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Climate change is one of the greatest economic challenges of our time. Given the scale of the problem, the question of whether a carbon tax should be introduced is hotly-debated in policy circles. This paper studies the design of a carbon tax when environmental factors, such as air carbon-dioxide emissions (CO2), directly affect agents’ marginal utility of consumption. Our first result is that the optimal tax is determined by the shadow price of CO2 emissions. We then use asset-pricing theory to estimate this implicit price in the data and find that the optimal tax is pro-cyclical. It is therefore optimal to use the carbon tax to “cool down” the economy during booms and stimulate it in recessions. The optimal policy not only generates large welfare gains, it also reduces risk premiums and raises the average risk-free real rate. The effect of the tax on asset prices and welfare critically depends on the emission-abatement technology.

Ce Working Paper fait l'objet d'une publication in Journal of Monetary Economics, Elsevier 〈https://www.sciencedirect.com/science/article/abs/pii/S0304393218305294〉〈hal-01995026〉; Intra-firm bargaining between a multiple-worker firm and an individual employee leads to overhiring. Taking advantage of the decreasing returns to scale in employment, the firm can reduce the marginal product by hiring an additional worker, thereby reducing the bargaining wage paid to all existing employees. We show that this externality is amplified when firms can adjust hours per worker as well as employment. Hours are too low at the steady state. This misallocation of labor leads to sizeable welfare losses. Our finding is important for economies in which hours adjustment play an important role as it does in many Euro Area countries.

Using the Household Finance and Consumption Survey (HFCS), a large micro-level dataset on households' wealth in fifteen euro area countries, this paper explores how households allocate their assets. We derive stylized facts on asset participation as well as levels of asset holdings and investigate the systematic relationships between household characteristics and asset holding patterns. Real assets make up the bulk of total assets. Whereas ownership of the main residence varies strongly between countries, the value of the main residence tends to be the major asset for home-owners and is a significant part of total assets in all countries. While almost all households hold safe financial assets, a low share of households holds risky assets. The ownership rates of all asset categories generally increase with wealth (and income). The significance of inheritances for wealth accumulation is remarkable and underlines its key role in the process of persistent wealth inequality. We tentatively link differences in asset holding patterns across countries to differences in institutions, such as mortgage market institutions and house price-to-rent ratios.

Many financial assets are disseminated to final investors via chains of over-the-counter transactions between intermediaries (investors or dealers). We build a model where an agent buying some units of the asset can offer to sell part of them to an OTC partner. Intermediation chains are endogenously formed and impact the asset's market liquidity, its issuance, and who ultimately holds the asset. An increase in the intermediaries' funding liquidity (e.g. a lower haircut on the asset) makes intermediation less necessary but also makes it cheaper to issue the asset, increasing the total volume to be distributed and the number of intermediaries and agents holding the asset. We derive implications on liquidity in OTC markets, the dissemination of ''toxic" assets and the collateral policy of central banks and CCPs.

In this paper, we present international comparisons of potential output growth among several economies -Canada, the euro area, France, Germany, Italy, Japan, the Netherlands, the United Kingdom, and the United States- for the period 1991-2004, for which we construct consistent and homogenous capital stock series. The main estimates rely on a structural approach where output of the whole economy is described by a Cobb-Douglas function and Total Factor Productivity (TFP) is estimated allowing for possible breaks in the deterministic trend. The results confirm that over the considered period the potential GDP growth has been faster in the United States than in other studied countries, reflecting a combination of higher labour contribution and faster TFP growth. Overall, this paper might help to shed some light on cross-country differences in economic performance over the recent period., Nous présentons dans cet article une comparaison internationale de croissance potentielle entre plusieurs économies - Canada, zone euro, France, Allemagne, Italie, Royaume-Uni et Etats-Unis- sur la période 1991-2004, pour lesquelles nous construisons des séries cohérentes et homogènes de stock de capital. Les principaux résultats des estimations reposent sur une approche structurelle dans laquelle la production d'une économie est décrite par une fonction de production Cobb-Douglas et une productivité globale des facteurs (PGF) estimée autour d'une tendance déterministe susceptible de présenter des ruptures. Les résultats confirment que sur la période d'investigation, la croissance potentielle a été plus rapide aux Etats-Unis que dans les autres économies considérées, combinant une plus forte contribution de l'emploi et une croissance de la PGF plus rapide. De plus, ce papier permet de mettre en lumière des différences internationales de performance économique sur la période récente.

