard errors tend to be biased in small samples.

This book brings together contributions from leading scholars around the world on the most relevant and pressing economic themes surrounding the UK–EU relationship. With chapters spanning from the UK’s accession to the bloc to the aftermath of its decision to leave, the book explores key themes in UK economic growth and EU membership, international trade, foreign direct investment, financial markets and migration. Chapters interrogate the history of the relationship, the depth of foreign direct investment, and responses to the financial crisis. Considering both the history and future of UK and EU relations, the book is a relevant and timely volume that gives welcome context to a fast-changing relationship.

The objective of this paper, drawn from my Presidential address at the 2016 AFSE conference, is twofold. First, it is to convince the readers that the energy transition, from a present where we massively burn polluting fossil fuels that contribute greatly to global warming, to a future where we would be able to obtain our energy from carbon-free resources, is inevitable, and cannot wait. Second, it is to examine whether it is a good idea – or not – to use shale gas as a bridge fuel allowing the world to escape from coal while buying time to make the technological innovations indispensable for the deployment of clean renewable energies on a large scale.

Le projet européen est aujourd’hui en plein doute, entre une promesse de prospérité qui vacille et la perception fréquente que l’Europe creuse les inégalités. Dans cette nouvelle Note du CAE, les auteurs, Vincent Aussilloux, Agnès Bénassy‐Quéré, Clemens Fuest et Guntram Wolff, recommandent de ne pas lâcher sur l’intégration des marchés – une nécessité d’autant plus forte dans une économie de plus en plus numérique – mais de mieux accompagner cette intégration à l’aide d’outils modernes de lutte contre l’évasion fiscale et sociale. Les fonds européens devraient être progressivement recentrés sur les domaines où les retombées entre États sont fortes. Cette note a été présentée au cabinet du Premier Ministre le 13 janvier 2017

La crise de la zone euro a révélé trois erreurs majeures de conception. La première erreur fut de réaliser une union monétaire sans se rendre compte que l’essentiel de la création monétaire ne viendrait pas de la Banque centrale européenne (BCE), mais des banques commerciales. En zone euro, les billets et les pièces en circulation représentent moins de 10 % de la masse monétaire au sens large, dont l’essentiel est constitué de dépôts bancaires. Laisser chaque État membre réguler et surveiller ses banques, c’était placer 90 % de la masse monétaire commune sous la surveillance des seules instances nationales. On connaît le résultat.

In this paper, we propose a new mechanism able to explain the occurrence of credit crunches. Considering a credit market with an asymmetry of information between borrowers and lenders, we assume that borrowers have to pay a cost to reveal information on the quality of their project. They decide to be transparent if it is necessary for getting a loan or for paying a lower interest rate. Two types of competitive equilibria may exist: an opaque equilibrium in which all projects receive funding without revealing information; a transparent one in which only the best projects reveal information and receive funding. It is also possible to get multiple equilibria. Incorporating this microeconomic mechanism in an OLG model, the economy may experience fluctuations due to the change of regime, and indeterminacy may occur.

Can directed technical change be used to combat climate change? We construct new firm-level panel data on auto industry innovation distinguishing between “dirty” (internal combustion engine) and “clean” (e.g., electric, hybrid, and hydrogen) patents across 80 countries over several decades. We show that firms tend to innovate more in clean (and less in dirty) technologies when they face higher tax-inclusive fuel prices. Furthermore, there is path dependence in the type of innovation (clean/dirty) both from aggregate spillovers and from the firm’s own innovation history. We simulate the increases in carbon taxes needed to allow clean technologies to overtake dirty technologies.

We study the macroeconomic implications of time-varying precautionary savings within a general equilibrium model with borrowing constraints, aggregate shocks and uninsurable idiosyncratic unemployment risk. Our framework generates limited cross-sectional household heterogeneity as an equilibrium outcome, thereby making it possible to analyse the role of precautionary saving over the business cycle in an analytically tractable way. The time-series behaviour of aggregate consumption generated by our model is closer to the data than that implied by the hand-to-mouth and representative-agent models, and it is comparable to that produced by the Krusell and Smith (1998) model.

This paper argues that openness, by lowering costs to access existing research, can enhance both early and late stage innovation through greater exploration of novel research directions. We examine a natural experiment in openness: late-1990s NIH agreements that reduced academics’ access costs regarding certain genetically engineered mice. Implementing difference-in-differences estimators, we find that increased openness encourages entry by new researchers and exploration of more diverse research paths, and does not reduce the creation of new genetically engineered mice. Our findings highlight a neglected cost of strong intellectual property restrictions: lower levels of exploration leading to reduced diversity of research output.

International di¤erences in fuel taxation are huge, and may be justi…ed by different local negative externalities that taxes must correct, as well as by di¤erent preferences for public spending. In this context, should a worldwide uniform carbon tax be added to these local taxes to correct the global warming externality? We address this question in a second best framework à la Ramsey, where public goods have to be …nanced through distortionary taxation and the cost of public funds has to be weighted against the utility of public goods. We show that when lump-sum transfers between countries are allowed for, the second best tax on the polluting good may be decomposed into three parts: one, country-speci…c, dealing with the local negative externality, a second one, country-speci…c, dealing with the cost of levying public funds, and a third one, global, dealing with the global externality and which can be interpreted as the carbon price. Our main contribution is to show that the uniformity of the carbon price should still hold in this second best framework. Nevertheless, if lump-sum transfers between governments are impossible to implement, international di¤erentiation of the carbon price is the only way to take care of equity concerns. keywords: carbon price, second best, Pigovian taxation

Can a country grow faster by saving more? The paper addresses this question both theoretically and empirically. In the theoretical model, growth results from innovations that allow local sectors to catch up with frontier technology. In poor countries, catching up requires the cooperation of a foreign investor who is familiar with the frontier technology and a domestic entrepreneur who is familiar with local conditions. In such a country, domestic savings matters for innovation, and therefore growth, because it enables the local entrepreneur to put equity into this cooperative venture, which mitigates an agency problem that would otherwise deter the foreign investor from participating. In rich countries, domestic entrepreneurs are already familiar with frontier technology and therefore do not need to attract foreign investment to innovate, so domestic savings does not matter for growth. A cross-country regression shows that lagged savings is positively associated with productivity growth in poor countries but not in rich countries.

In this paper we analyze the relationship between turnover-driven growth and subjective well-being. Our model of innovation-led growth and unemployment predicts that: (i) the effect of creative destruction on expected individual welfare should be unambiguously positive if we control for unemployment, less so if we do not; (ii) job creation has a positive and job destruction has a negative impact on well-being; (iii) job destruction has a less negative impact in areas with more generous unemployment insurance policies; and (iv) job creation has a more positive effect on individuals that are more forward-looking. The empirical analysis using cross-sectional MSA (metropolitan statistical area) -level and individual-level data provide empirical support to these predictions.

Several official institutions (NBER, OECD, CEPR, and others) provide business cycle chronologies with lags ranging from three months to several years. In this paper, we propose a Markov-switching dynamic factor model that allows for a more timely estimation of turning points. We apply one-step and two-step estimation approaches to French data and compare their performance. One-step maximum likelihood estimation is confined to relatively small data sets, whereas two-step approach that uses principal components can accommodate much bigger information sets. We find that both methods give qualitatively similar results and agree with the OECD dating of recessions on a sample of monthly data covering the period 1993–2014. The two-step method is more precise in determining the beginnings and ends of recessions as given by the OECD. Both methods indicate additional downturns in the French economy that were too short to enter the OECD chronology.

This article considers a new concept of social optimum for an economy populated by agents with heterogeneous discount factors. It is based upon an approach that constrains decision rules to be temporally consistent: these are stationary and unequivocally ruled by the state variable. For agents who differ only in their discount factors and have equal weights in the planner’s objective, the temporally-consistent optimal solution produces identical consumption for the agents at all time periods. In the long run, the capital stock is determined by a modified golden rule that corresponds to an average-like summation of all discount factors. The general argument is illustrated by various two-agent examples that allow for an explicit determination of the temporally consistent decision rules. Interestingly, this temporally consistent solution can be simply recovered from the characterization of a social planner’s problem with variable discounting and can also be decentralized as a competitive equilibrium through the use of various instruments.

AVANT-PROPOS: Comprendre la complexité du monde vivant est l’une des grandes préoccupations des scientifiques, alors même que la prise de conscience collective de sa fragilité s’opère à la fin des années 1980, période à laquelle apparaît le mot “biodiversité” (1992). L’écologie a permis de mettre en évidence les diversités de ce patrimoine naturel reconnu vital pour les sociétés humaines, dont les activités le menacent de plus en plus. Les organismes vivants, dans leur diversité, s’adaptent et évoluent en réponse aux variations à court terme et aux changements à long terme de leurs environnements. Le croisement d’informations d’origines multiples, comme les archives naturelles et historiques portant sur des milieux diversement anthropisés ou encore la modélisation, conduit à estimer que la biosphère est aujourd’hui confrontée à des changements importants et rapides, dont le déterminisme est avant tout anthropique. Si la vitesse et l’ampleur des processus et leurs mécanismes restent à définir, de nombreux signes témoignent d’une sixième crise majeure de la biodiversité : extinctions d’espèces, changements d’aires de distribution, invasions, évolution d’agents pathogènes, dégradation de la qualité des ressources et des paysages. La lutte contre l’érosion de la biodiversité, dont les services sont indispensables à la survie des sociétés humaines, constitue l’un des enjeux écologiques et socio-économiques majeurs pour les années à venir. Le CNRS (Mission pour l’interdisciplinarité (MI), Institut écologie et environnement (INEE), Institut des sciences humaines et sociales (INSHS), Institut des sciences de l’univers (INSU)) a lancé en 2012 un appel à projets commun dans le domaine du droit et de l’économie de l’environnement et de la biodiversité, favorisant une approche globale et transversale pour répondre à la complexité de ces enjeux. Il s’agit des Projets exploratoires premier soutien (PEPS) qui visent à faire émerger de nouveaux questionnements, fruits d’une réflexion interdisciplinaire, pour répondre aux défis liés à la perte de la biodiversité. Cette première étape a mis en évidence le besoin de poursuivre et d’approfondir une réflexion collective et interdisciplinaire associant des écologues, des économistes et des juristes pour répondre à l’un des défis actuels qui consiste à évaluer la biodiversité et ses fonctions comme ressource et services, à analyser ses capacités de résiliences ou encore s’interroger sur les questions de justice environnementale. Compte tenu des enjeux écologiques et socio-économiques liés à la dégradation de la biodiversité, le CNRS a organisé un colloque de prospective sur l’économie et le droit de la biodiversité en mobilisant ses équipes et leurs compétences scientifiques. Un collectif d’une quarantaine de chercheurs s’est réuni du 2 au 5 avril 2013 à Oléron.

The Great Recession has generated renewed interest in the phenomenon of creditless recoveries. This paper studies the mechanisms behind such phenomenon, analyzing data on industries for a large set of countries over a forty year period from 1963 to 2003. We find that during creditless recoveries there is a significant reallocation of resources away from sectors that are more dependent on bank credit, both for their investments and for their short-term liquidity needs. The adverse effects of credit constraints are softened in sectors that rely more on alternative sources of financing, such as trade credit, or in sectors that have more favorable access to credit because of higher collateral. We thus conclude that creditless recoveries do not simply reflect a natural process of deleveraging, but they may imply significant inefficiencies in the allocation of resources.

Le service public pour l’emploi a connu depuis 2008 de profondes réformes. Malgré leur ampleur, la période récente a montré le besoin de poursuivre la réflexion autour de leur approfondissement. Nous proposons ici, à la lumière des expériences passées, françaises comme étrangères, et des travaux d’évaluations, quelques pistes de réflexion. Nous abordons la question du financement de l’assurance chômage et celle de l’accompagnement des demandeurs d’emploi. Nous montrons à la fois le besoin de renforcer et de repenser les modalités de l’accompagnement.

The euro, in spite of having many of the required attributes put forward by the theoretical literature and past experience, has failed to fulfill all the criteria that would enable it to rival the dollar as an international currency. This does not mean that the euro cannot achieve a status similar to that of the dollar; however, the window of opportunity may not last much more than a decade before the renminbi overtakes the euro. European monetary unification has never explicitly sought for its currency to gain an international status. This makes sense insofar as the key elements required for the euro to expand internationally are also those to be pursued internally: GDP growth; a fiscal backing to the single currency; a deep, liquid and resilient capital market; and a unified external representation of the euro area.

Ce livre, rédigé par trois spécialistes reconnues, dresse un bilan magistral des études et recherches aujourd’hui disponibles dans le monde. Malgré l’aridité du sujet, le lecteur appréciera la clarté et la rigueur de l’exposé et l’ampleur des connaissances mobilisées. Troisième édition ce cette synthèse qui fait désormais autorité. L’évolution des taux d’intérêt est souvent au centre de l’actualité économique et politique, nationale et mondiale. À la suite de la crise financière de 2008, les taux d’intérêt fixés par les banques centrales ont atteint des niveaux proches de zéro. Mais les taux d’intérêt auxquels empruntent les entreprises, les ménages et les États varient selon l’horizon de l’emprunt (à un mois ou à dix ans, par exemple) et selon le risque perçu par les prêteurs. Ce livre, rédigé par trois spécialistes reconnues, explique comment se forment les taux d’intérêt et quel rôle ils jouent dans l’économie, en s’appuyant sur des mécanismes simples et sur les évolutions marquantes observées dans les économies avancées.

We study the implication of yuan internationalization on the stability of the international monetary system. More specifically, we use a three-country, three-currency portfolio model to analyze the impact of yuan internationalization on exchange rates in the event of trade shocks, with stock-flow adjustment of the net foreign asset positions. We show that the internationalization of the yuan would lessen the response of floating exchange rates to asymmetric trade shocks as well as attenuate the distortionary impact of China keeping its currency pegged to the dollar. Conversely, yuan internationalization would amplify the impact of trade shocks on net foreign asset positions, albeit to a limited extent.

This paper shows that it is possible to extend the scope of the existence of rational bubbles when uncertainty is introduced associated with rank-dependent expected utility. This RDU assumption can be viewed as a transformation of probabilities depending on the pessimism/optimism of the agent. The results show that pessimism favors the existence of deterministic bubbles, when optimism may promote the existence of stochastic bubbles. Moreover, under pessimism, the RDU assumption may generate multiple bubbly equilibria. The RDU assumption also leads to new conditions ensuring the (absence of) Paretooptimality of the competitive equilibrium without bubbles. These conditions still govern the existence of bubbles.

L économie monétaire internationale est une discipline à la fois abstraite (car elle touche à la monnaie et aux invisibles mouvements de capitaux internationaux) et très concrète (car elle détermine le prix de notre énergie et de nos produits électroniques importés, ainsi que la compétitivité et le financement de nos entreprises). Ce livre introduit les thèmes clés de l économie monétaire internationale balance des paiements, flux de capitaux, détermination des taux de change, régimes et crises de change, coordination internationale en se centrant sur la boîte à outils qu il faut maîtriser pour raisonner de manière rigoureuse dans ce domaine de la macroéconomie où “tout est dans tout” et en contrastant les régimes de change flottant, fixe et d union monétaire. Il ne se veut aucunement exhaustif, l idée étant plutôt d aider le lecteur à maîtriser un certain nombre d outils qui lui seront utiles pour répondre à des questions concrètes comme : la libre circulation des capitaux est-elle une bonne chose ? L euro est-il surévalué ? Quel est l impact de la politique de la Réserve fédérale américaine sur le dollar ? Quels sont les risques de crise de change ? L appartenance à une union monétaire modifie-t-elle le multiplicateur keynésien ? Que peut-on attendre du G7 et du G20 ?

We study the contribution of market regulations in the dynamics of the real exchange rate within the European Union. Based on a model proposed by De Gregorio et al. (1994a), we show that both product market regulations in nontradable sectors and employment protection tend to inflate the real exchange rate. We then carry out an econometric estimation for European countries over 1985-2006 to quantify the contributions of the pure Balassa-Samuelson effect and those of market regulations in real exchange-rate variations. Based on this evidence and on a counter-factual experiment, we conclude that the relative evolution of product market regulations and employment protection across countries play a very significant role in real exchange-rate variations within the European Union and especially within the Euro area, through theirs impacts on the relative price of nontradable goods.