Foreign exchange reserve accumulation has risen dramatically in recent years. The introduction of the euro, greater liquidity in other major currencies, and the rising current account deficits and external debt of the United States have increased the pressure on central banks to diversify away from the US dollar. A major portfolio shift would significantly affect exchange rates and the status of the dollar as the dominant international currency. We develop a dynamic mean-variance optimization framework with portfolio rebalancing costs to estimate optimal portfolio weights among the main international currencies. Making various assumptions on expected currency returns and the variance-covariance structure, we assess how the euro has changed this allocation. We then perform simulations for the optimal currency allocations of four large emerging market countries (Brazil, Russia, India and China), adding constraints that reflect a central bank's desire to hold a sizable portion of its portfolio in the currencies of its peg, its foreign debt and its international trade. Our main results are: (i) The optimizer can match the large share of the US dollar in reserves, when the dollar is the reference (risk-free) currency. (ii) The optimum portfolios show a much lower weight for the euro than is observed. This suggests that the euro may already enjoy an enhanced role as an international reserve currency ("punching above its weight"). (iii) Growth in issuance of euro-denominated securities, a rise in euro zone trade with key emerging markets, and increased use of the euro as a currency peg, would all work towards raising the optimal euro shares, with the last factor being quantitatively the most important. J. Japanese Int. Economies20 (4) (2006) 508-547.

This paper presents an overview of the results of a research project on monetary transmission pursued by the Eurosystem, which has analysed micro data on firms and banks in several countries of the euro area in great detail. There is strong empirical support for an interest rate channel working through firm investment. Furthermore, a credit channel can be identified with firm micro data. On the bank side, there is evidence that lending reacts differently to monetary policy according to bank balance sheet characteristics. In particular, banks that have a less liquid asset composition show a stronger loan supply response. This finding may be due to banks drawing on their liquid assets to cushion the effects of monetary policy on their loan portfolio, which is in line with the existence of close relationships between banks and their loan customers., Cet article présente une vue d'ensemble des résultats d'un projet de recherche sur les canaux de transmission de la politique monétaire mené par l'Eurosystème, qui a analysé en détail des données individuelles d'entreprises et de banques dans plusieurs pays de la zone Euro. L'évaluation empirique met en évidence un canal du taux d'intérêt sur l'investissement. De plus, le canal large du crédit a été identifié pour différents groupes d'entreprises dans différents pays. Du côté du canal étroit du crédit,l'évaluation empirique montre que les banques qui ont une composition de leur actif moins liquide ont une offre de prêts qui réagit plus fortement aux changements de politique monétaire. Ce résultat peut provenir du fait que certaines banques conserventdes actifs liquides afin d'amortir les effets de la politique monétaire sur leur portefeuille de crédit, ce qui est cohérent avec l'existence de relations étroites entre les banques et leurs emprunteurs.

What determines whether or not multinational firms transplant their mode of organisation to other countries? We embed the theory of knowledge hierarchies in an industry equilibrium model of monopolistic competition to examine how the economic environment may affect the decision of a multinational firm about transplanting its business organisation to other countries. We test the theory with original and matched parent and affiliate data on the internal organisation of 660 Austrian and German multinational firms and 2200 of their affiliate firms in Eastern Europe. We find that three factors stand out in promoting the multinational firm’s decision to transplant the business model to the affiliate firm in the host country: a competitive host market, the corporate culture of the multinational firm, and when an innovative technology is transferred to the host country. These factors increase the respective probabilities of organisational transfer by 18.5 percentage points, 37, and 31 percentage points.

This paper merges two specifications developed recently in the forecasting literature: the MS-MIDAS model introduced by Guérin and Marcellino (2011) and the MIDAS-factor model considered in Marcellino and Schumacher (2010). The MS-factor MIDAS model (MS-FaMIDAS) that we introduce incorporates the information provided by a large data-set, takes into account mixed frequency variables and captures regime-switching behaviors. Monte Carlo simulations show that this new specification tracks the dynamics of the process quite well and predicts the regime switches successfully, both in sample and out-of-sample. We apply this new model to US data from 1959 to 2010 and detect properly the US recessions by exploiting the link between GDP growth and higher frequency financial variables.

Forthcoming, Journal of Economic Dynamics and Control; International audience; Recent estimates of the output Euler equation for the United States indicate that the elasticity of aggregate demand to interest rates is not significantly different from zero. We first argue that this result may hide a structural break: the estimated elasticity is a convolution of two coefficients with opposite signs across the samples 1965-1979 and 1982-2003. The sign of the coefficient in the earlier sample is inconsistent with standard economic theory and intuition. We outline a model with limited asset markets participation that can generate this change in sign when asset market participation changes from low to high, and provide institutional evidence for such a change in the United States in the late 70s and early 80s.

We show that consumption-based asset pricing models with time-separable preferences generate realistic amounts of stock price volatility if one allows for small deviations from rational expectations. Rational investors with subjective beliefs about price behavior optimally learn from past price observations. This imparts momentum and mean reversion into stock prices. The model quantitatively accounts for the volatility of returns, the volatility and persistence of the price-dividend ratio, and the predictability of long-horizon returns. It passes a formal statistical test for the overall fit of a set of moments provided one excludes the equity premium., Klaus Adam acknowledges support from the European Research Council Starting Grant (Boom & Bust Cycles) No. 284262. Al- bert Marcet acknowledges support from the European Research Council Advanced Grant (APMPAL) No. 324048, AGAUR (Generalitat de Catalunya), Plan Nacional project ECO2008-04785/ECON (Ministry of Science and Education, Spain), CREI, Axa Research Fund, Programa de Excelencia del Banco de España, and the Wim Duisenberg Fellowship from the European Central Bank.