We build, calibrate and simulate a stylized energy-economy model designed to evaluate the magnitude of carbon tax that would allow the French economy to reduce by a factor of four its CO2 emissions at a forty-year horizon. We estimate the substitution possibilities between fossil energy and other factors for households and firms. We build two versions of the model, the first with exogenous technical progress, and the second with an endogenization of the direction of technical progress. We show that if the energy-saving technical progress rate remains at its recent historical value, the magnitude of the carbon tax is quite unrealistic. When the direction of technical progress responds endogenously to economic incentives, CO2 emissions can be reduced by more than that allowed by the substitution possibilities, but not by a factor of four. To achieve this, an additional instrument is needed, namely a subsidy to fossil energy-saving research. The redirection of technical progress, which is a driver of energy transition, comes at a small cost in terms of the overall growth rate of the economy. [ABSTRACT FROM AUTHOR]

This paper shows that rules of optimal policy under commitment allow policymakers to lean against bubbles and to stabilize an unstable economy. In this framework, policymakers anchor the initial values of the expectations of the private sector. Then, this paper sets identification conditions for the parameters of optimal rules under commitment, of optimal and time consistent rules and of quasi-optimal rules. Finally, the paper concludes by presenting the pros and cons for each of these three types of policy rules for macroeconomic modelling, depending on a set of criteria.

We study the implication of a multipolarization of the international monetary system on crosscurrency volatility. More specifically, we analyze whether the internationalization of the yuan could modify the impact of asset supply and trade shocks on the euro-dollar exchange rate, within a threecountry, three-currency portfolio model. Our static model shows that the internationalization of the yuan (defined as a rise in the yuan in international portfolios) would be either neutral or stabilizing for the euro-dollar rate, whatever the exchange-rate regime of China. Moving to a dynamic, stockflow framework, we show that the internationalization of the yuan would make exchange-rate variations more efficient to stabilize net foreign asset positions after a trade shock.

Fondamental et vivant, ce B.A. BA vous offre les clés pour mieux appréhender notre monde et les enjeux de l’économie contemporaine. En six grands chapitres, il propose de donner les bases pour comprendre notre actualité économique : qu’est-ce qu’un marché ? Comment l’État intervient-il ? Comment fonctionne le monde de l’entreprise ? Qu’est-ce que la mondialisation ? Six dépliants résumant simplement ces grandes notions accompagnent les textes rédigés par des spécialistes de ces questions. L’ouvrage accompagne l’exposition “L’ÉCONOMIE : KRACH, BOOM, MUE ?” de la Cité des sciences et de l’industrie à partir du 26 mars 2013.

This paper suggests a new explanation for changes in economic and population growth with a long run perspective, emphasizing the role of land in the development process. Starting from a pre-industrialization state called the “Malthusian regime”, land and labor are the main production factors. The size of population is limited by the quantity of land available for households and by incomes. Technical progress driven by a “Boserupian effect” may push the economy towards a take-off regime. In this regime, capital accumulation begins and a “learning-by-doing” effect in production takes over from the “Boserupian effect”. If this effect is strong enough, the economy can reach an “ultimate growth regime”. In the different phases, land plays a crucial role.

Ce livre est le dernier d’une série de trois volumes qui ont pour ambition de couvrir les principales questions économiques et sociales contemporaines, à l’échelle nationale, européenne et mondiale. Leur particularité est d’avoir été conçus et écrits par des spécialistes de ces questions – universitaires et chercheurs reconnus – pour des lycéens et des étudiants de premier cycle. Les textes ici réunis se distinguent par trois qualités majeures : il s’agit à chaque fois de synthèses de l’état des connaissances scientifiques ; leur clarté et leur lisibilité les rendent accessibles sans compromettre leur rigueur ; leur problématisation donne du sens aux questions traitées et suscite l’intérêt du lecteur. Afin de mieux répondre encore aux interrogations sur le monde et notre société, en particulier celles qui se rapportent aux multiples crises auxquelles nous sommes confrontés, l’ouvrage a été non seulement actualisé et remanié, mais aussi enrichi par de nouvelles contributions. (résumé de l’éditeur)

This paper studies the quantity-quality trade-off model of fertility, under the assumption of hyperbolic discounting. It shows that the lack of self-control may play a different role in a developed economy and in a developing one. In the first case, characterized by a positive investment in quality, the lack of self-control may tend to reduce fertility. In the second case, it is possible that the lack of self-control leads to both no investment in quality and a higher fertility rate. It is also proved that if parents cannot commit on their investment in quality, a small change of parameters may lead to a jump in fertility and education.

Economic analysis is increasingly addressing long-term issues (such as global warming) that require a dynamic baseline for the world economy. In this article, we develop a three-factor (capital, energy, labour) macroeconometric (MaGE – Macroeconometrics of the Global Economy) model, and project growth for 147 countries to 2050. We improve on the literature by the following: (i) accounting for the energy constraint through dynamic modelling of energy productivity, (ii) modelling female participation rates consistent with education catch-up, (iii) departing from the assumptions of either a closed economy or full capital mobility (by applying a Feldstein-Horioka type relationship between saving and investment rates), and (iv) offering a fully consistent treatment of the Balassa-Samuelson effect. These innovative features have a sizeable impact on projected GDP.

Based on simulations of an original DGE model of the US and the Chinese economies under various monetary regimes, we show that an overhaul of China’s social safety net is capable of reducing global imbalances whatever the exchange-rate regime, provided international capital flows are allowed to react to expected return diff erentials, which requires some relaxation of capital controls. Exchange-rate flexibility would accelerate the rebalancing, but not make it larger. A monetary reform would fail to rebalance the economy unless the government simultaneously acts to curb NFA accumulation through consumption-enhancing reform or reducing its objective in terms of reserve accumulation.

We analyse the risk-taking behaviour of heterogenous intermediaries that are protected by limited liability and choose both their amount of leverage and the risk exposure of their portfolio. Due to the opacity of the financial sector, outside providers of funds cannot distinguish“prudent” intermediaries from those“imprudent” ones that voluntarily hold high-risk portfolios and expose themselves to the risk of bankrupcy. We show how the number of imprudent intermediaries is determined in equilibrium jointly with the interest rate, and how both ultimately depend on the cross-sectional distribution of intermediaries’capital. One implication of our analysis is that an exogenous increase in the supply of funds to the intermediary sector lowers interest rates and raises the number of imprudent intermediaries. Another one is that easy financing may lead an increasing number of intermediaries to gamble for resurection following a bad shock to the sector ‘scapital, again raising economywide systemic risk.

We analyse the term structure of interest rates in a general equilibrium model with incomplete markets, borrowing constraint, and positive net supply of government bonds. Uninsured idiosyncratic shocks generate bond trades, while aggregate shocks cause fluctuations in the trading price of bonds. Long bonds command a “liquidation risk premium” over short bonds, because they may have to be liquidated before maturity – following a bad idiosyncratic shock – precisely when their resale value is low – due to the simultaneous occurrence of a bad aggregate shock. Our framework endogenously generates limited cross-sectional wealth heterogeneity among the agents (despite the presence of uninsured idiosyncratic shocks), which allows us to characterise analytically the shape of the entire yield curve, including the yields on bonds of arbitrarily long maturities. Agentsʼ desire to hedge the idiosyncratic risk together with their fear of having to liquidate long bonds at unfavourable terms implies that a greater bond supply raises the level of the yield curve, while an increase in the relative supply of long bonds raises its slope.

We analyse the term structure of interest rates in a general equilibrium model with incomplete markets, borrowing constraint, and positive net supply of government bonds. Uninsured idiosyncratic shocks generate bond trades, while aggregate shocks cause fluctuations in the trading price of bonds. Long bonds command a “liquidation risk premium” over short bonds, because they may have to be liquidated before maturity – following a bad idiosyncratic shock – precisely when their resale value is low – due to the simultaneous occurrence of a bad aggregate shock. Our framework endogenously generates limited cross-sectional wealth heterogeneity among the agents (despite the presence of uninsured idiosyncratic shocks), which allows us to characterise analytically the shape of the entire yield curve, including the yields on bonds of arbitrarily long maturities. Agentsʼ desire to hedge the idiosyncratic risk together with their fear of having to liquidate long bonds at unfavourable terms implies that a greater bond supply raises the level of the yield curve, while an increase in the relative supply of long bonds raises its slope.

This paper discusses three policy tools to mitigate jobless recoveries during financial crises: inflation, real currency depreciation, and credit-recovery policies. Using a sample of financial crises in Emerging Market economies, we document that large inflationary spikes appear to help unemployment to get back to pre-crisis levels. However, the counterpart of inflation is sizably lower real wages. Hence, inflation does not prevent wage earners as a whole from getting hit by financial crises. Interestingly, neither the change in the real exchange rate nor the change in output composition (tradables/nontradables), from output peak to recovery point, displays a statistically significant relationship with inflation or jobless recovery. This suggests that currency depreciation can help reduce unemployment only insofar as it is associated with inflation, and that jobless recovery is likely due to nominal wage rigidity. The paper also shows that measures to reactivate credit flows could be beneficial to wage earners as a whole, as measured by the real wage bill.

This paper shows that it is possible to extend the scope of the existence of rational bubbles when uncertainty is introduced associated with rank-dependent expected utility. This RDU assumption can be viewed as a transformation of probabilities depending on the pessimism/optimism of the agent. The results show that pessimism favors the existence of deterministic bubbles, when optimism may promote the existence of stochastic bubbles. Moreover, under pessimism, the RDU assumption may generate multiple bubbly equilibria. The RDU assumption also leads to new conditions ensuring the (absence of) Pareto-optimality of the competitive equilibrium without bubbles. These conditions still govern the existence of bubbles.

We present growth scenarios for 147 countries to 2050, based on MaGE (Macroeconometrics of the Global Economy), a three-factor production function that includes capital, labour and energy. We improve on the literature by accounting for the energy constraint through dynamic modelling of energy productivity, and departing from the assumptions of either a closed economy or full capital mobility by applying a Feldstein-Horioka-type relationship between savings and investment rates. Our results suggest that, accounting for relative price variations, China could account for 33% of the world economy in 2050, which would be much more than the United States (9%), India (8%), the European Union (12%) and Japan (5%). They suggest also that China would overtake the United States around 2020 (2040 at constant relative prices). However, in terms of standards of living, measured through GDP per capita in purchasing power parity, China would still lag 10 percent behind the United States at the 2050 horizon.

We provide a first attempt to include off-balance sheet, implicit inssurance to SIFIs into a consistent assessment of fiscal sustainability, for 27 countries of the European Union. We first calculate tax gaps à la Blanchard (1990) and Blanchard et al. (1990). We then introduce two alternative measures of implicit off-balance sheet liabilities related to the risk of a systemic bank crisis. The first one relies of microeconomic data at the bank level. The second one relies on econometric estimations of the probability and the cost of a systemic banking crisis, based on historical data. The former approach tends to maximize the fiscal cost of systemic banking crises, whereas the latter one tends to minimize it. Hence we believe that the combined use of these two methodologies helps to gauge the range of fiscal risk.

This paper provides a detailed study of a simple life-cycle consumption model with quasi-hyperbolic discounting and an imperfect financial market. It gives a complete characterization of savings behavior. The joint assumptions of quasi-hyperbolic discount factors and no-borrowing constraints may lead to non-convexities in selves’ objective functions that may imply discontinuous equilibrium strategies. The savings function may undergo jumps and non-monotonicities when the income or the interest rate reaches a threshold value. These ”anomalies” may exist even for reasonable parameter values.

This paper documents time variation in fiscal policy multipliers in Germany, the UK and the US over the period 1971-2009. The analysis is based on a quarterly vector autoregression (VAR) model. For the German and the UK cases, the VAR is augmented by “global factors” representing developments in the world economy. By estimating these models on different samples of data, our evidence indicates that fiscal multipliers have substantially changed over time, often in a non-monotonic way. In particular, for Germany, the net tax multiplier is found to follow a humped-shaped curve, peaking in the middle of the 1990s, declining thereafter, before rising again during the recent 2008-2009 crisis. Government spending shocks are found to be more powerful to stimulate output after the reunification. We show that significant crowding-in effects for private investments contribute to explain this finding. For the UK, we observe large variations in fiscal multipliers over the period, with non-Keynesian developments during the fiscal consolidation period of the 1980s. After that, British multipliers are low and only pick up at the very end of the sample, when the 2008-2009 crisis is included in the analysis. For the US, short-run multipliers appear to be broadly stable over the period, but medium-run multipliers tend to decline, in particular in the end of the 1980s and in the 1990s. This can be due to the large fiscal imbalances over this period that may have triggered Ricardian effects, before a fiscal surplus was achieved at the end of the 1990s.

We use a French firm-level data set containing 13,000 firms over the period 1994-2004 to analyze the relationship between credit constraints and firms’ R&D behavior over the business cycle. Our main results can be summarized as follows: (i) R&D investment is countercyclical without credit constraints, but it becomes procyclical as firms face tighter credit constraints; (ii) this result is only observed for firms in sectors that depend more heavily upon external finance, or that are characterized by a low degree of asset tangibility; (iii) in more credit-constrained firms, R&D investment plummets during recessions but does not increase proportionally during upturns.

We consider the robustness of extensive form mechanisms to deviations from common knowledge about the state of nature, which we refer to as information perturbations. First, we show that even under arbitrarily small information perturbations the Moore-Repullo mechanism does not yield (even approximately) truthful revelation and that in addition the mechanism has sequential equilibria with undesirable outcomes. More generally, we prove that any extensive form mechanism is fragile in the sense that if a non-Maskin monotonic social objective can be implemented with this mechanism, then there are arbitrarily small information perturbations under which an undesirable sequential equilibrium also exists. Finally, we argue that outside options can help improve efficiency in asymmetric information environments, and that these options can be thought of as reflecting ownership of an asset.

Alors que la crise de la dette souveraine s’approfondit, les partenaires de l’Europe hésitent toujours à offrir leur aide à la zone euro. Ils considèrent que l’Union doit avant tout s’appuyer sur ses propres ressources et résoudre ses problèmes de gouvernance. Pourtant, cette crise constitue une nouvelle menace pour les autres pays, plus particulièrement en Asie. L’Europe ne représente pas seulement un grand marché dont il faut garantir la solvabilité, mais les pays asiatiques pourraient avoir un intérêt spécifique à la survie de l’euro qui, au cours la prochaine décennie, constituera encore la seule alternative crédible au dollar comme monnaie internationale. Une augmentation des ressources du Fonds Monétaire International semble être le meilleur moyen de fournir une aide financière, en contrepartie de nouvelles réformes de la gouvernance du Fonds. Les pays asiatiques peuvent également contribuer à la résolution de la crise en offrant des marchés dynamiques aux entreprises européennes à travers un rééquilibrage plus rapide de la croissance chinoise et une ouverture croissante des marchés. Cette Lettre du CEPII s’appuie sur la septième réunion du Forum économique Asie-Europe qui s’est tenue à Séoul le 9 décembre 2011.

Government intervention is often perceived as a constraint on market forces and thereby on economic growth. In particular, over the past three decades, increasing awareness that product and labor market liberalization enhances growth has led scholars and policy makers to also recommend a reduction in the role and size of governments. True, the recent global fi nancial crisis showed the importance of the state as a regulator for the fi nancial system. Indeed, when fi nancial institutions are “too big to fail,” the state may have to intervene to preserve the stability of the whole system.1

In recent years, factor models have received increasing interest from central banks and international organizations to forecast macroeconomic variables. We examine the performance of these models in forecasting the French GDP growth rate over short horizons. The factors are extracted from a large data set including surveys balances, real, financial and international variables. A pseudo real time evaluation over the last decade exhibits a gain relative to the usual benchmarks. However, forecasts remain inaccurate before the beginning of the quarter. We also show that the use of international and financial variables can improve forecasts at the longest horizons.

This paper shows that a multiple regression with two highly correlated explanatory variables, both of them with a near zero correlation with the dependent variable may correspond to a spurious regression or to a homeostatic model, with estimates highly sensible to outliers. The regression method does not allow how to decide which one of the two models is relevant. Statistical significance of the (very high) parameters is easily obtained, as shown doing Monte Carlo simulations. An example is provided by the Burnside and Dollar [2000] article on aid, policies and growth.

Cet article réexamine de façon théorique la question de l’unicité du prix du carbone au niveau international. Tous les pays doivent-ils payer le même taux de taxe carbone pour lutter contre le changement climatique ? L’argument qui permet de répondre par l’affirmative est un argument d’efficacité productive : l’unicité du prix induit l’égalisation des coûts marginaux de réduction des émissions entre tous les émetteurs, ce qui permet d’atteindre à moindre coût un objectif donné de réduction d’émissions. Parmi les arguments en sens contraire qui peuvent être avancés, nous nous intéressons à celui de l’existence préalable de taxes sur les énergies fossiles très différentes selon les pays. Nous montrons qu’en dépit de ces taxes préexistantes, destinées à corriger des pollutions locales et à financer des dépenses publiques, le prix du carbone doit être le même dans tous les pays à condition que des transferts forfaitaires entre pays soient possibles, pour prendre en compte les questions d’équité. Si ces transferts ne peuvent être mis en place, les prix du carbone doivent être différenciés.