This paper analyses how an external adverse shock will impact the financial situations of banks and insurance companies and how it will diffuse among these companies. In particular we explain how to disentangle the direct and indirect (contagion) effects of such a shock, how to exhibit the contagion network and how to detect the "superspreaders", i.e. the most important firms involved in the contagion process. This method is applied to a network of 8 large European banks in order to analyze whether the revealed interconnections within these banks differ depending on the underlying measure of banks’ financial positions, namely their market capitalization, the price of the CDS contract written on their default and their book value.

International audience; This paper offers a framework to study strategic interactions between private players, national fiscal authorities and a common central bank in monetary unions. We establish general conditions, in terms of restrictions on spillover effects of actions by private and public players, under which games that differ in the degree of cooperation and commitment can admit the same equilibrium outcome. We use these conditions to characterize benchmark results on the irrelevance of cooperation and commitment established in recent literature. Moreover, we show for a general setting, in which the benchmark results do not apply, that gains from fiscal cooperation depend on the number of countries and increase as this number gets larger.

This paper argues that limited asset market participation is crucial in explaining U.S. macroeconomic performance and monetary policy before the 1980s, and their changes thereafter. We develop an otherwise standard sticky-price dynamic stochastic general equilibrium model, which implies that at low asset-market participation rates, the interest rate elasticity of output (the slope of the IS curve) becomes positive - that is, "non-Keynesian." Remarkably, in that case, a passive monetary policy rule ensures equilibrium determinacy and maximizes welfare. Consequently, we argue that the policy of the Federal Reserve System in the pre-Volcker era, often associated with a passive monetary policy rule, was closer to optimal than conventional wisdom suggests and may thus have remained unchanged at a fundamental level thereafter. We provide institutional and empirical evidence for our hypothesis, in the latter case using Bayesian estimation techniques, and show that our model is able to explain most features of the "Great Inflation."

International audience; 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.

This paper analyses the impact of loan market competition on the interest rates applied by euro area banks to loans and deposits during the 1994-2004 period, using a novel measure of competition called the Boone indicator. We find evidence that stronger competition implies significantly lower spreads between bank and market interest rates for most loan market products. Using an error correction model (ECM) approach to measure the effect of competition on the pass-through of market rates to bank interest rates, we likewise find that banks tend to price their loans more in accordance with the market in countries where competitive pressures are stronger. Further, where loan market competition is stronger, we observe larger bank spreads (implying lower bank interest rates) on current account and time deposits. This would suggest that the competitive pressure is heavier in the loan market than in the deposit markets, so that banks compensate for their reduction in loan market income by lowering their deposit rates. We observe also that bank interest ratesin more competitive markets respond more strongly to changes in market interest rates. These findings have important monetary policy implications, as they suggest that measures to enhance competition in the European banking sector will tend to render the monetary policy transmission mechanism more effective.

International audience; Inefficient, or weak banks, are continuously pointed out as threatening financial stability as they are more likely to fail than efficient ones and thus to weaken the whole banking sector (BIS, 2002). Consequently, banks' efficiency analysis, a measure of bank's management efficiency, should be a useful tool for policy makers to predict bank failure. This paper tests the usefulness of efficiency analysis in predicting bank failure by using the 2001 Turkish banking crisis as a case study. It implements in a first step both parametric, stochastic frontier analysis (SFA), and non-parametric, data envelopment analysis (DEA), to predict Turkish banks' efficiency scores over 1996 to 2001. During this period, 19 out of 55 were taken over by the Turkish Saving and Deposit Insurance Fund (SDIF). In a second step, efficiency scores are tested against the standard CAMELS model to check their capacity in predicting banks' probability to fail, i.e., SDIF taken-over. The findings indicate that banks taken-over were less cost efficient than others. Moreover, banks which were lending to connected parties were also less cost efficient than others. On the methodology side, our results using a parametric approach are found to be more significant than the non-parametric ones.

We investigate the macroeconomic effects of fiscal policy using a Bayesian Structural Vector Autoregression (B-SVAR) approach. We identify fiscal policy shocks via a partial identification scheme, but also: (i) include the feedback from government debt; (ii) look at the impact on the composition of output; (iii) assess the effects on asset markets; (iv) use quarterly data; and (v) analyse empirical evidence from the US, the UK, Germany and Italy. The results show that government spending shocks, in general, have a small effect on Gross Domestic Product (GDP); lead to important ‘crowding-out’ effects; have a varied impact on housing prices and generate a quick fall in stock prices. Government revenue shocks generate a mixed effect on housing prices and a small and positive effect on stock prices. The empirical evidence also suggests that it is important to explicitly consider the government debt dynamics in the model., COMPETE;QREN; FEDER;Fundação para a Ciência e a Tecnologia (FCT)