This paper investigates the relevance of the no-Ponzi game condition for public debt (i.e. the public debt growth rate has to be lower than the real interest rate, a necessary assumption for Ricardian equivalence) and the transversality condition for the GDP growth rate (i.e. the GDP growth rate has to be lower than the real interest rate). First, on the unbalanced panel of 21 countries from 1961 to 2010 available in OECD database, those two conditions were simultaneously validated only for 29% of the cases under examination. Second, those two conditions were more frequent in the 1980s and the 1990s following changes towards more restrictive monetary policies. Third, in tune with the Keynesian view, when the real interest rate is higher than the GDP growth, it corresponds to 75% of the cases of the increases of the debt/GDP ratio and to only 43% of the cases of the decreases of the debt/GDP ratio (fiscal consolidation).

Nous étudions la manière dont les exportateurs d’un pays réagissent à un choc de TVA dans un pays de destination. Les chocs de TVA étant par nature sans impact sur le coût marginal, l’étude de leurs répercussions sur les prix permet d’identifier les effets de marge purement liés à des effets de demande. À partir des données de douane françaises sur la période 1995-2005, nous obtenons une contraction de marge moyenne de 67% et médiane de 46% suite à une hausse du taux de TVA dans un pays de destination. La hausse du taux de TVA est donc répercutée de manière incomplète dans les prix à la consommation. L’ajustement de marge est plus marqué pour les entreprises, secteurs et destinations d’exportation pour lesquels la part de marché moyenne est relativement élevée. Nous utilisons nos estimations, ainsi que la structure du modèle d’Atkeson & Burstein (2008), pour reconstituer la distribution des ajustements de marge des différents couples secteurs-destinations en fonction des parts de marché moyennes.

The bargaining power of international banks is currently still very high as compared with what it was at the time of the Bretton Woods conference. As a consequence, systemic financial crises are likely to remain recurrent phenomena with large effects on macroeconomic aggregates. Mainstream macroeconomic models dealing with financial frictions failed to explain at least eight stylized facts of the ongoing crisis. We therefore suggest two complementary assumptions: (i) a systemic bankruptcy risk stable equilibrium may be feasible, and (ii) inefficient financial markets rarely ensure that the price of an asset is equal to its ‘fundamental long-term value’.

Is maximum likelihood suitable for factor models in large cross-sections of time series? We answer this question from both an asymptotic and an empirical perspective. We show that estimates of the common factors based on maximum likelihood are consistent for the size of the cross-section (n) and the sample size (T) going to in¯nity along any path and that maximum likelihood is viable for n large. The estimator is robust to misspecification of cross-sectional and time series correlation of the idiosyncratic components. In practice, the estimator can be easily implemented using the Kalman smoother and the EM algorithm as in traditional factor analysis.

Dans le cadre des discussions sur la réforme du système monétaire international, le Droit de Tirage Spécial (DTS) a connu un regain d’intérêt. La décision des ministres des finances et banquiers centraux du G20, en avril 2011, de travailler à un “sentier d’élargissement du DTS fondé sur des critères”1 laisse envisager l’inclusion de la monnaie chinoise dans le DTS, aux côtés du dollar, de l’euro, du yen et de la livre Sterling. Ce projet est motivé par deux principaux objectifs : d’une part, rendre le DTS plus attrayant comme réserve de valeur et comme unité de compte ; d’autre part, renforcer la coopération monétaire internationale. Le principal obstacle est que la monnaie chinoise n’est pas “librement utilisable”, selon la terminologie du Fonds monétaire international. Compte tenu du processus en cours d’internationalisation et de flexibilisation du régime de change, nous montrons toutefois qu’une inclusion relativement rapide du renminbi dans le DTS pourrait apporter des bénéfices substantiels en termes de représentativité, d’efficacité et de stabilité.

This paper proposes a systematic analysis of the problem of world consistency when deriving equilibrium exchange rates. World inconsistency can arise for two reasons. First, real effective misalignments of currencies out of the considered sample are implicitly assumed to be the mirror image of those of the currencies under review. Second, only N − 1 independent bilateral equilibrium exchange rates can be derived from a set of N effective rates. Here we measure the extent of these two problems by estimating equilibrium exchange rates for 15 countries of the G20 in effective as well as bilateral terms and by varying the assumptions concerning the rest of the world (RoW) and the numeraire currency. Our results show that the way the rest of the world is tackled has a major impact on the calculation of effective misalignments and especially bilateral misalignments.

We analyse the effects of fiscal expansions when public debt is used as liquidity by the private sector. Aggregate shocks are introduced into an incomplete-market economy where heterogenous agents face occasionally binding borrowing constraints and store wealth to smooth out idiosyncratic income fluctuations. Debt-financed increases in spending facilitate self-insurance by bond holders and may crowd in private consumption. They also loosen the borrowing constraints faced by firms, thereby raising labour demand and possibly the real wage. Whether private consumption and wages rise or fall ultimately depends on the relative strengths of the liquidity and wealth effects that arise following the shock.

The paper provides an empirical analysis of the growth performance of transition countries in a comparative perspective, separating episodes of crises from those of growth. Performance is measured by the output response following recessions, rather than average rates of growth that aggregate periods of recessions and periods of growth. Results highlight significant differences between transition and non-transition countries, and heterogeneity within the transition group. Distinguishing the performance following the so-called “transitional recession” from that of “normal recessions”, the analysis allows separating the role of initial conditions, pre-transition, from the effects determined by the economic structure that emerged after the launch of market reforms. The post-recession behavior of output in Central-Eastern Europe resembles that of emerging and developing countries in the aftermath of banking and financial crises, often following significant liberalizations. In contrast, the post-crisis performance of CIS countries resembles the output response observed during episodes of civil wars, and remains significantly different from the normal response of an average market country. Therefore, the ability to rebound after a crisis is a key element of the growth performance of different transition countries. We observe that such performance depends on economic reforms and especially on the complementarities among different reforms.

Reform of the international monetary system is under discussion after three decades of apathy. Tectonic shifts in the balance of international power have made reform more urgent. However, in the short term, there is little chance of a grand redesign of the international monetary system. Nevertheless, concrete steps should be taken. First, consensus is needed on exchange rates, capital flows and reserves. Second, financial safety nets must be improved so that countries do not have to self-insure by accumulating reserves or rely on possible bilateral swap lines to access liquidity. Third, a change in the composition of the Special Drawing Right should be planned for, to strengthen the multilateral framework. The most workable short-term deliverables seem to be (i) guidelines on and surveillance of capital controls; (ii) a new regime for deciding on SDR allocations that would facilitate more frequent use of this instrument; and (iii) the inclusion of the renmimbi in the SDR basket. These reforms would be a partial move, preparing the ground for further developments.

We consider a model with two energy sources, a non-renewable one, cheap but polluting, and a renewable one, expensive but clean, let’s say coal and solar. The aim of environmental policy is to maintain atmospheric carbon concentration under a given ceiling, chosen to prevent an excessive rise of the temperature and catastrophic damages. Before the ceiling damages exist but remain small, hence manageable. We show first that costs matter a lot. Whatever abundant or rare, if solar is more expensive than coal at the ceiling, it will never be used before the end of the phase at the ceiling, when coal becomes so scarce that the ceiling will never be reached again. On the contrary, if solar is less expensive than coal at the ceiling, it may even be sufficiently cheap to be exploited before the ceiling, in which case first coal is exploited alone, next both resources are used together before, at and after the ceiling, and finally solar is exploited alone, after the exhaustion of coal. Second, the carbon shadow value is first increasing until the ceiling is reached, next decreasing during the phase at the ceiling, and finally is stabilized at a constant level after the ceiling. The initial carbon shadow cost is an increasing function of the value of the marginal damage, and a decreasing function of the ceiling. Lastly, contrary to intuition, higher marginal damages and/or a lower ceiling induce a delay in the penetration of solar and also a delay in the transition towards a totally clean energy.

Après trois décennies d’apathie, la réforme du système monétaire international est de nouveau à l’ordre du jour. À court terme, les chances d’une refonte majeure sont minces. Néanmoins, des mesures concrètes devraient être prises. Tout d’abord, un consensus doit être trouvé sur les taux de change, les flux de capitaux et les réserves. Ce consensus, moins inatteignable qu’on pourrait le penser, devrait être consigné dans une sorte de code de bonne conduite assorti d’un dispositif de surveillance. Ensuite, les filets de sécurité financière doivent être améliorés afin d’éliminer le motif d’auto-assurance de l’accumulation de réserves officielles. La voie la moins difficile pourrait être un nouveau mode de décision concernant les allocations des Droits de Tirage Spéciaux (DTS), facilitant leur utilisation plus fréquente. Enfin, un changement dans la composition des DTS devrait être programmé pour y inclure le renminbi, afin de renforcer le cadre multilatéral. Ces réformes partielles seraient un premier pas vers d’autres évolutions à venir.

We examine the effect of exchange-rate misalignments on competition in the market for large commercial aircraft. This market is a duopoly where players compete in dollar-denominated prices while one of them, Airbus, incurs a large fraction of its costs in euro. We estimate price elasticities for big aircraft, and construct a simulation model to investigate how companies adjust their prices to deal with the effects of a temporary misalignment and how this affects profit margins and volumes. We conclude that, due to the duopolistic nature of the aircraft market, Airbus will pass only a small part of the exchange-rate fluctuations on to customers. Moreover, due to features specific to the aircraft industry, such as customer switching costs and learning-by-doing, even a temporary departure of the exchange rate from its long-run equilibrium level may have permanent effects on the industry.

La réforme du système monétaire international (SMI) figure en bonne place à l’agenda du G20, dont la France assure la présidence pour un an. L’hégémonie du dollar est remise en cause depuis de nombreuses années et la crise de 2007-2009 a encore renforcé la défiance à l’égard du billet vert. Les mutations de l’économie mondiale actuellement à l’œuvre plaident pour l’avènement d’un système monétaire multipolaire reposant sur le dollar, le renminbi et l’euro. Ce nouveau régime pourrait gommer certaines imperfections du (non-) système monétaire international actuel, mais il est également susceptible d’en exacerber d’autres comme la volatilité des taux de change ou le risque de ” guerre des monnaies “. Avec un tel système, certaines questions resteraient de plus sans réponse, comme celle concernant la fourniture de liquidité mondiale. Selon les conditions de sa mise en œuvre, un régime monétaire multipolaire pourrait ainsi s’avérer le meilleur comme le pire des scénarios.

Financial crises are often associated with an endogenous credit reversal followed by a fall in asset prices and serious disruptions in the financial sector. To account for this sequence of events, this paper constructs a model where excessive risk-taking by investors leads to a bubble in asset prices, and where the supply of credit to these investors is endogenous. We show that the interplay between excessive risk-taking and the endogeneity of credit may give rise to multiple equilibria associated with different levels of lending, asset prices, and output. Stochastic equilibria lead, with positive probability, to an inefficient liquidity dry-up, a market crash, and widespread failures by borrowers. The possibility of multiple equilibria and self-fulfilling crises is shown to be related to the severity of the risk-shifting problem in the economy.

This paper shows consistency of a two step estimation of the factors in a dynamic approximate factor model when the panel of time series is large (n large). In the first step, the parameters of the model are estimated from an OLS on principal components. In the second step, the factors are estimated via the Kalman smoother. The analysis develops the theory for the estimator considered in Giannone, Reichlin, and Sala (2004) and Giannone, Reichlin, and Small (2008) and for the many empirical papers using this framework for nowcasting.

We study the Markov-perfect Nash equilibrium (MPNE) of a game between oil-importing countries, who seek to maintain the atmospheric carbon concentration under a given ceiling, and oil-exporting countries. The oil-importing countries set a carbon tax and the oil-exporting countries control the producer price. We obtain implicit feedback rules and explicit non-linear time paths of extraction, carbon tax, and producer price. Consumers are always able to reap some share of the scarcity and monopoly rents, whereas producers partially pre-empt the carbon tax only if the marginal damage under the ceiling is small. We compare the MPNE to the efficient, open-loop, and cartel-without-tax equilibria.

Following Stollery (1998), we extend the Solow– Dasgupta–Heal model to analyze the effects of global warming The rise of temperature is caused by the use of fossil resources so that the temperature level can be linked to the remaining stock of these resources. The rise of temperature affects both productivity and utility. We characterize optimal solutions for the maximin and zero-discounting cases and present closed form solutions for the case where the production and utility functions are Cobb-Douglas, and the temperature level is an exponential function of the remaining stock of resources. We show that a greater weight of temperature in intratemporal preferences or a larger intertemporal elasticity of substitution both lead to postpone resource use.

What accounts for the dynamics of financial reforms? This paper identifies the political regime as main factor. Focusing on democratization and financial reform, it puts forward novel evidence for a U-shaped relation, across countries, over time as well as in a panel setting for different reform measures and a wide range of estimators. Partial democracy is a main obstacle to financial reforms and democratization, when incomplete, may lead to severe financial reform reversals. We also show that, even when de jure set off de facto financial liberalization, the political regime still play a fundamental role in the reform’s implementation phase.

Ce livre présente l’ensemble des concepts et raisonnements fondamentaux de la microéconomie. Chaque chapitre s’ouvre sur un rappel complet et méthodique des points clés de l’analyse théorique. Les auteurs exposent ensuite comment cette dernière permet d’éclairer la réalité économique à l’aide d’exemples concrets et d’exercices entièrement corrigés. Parmi les sujets couverts : Le comportement des consommateurs et des producteurs ; L’équilibre du marché en concurrence parfaite ; L’analyse des comportements stratégiques (théorie des jeux) ; La théorie de l’information et des incitations ; Les différentes défaillances du marché : biens publics, monopole, concurrence imparfaite, rôle de l’état dans la régulation marchande, etc. La progression pédagogique, les nombreux exemples et illustrations ainsi que les exercices riches et variés font de cet ouvrage une synthèse de cours indispensable pour tout étudiant en microéconomie.

This paper studies the optimal growth of a developing non-renewable natural resource producer. It extracts the resource from its soil, and produces a single consumption good with man-made capital. More- over, it can sell the extracted resource abroad and use the revenues to buy an imported good, which is a perfect substitute of the domes- tic consumption good. The domestic technology is convex-concave, so that the economy may be locked into a poverty trap. We show that the extent to which the country will escape from the poverty trap depends, besides the interactions between its technology and its impatience, on the characteristics of the resource revenue function, on the level of its initial stock of capital, and on the abundance of the natural resource.

In this article, we study the joint dynamics of the demography and the economy. We explore how economic conditions affect fertility choices, and in return how the population growth rate affects both financial and labor markets. Our main contribution is to consider a realistic demographic setup that allows characterizing the age at which individuals decide to give birth to their children. In such a framework, we aim at studying the existence of an equilibrium. We notably prove there exists a monetary steady state if the average age of consumers is greater than the average age of producers.

The joint behaviour of US aggregate consumption and saving over the period 2007–2009, and notably the pronouned U-shaped pattern of consumption together with the rise in saving, are difficult to reconcile with the view that financial markets are frictionless. We propose an alternative framework in which financial markets are incomplete and where households form a buffer stock of precautionary saving to self-insure against the (time-varying) risk of falling into unemployment, with the consequence of considerably amplifying and propagating crises. Our model can be solved in closed form because the wealth heterogeneity generated by uninsured income shocks remains minimal. We end the article by arguing that fully incorporating uninsured and time-varying individual risks into macroeconomic analysis may drastically alter our understanding of the business cycle, macroeconomic policy, and the role of financial intermediaries.

This paper explores the consequences of imperfect competition on capital accumulation. The framework is an OLG growth model with altruistic agents. Two types of long run equilibria exist: egoistic or altruistic. We assume both competitive and non-competitive firms exist, the latter being endowed with more productive technology. They behave strategically on the labor market: they take into account the impact of their demand for labor on the equilibrium wage and on their profit. The effect of technical progress for a non-competitive firm depends on the initial productivity of the firm and on the type of steady state (egoistic or altruistic). An increase in the productivity of the most productive firm has a negative impact on capital accumulation in an egoistic steady state, and a positive one in an altruistic steady state. An increase in the productivity of the competitive sector can have various effects on capital accumulation. If the productivity levels of the non-competitive firms are close enough, capital accumulation increases in an egoistic steady state and decreases in an altruistic one. But, the impact of increasing productivity in the competitive sector can be reversed if the productivity of the less productive non-competitive firm is low enough.

This paper studies how the assignment of patents as collateral determines the savings of firms and magnifies the effect of innovative rents on investment in research and development (R&D). We analyse the behaviour of innovative firms that face random and lumpy investment opportunities in R&D. High growth rates of innovations, possibly higher than the real rate of interest, may be achieved despite financial constraints. There is an optimal level of publicly funded policy by the patent and trademark office that minimizes the legal uncertainty surrounding patents as collateral and maximizes the growth rate of innovations.

Most empirical studies on price setting that use micro data focus on advanced industrial countries. In this paper we analyze the experience of an emerging economy, Slovakia, using a large micro-level dataset that accounts for a substantial part of the consumer price index (about 5 million observations). We find that market structure is an important determinant of pricing behavior. The effect of market structure on persistence of inflation results from two conflicting forces. Increased competition may reduce persistence by increasing the frequency of price changes. On the contrary, higher competition may increase persistence through inertial behaviour induced by the strategic complementarity among price setters. In our case study, we find that the latter effects dominate. Indeed, the dispersion of prices is higher while persistence is lower in the non-tradable sectors, suggesting that higher competition is not conducive to lower persistence. Furthermore, we find that the frequency of price changes depends negatively on the price dispersion and positively on the product-specific inflation. These results seem consistent with predictions of Calvo’s staggered price model.

This article is devoted to the study of the Pareto-efficiency of the competitive equilibrium for a simple overlapping generations economy with endogenous fertility. For CES utility and production functions, it is proved that the economic properties of the economy are closely related to the two elasticities of substitution. First, the competitive equilibrium exists and is unique if the sum of the two elasticities is not smaller than one. Secondly, a set of parameters is provided such that the equilibrium is both in under-accumulation and inefficient. Thirdly, a sufficient condition is proved that ensures that an equilibrium converging in under-accumulation is Pareto-efficient: the sum of the two elasticities must not be greater than two.

New technology has been credited with solving environmental problems by mitigating the effects of pollutants. We construct a general equilibrium model in which abatement technology is a real option and pollution’s (negative) amenity value alters both risk aversion and the intertemporal elasticity of substitution. We derive the tax scheme such that in a decentralized economy agents adopt the abatement technology at the time that is socially optimal. We show that the higher the greenness of preferences, the earlier the adoption and the higher the optimal tax rate. We also obtain that adoption is fostered by uncertainty if the effective intertemporal elasticity of substitution is large enough, but is not affected by uncertainty if this elasticity is low. Moreover, the optimal tax rate, which only exists if the effective intertemporal elasticity of substitution is high, is an increasing function of uncertainty.

En 1998, les journées de l’Association Française de Science Économique furent organisées à Toulouse par Michel Moreaux et Michel Mougeot. Certaines des contributions présentées à cette occasion furent ensuite publiées par Économie et Prévision, dans le cadre d’un numéro spécial sur l’Économie de l’Environnement et des Ressources Naturelles(1). Ce numéro paraît dans un cadre identique. Il est lui aussi consacré à l’Économie de l’Environnement et des Ressources Naturelles. Il rassemble une sélection des contributions présentées en juin 2008 lors des Journées Thématiques de l’AFSE, organisées par le LERNA à Toulouse. (1) Économie de l’Environnement et des Ressources Naturelles, numéro d’Économie et Prévision édité par Pierre Malgrange, Michel Moreaux et Michel Mougeot, 143-144, avril-juin 2000.

The paper exploits macro-panel data for OECD countries. Close to the technological frontier, the education level, product market rigidities and employment protection legislation would be significantly related to TFP growth, with a substantial contribution of the interaction between market rigidities.

Les concepts d’épargne véritable et de produit national net, ou vert, apparaissent de plus en plus comme des outils utiles pour apprécier la durabilité de la croissance. L’objectif de l’article est de montrer que la théorie de la croissance en présence de ressources naturelles contribue effectivement à leur donner un fondement, bien qu’elle se heurte à des difficultés pratiques notamment du point de vue de la disponibilité des données. La règle de Hartwick est ici la référence fondamentale. Elle montre que la nullité de l’épargne véritable assure la durabilité de la croissance, dès lors que tous les stocks de capital pertinents ont été pris en compte dans sa définition. Nous mettons en évidence cette propriété dans le modèle canonique de Dasgupta-Heal-Solow, élargi par la prise en compte de l’aménité du capital naturel. Nous élargissons ensuite notre point de vue en supposant que l’environnement économique n’est plus stationnaire : le progrès technique ou la croissance de la population affecte les capacités de production ; les échanges internationaux élargissent le domaine des possibles pour un pays. Nous montrons que des formes adaptées de la règle de Hartwick restent alors valides, mais qu’elles ne se réduisent pas à la nullité de l’épargne véritable usuelle et que leur mise en oeuvre pratique pose des problèmes accrus de disponibilité des données.

We use a French firm-level data set containing 13,000 firms over the period 1993-2004 to analyze the relationship between credit constraints and firms’ R&D behavior over the business cycle. Our main results can be summarized as follows: (i) the share of R&D investment over total investment is countercyclical without credit constraints, but it becomes less countercyclical as firms face tighter credit constraints; (ii) this result is magnified for firms in sectors that depend more heavily upon external finance, or that are characterized by a low degree of asset tangibility ; (iii) in more credit constrained firms, R&D investment share plummets during recessions but does not increase proportionally during upturns; (iv) average R&D investment and productivity growth are more negatively correlated with sales volatility in more credit constrained firms.

Using both macro- and industry-level data this paper analyses the non-linear effects of financial development and international financial integration on economic growth in Europe. Special attention is devoted to modeling threshold effects with respect to the depth of financial markets as a measure of economies’ absorption capacity. Results reveal evidence of significant non-linear effects, with less developed European countries gaining more from financial development. In contrast, benefits of international financial integration become significant at higher levels of financial development. The data show that monetary integration in Europe significantly contributed to a higher degree of financial integration. Entry of new EU members to the European Monetary Union may thus be the mechanism ensuring a virtuous development circle, as the adoption of the Euro may allow the development of domestic financial markets and financial integration to go hand-in-hand.

This paper studies the undiscounted utilitarian optimal paths of the canonical Dasgupta–Heal–Solow model when the stock of natural capital is a direct argument of well-being, besides consumption. We use a Keynes–Ramsey rule which yields a generalization of Hartwick’s rule. We characterize solutions in the Cobb-Douglas utility case, and analyse the influence of the intertemporal elasticity of substitution on the time profile of the optimal paths. We show that the ratio of the values of the resource and capital stocks remains constant along the optimal path, and is independent of the initial conditions.

This paper analyses the effects of money shocks on macroeconomic aggregates in a flexible-price, incomplete-markets environment that generates persistent wealth inequalities amongst agents. In this framework, unexpected money shocks redistribute wealth from the cash-rich employed to the cash-poor unemployed, and induce the former to increase their labour supply in order to maintain their desired levels of consumption and precautionary savings. The reduced-form dynamics of the model is a textbook “output-inflation tradeoff” equation whereby inflation shocks raise current output. The attenuating role of mean inflation and money growth persistence on this non-neutrality tradeoff, as well as some of the welfare implications of wealth redistribution, are also examined.

We use a French firm-level data set containing 13,000 firms over the period 1993-2004 to analyze the relationship between credit constraints and firms’ R&D behavior over the business cycle. Our main results can be summarized as follows: (i) the share of R&D investment over total investment is countercyclical without credit constraints, but it becomes less countercyclical as firms face tighter credit constraints; (ii) this result is magnified for firms in sectors that depend more heavily upon external finance, or that are characterized by a low degree of asset tangibility ; (iii) in more credit constrained firms, R&D investment share plummets during recessions but does not increase proportionally during upturns; (iv) average R&D investment and productivity growth are more negatively correlated with sales volatility in more credit constrained firms.

Simultaneity between commitment periods (2008-2012) of the International Emissions Trading scheme and the European Emissions Trading Scheme is likely to generate distortions in terms of burden distribution among sectors. There will be two levels of trading (a country and an entity level), which both need to be consistent with one another. Besides, features of these two schemes are different. Thus, to reach international targets, each European government will have to adopt an additional policy. It may consist in implementing a tax on emissions of sectors non-covered by EU-ETS. The level of this tax depends on the effort realized within the European market. We propose a modeling of this two-level environmental policy, focusing on the additional tax rates and introducing several cases of linkages. We obtain empirical estimations of the efforts that could be demanded to non-covered sectors, and of the price(s) of carbon. We show that the opportunities of trading provided by the international market alleviate the burden supported by non-covered sectors.

This paper studies the maximin paths of the canonical Dasgupta-Heal-Solow model when the stock of natural capital is a direct argument of well-being, besides consumption. Hartwick’s rule then appears as an efficient tool to characterize solutions in a variety of settings. We start with the case without technical progress. We obtain an explicit solution of the maximin problem in the case where production and utility are Cobb-Douglas. When the utility function is CES with a low elasticity of substitution between consumption and natural capital, we show that it is optimal to preserve forever a critical level of natural capital, determined endogeneously. We then study how technical progress affects the optimal maximin paths, in the Cobb-Douglas utility case. On the long run path of the economy capital, production and consumption grow at a common constant rate, while the resource stock decreases at a constant rate and is therefore completely depleted in the very long run. A higher amenity value of the resource stock leads to faster economic growth, but to a lower long run rate of depletion. We then develop a complete analysis of the dynamics of the maximin problem when the sole source of well-being is consumption, and provide a numerical resolution of the model with resource amenity. The economy consumes, produces and invests less in the short run if the resource has an amenity value than if it does not, whereas it is the contrary in the medium and long runs. However, and without surprise, the resource stock remains for ever higher with resource amenity than without.

The Kyoto Protocol, which came into force in February 2005, allows countries to resort to ‘supplementary activities’, consisting particularly in carbon sequestration in agricultural soils. Existing papers studying the optimal carbon sequestration recognize the importance of the temporality of sequestration, but overlook the fact that it is an asymmetric dynamic process. This paper takes explicitly into account the temporality of sequestration. Its first contribution lies in the modelling of the asymmetry of the sequestration/de-sequestration process at a micro level, and of its consequences at a macro level. Its second contribution is empirical. We compute numerically the optimal path of sequestration/de-sequestration for specific damage and cost functions, and a calibration that mimics roughly the world conditions. We show that with these assumptions sequestration must be permanent, and that the error made when sequestration is supposed immediate can be very significant.

We construct a general equilibrium model with incomplete markets and borrowing constraints, in order to study the term structure of real interest rates. Agents are subject to both aggregate and idiosyncratic income shocks, which latter may force them into early portfolio liquidation whilst in recession. We derive a closed-form equilibrium with limited agents heterogeneity (despite market incompleteness), which allows us to derive analytical expressions for bond prices and returns at any maturity. The desirability of bonds as liquidity makes the aggregate bond demand downward-sloping. One consequence of this is that a larger bond supply raises both the level and the slope of the yield curve.

In this paper we study the interaction between economic policy and preferences when both are endogenous. Economic policy results from a vote, whereas individual preferences are influenced by specific investment in training and education. The paper focuses on a particular economic policy: the financing of the social security system. Moreover, it considers a specific education investment: parents expect a gift from their children when old and devote resources in order to arouse the altruism of their children. Therefore, preferences of the children are trained in relation to the size of the social security system, which in turn results from the preferences of the median voter. The politico-equilibrium of this economy is compared to the social optimum.

Financial crises are often associated with an endogenous credit reversal followed by a fall in asset prices and serious disruptions in the financial sector. To account for this sequence of events, this paper constructs a model where the excessive risk-taking of portfolio investors leads to a bubble in asset prices (in the spirit of Allen and Gale, “Bubbles and Crises”, Economic Journal, 2000), and where the supply of credit to these investors is endogenous. We show that the interplay between the risk shifting problem and the endogeneity of credit may give rise multiple equilibria associated with different levels of lending, asset prices, and output. Stochastic equilibria lead, with positive probability, to an inefficient liquidity dry-up at the intermediate date, a market crash, and widespread failures of borrowers. The possibility of multiple equilibria and self-fulfilling crises is showed to be related to the severity of the risk shifting problem in the economy.

This paper presents an overlapping generations model with altruistic consumers, in which pension funds, by holding a signi…cant share of capital assets, produce non competitive behavior. We study the consequences of such behavior on capital accumulation and welfare in the long run when subsidies are associated with contributions to pension funds. If bequests are operative and the subsidy rate is not too high, the capital stock increases with the introduction of pension funds, and this increases long run utility. If bequests are not operative without pension funds, the rise in long-run welfare is no longer guaranteed, even if the subsidy rate is low.

Our intention is to study, in the framework of a very simple optimal growth model, the consequences on the optimal paths followed by consumption and the environmental quality of an endogenous discounting. Consumption directly comes from the use of environmental services and so is a direct cause of environmental degradation. The environment is valued both as a source of consumption and as an amenity. For a sustainability concern, we introduce an endogenous discount rate growing with the environmental quality, and compare the optimal growth paths with the ones obtained in the usual case of exogenous and constant discounting. We show that the convergence of the environmental quality towards a steady state occurs only for a very special configuration of the parameters in the exogenous discounting case, while it occurs generically in the endogenous discounting one. This happens for a utility discount rate becoming suficiently high when the environmental quality is high and suficiently low when the environmental quality is poor. In this case then, endogenous discounting with a positive marginal discount rate allows us to avoid the depletion of the environment.

Simultaneity between commitment periods (2008-2012) of the International Emissions Trading scheme and the European Emissions Trading Scheme is likely to generate distortions in terms of burden distribution among sectors. There will be two levels of trading (a country and an entity level), which both need to be consistent with one another. Besides, features of these two schemes are different. Thus, to reach international targets, each European government will have to adopt an additional policy. It may consist in implementing a tax on emissions of sectors non-covered by EU-ETS. The level of this tax depends on the effort realized within the European market. We propose a modeling of this two-level environmental policy, focusing on the additional tax rates and introducing several cases of linkages. We obtain empirical estimations of the efforts that could be demanded to non-covered sectors, and of the price(s) of carbon. We show that the opportunities of trading provided by the international market alleviate the burden supported by non-covered sectors.

Advanced market economies are characterized by a continuous process of creative destruction. Market forces and technological developments play a major role in shaping this process, but institutional and policy settings also influence firms’ decision to enter, to expand if successful and to exit if competition becomes unbearable. In this paper we focus on the effects of financial development on the entry of new firms and the expansion of successful new businesses. Drawing from harmonized firm-level data for 16 industrialized and emerging economies, we find that access to finance matters most for the entry of small firms and in sectors that are more dependent upon external finance. This finding is robust to controlling for other potential entry barriers (labour market regulations and entry regulations). On the other hand, financial development has either no effect or a negative effect on entry by large firms. Access to finance also helps new firms expand if successful. Both private credit and stock market capitalization are important for promoting entry and post-entry growth of firms. Altogether, these results suggest that, despite significant progress over the past decade, many countries, including those in Continental Europe, should improve their financial markets so as to get the most out of creative destruction, by encouraging the entry of new (especially small) firms and the post-entry growth of successful young businesses.

This paper analyses the effect of transitory increases in government spending when public debt is used as liquidity by the private sector. Aggregate shocks are introduced into an incomplete-market economy where heterogenous, infinitely-lived households face occasionally binding borrowing constraints and store wealth to smooth out idiosyncratic income fluctuations. Debt-financed increases in public spending facilitate self-insurance by bond holders and may crowd in private consumption. The implied higher stock of liquidity also loosens the borrowing constraints faced by firms, thereby raising labour demand and possibly the real wage. Whether private consumption and wages actually rise or fall ultimately depends on the relative strengths of the liquidity and wealth effect that are produced by the shock

LES RAPPORTS DU CONSEIL D’ANALYSE ÉCONOMIQUELa France dispose-t-elle d’atouts dans la mondialisation et, si oui, comment les valoriser ? C’est à cette question que répondent les différentes contributions individuelles rassemblées dans ce rapport. Plusieurs lignes de force apparaissent, qui conjuguent diagnostics et recommandations.Il semble indéniable que la France bénéficie de la mondialisation, en raison notamment de l’émergence des pays asiatiques et d’Europe centrale à l’origine de nouvelles opportunités à l’exportation dont la France tire profit. Les importations en provenance de ces mêmes pays permettent aux consommateurs de consommer à moindre prix des biens de consommation courante et procurent des gains de pouvoir d’achat importants.Il n’en demeure pas moins que la France pourrait profiter davantage de la mondialisation. À cet égard, Patrick Artus analyse les forces et les faiblesses de la spécialisation internationale de la France, par comparaison avec nos principaux partenaires et concurrents. Des efforts particuliers doivent être faits dans certains domaines pour améliorer la compétitivité de notre pays : éducation supérieure, R&D, innovation. Philippe Aghion et Élie Cohen proposent de combiner des politiques transversales et des politiques colbertistes traditionnelles. Les premières, de type top-down, sont orientées vers une meilleure utilisation de nos ressources ; les secondes, de type bottom-up, se justifient dans les activités où les coûts fixes sont importants et dans les secteurs stratégiques où notre pays doit se rapprocher de la frontière technologique, sans que cela porte atteinte à la concurrence. Élie Cohen et Thierry Madiès soulignent la pertinence de la politique des pôles de compétitivité et suggèrent des pistes d’amélioration. L’apport de Daniel Cohen et Thierry Verdier concerne plus particulièrement les secteurs culturels, la pharmacie et l’informatique, secteurs soumis à une mondialisation immatérielle notamment dominée par les États-Unis.