Research

Work in Progress

Why are Real Interest Rates so Low?, with Magali Marx and Francois Velde.(slides_short) (prelim_draft)
We calibrate an overlapping generation model with a risky and a safe asset and Epstein-Zin preferences to reproduce both the decline of the real interest rate and the increase in the risk premia we observed over the last 2 decades. We show that modest increases in risk can explain both facts and we don't need deleveraging to explain the fall in the real interest rate. Demographics (aging) and the deceleration of productivity have only a minor role in the fall of the real interest rates. In progress. Draft to be posted by mid February 2107
Domestic and Global Inflation, with Filippo Ferroni. (download)
We confirm first that the comovement of inflation accross OECD contries remains as high in the last decade as it's been since the 1960's. Second, inflation forecast errors have become bigger and more correlated across countries than before 2008. Third, the recent/present subdued level of inflation in the US and the Euro Area seems an echo of the sharp fiscal contractions (the sequester in the US, the consolidation in the EA) of the last 3 years.
Heterogenous Beliefs and Forward Guidance, with Philippe Andrade, Gaetano Gaballo and Eric Mengus,
Banque de France WP 573
.(download)
Central banks announcements that future interest rates will remain low could signal either a weak future macroeconomic outlook, which is bad news, or a future expansionary monetary policy, which is good news. In this paper, we use the Survey of Professional Forecasters to show that these two interpretations coexisted when the Fed engaged into date-based forward guidance policy between 2011Q3 and 2012Q4. We then extend an otherwise standard New-Keynesian model to study the consequences of such heterogeneous interpretations. We show that it can strongly mitigate the effectiveness of forward guidance and that the presence of few pessimists may require keeping rates low for longer. However, when pessimists are sufficiently numerous forward guidance can even be detrimental.
Measuring Financial Fragmentation within the Euro Area, with Guillaume Horny and Simone Manganelli,
Banque de France WP 582
.(download)
Using the same data as in Gilchrist and Mojon, we assess whether similar non financial corporates pay higher interest rates in Spain and Italy than in France and Germany. They do much less since 2014 than in 2012 but they still do.

Macroeconomics and Finance

Credit Risk in the Euro Area, with Simon Gilchrist,
The Economic Journal 2017, forthcoming
(download).
We build indicators of credit risk for the EA big 4 from yields on throusands of corporate bonds and show it has a central role in the business cycle for these 4 countries.
The Pre-Great Recession Slowdown in Productivity, with Gilbert Cette and John Fernald.
European Economic Review 2016, vol 88(C), p3-20(download)
We show that US productivity slowed down around 2003, catching up toward the US halted in Germany and France in the late 1990s and productivity declined in Italy and Spain between 1995 and 2005. For the latter two, fast drops in real interest rates that came with the euro did not help. They may even have facilitated funding too many inefficient firms.
Fuzzy Capital Requirements and Capital Constraints, with Simon Dubecq and Xavier Ragot,
International Journal of Central Banking, 2015
(download).
One of the main puzzles of the 2007-201? financial crisis is that financial intermediaries were able to take on more risks without being sanctioned by higher risk premia. One explanation is that "regulatory arbitrage" created a ring of smoke that blurred the risk assessment based on asset prices. In particular an asset prices bubble due to an increase of banks leverage is wrongly interpreted as a decline of risks.
Central Banking, with Michel Aglietta, invited contribution to the
Handbook of Banking
, A. Berger, Ph. Molyneux and J. Wilson (Eds), Oxford University Press, second edition, 2013 (download).
What central banks have done, how they became what they are and their likely evolution.
Equilibrium risk shifting and interest rate in an opaque financial system, with Edouard Challe and Xavier Ragot,
European Economic Review 2013, vol 63(C), p117-133
(download).
When intermediaries?balance sheet is opaque, those with relatively low levels of capital may be tempted to hold high-risky asset portfolios, or even to gamble for resurection in the face of worsening economic conditions. Opaqueness implies that such intermediaries are not readily distinguishable from safer ones, so that risk-prone behaviour may prosper for some time before being punished by higher borrowing rates. In our model, intermediaries?limited liability creates an incentives to correlate asset portfolios, thereby allowing intermediaries to raise their return on equity in case of success while transfering much of their losses to their creditors in case of failure.
Macroprudential policy and the conduct of Monetary Policy, with Christophe Cahn, Denis Beau and Laurent Clerc,
Proceedings of the Central Bank of Chile 2012 Annual Conference
(download).
One of the first quantitative attempts to look into the effects of Macro-Prudential Policies on Monetary Policy.
Would macroprudential policies have prevented the great recession?, with Pamfili Antipa and Eric Mengus,
Banque de France mimeo
(download).
Yes!
Investment and monetary policy in the euro area, with Frank Smets and Philip Vermeulen,
Journal of Banking and Finance
2002: pp2111-2129 (download).
Liquidity constraint of some (smaller) firms is a fact of life. That this constraints become tighter following changes in the stance of monetary policy is another story. And we show that evidence of this credit channel is quite weak in continental Europe.
Interest Rates, Banking Spreads and Credit Supply: The Real Effects, with Fernando Barran and Virginie Coudert , 1995,
Revue Economique
, 46 (3) (in French).
Indebtedness and Financial Deflation in Japan, the United Kingdom and France, with S. Guichard, 1997,
Economie Internationale
, (72) (in French).
Capital Adequacy Ratio and Credit Cycles, 1996,
Revue d'Economie Politique
, 106 (4), (download).

Monetary Policy Transmission

Has the Euro Changed the Monetary Transmission?, with Jean Boivin, Banque of Canada and Marc Giannoni, New York Fed
2008 NBER Macroeconomic Annual
, D. Acemoglu, and K. Rogoff and M. Woodford (Eds) (download).
Yes. Prior to the euro, changes in the monetary policy stance by the Bundesbank use to trigger an overreaction of Italian and Spanish interest rates. Domestic demand in these countries would respond more than in Germany or France. However these differences are not as large for output thanks to trade flows within the euro area (e.g. German exports would follow Italian domestic demand). Also, the credibility of the ECB implies smaller responses of long-term interest rates to changes in short-term interest rate than was the case before 1999. An important caveat is that our evidence is based on the quiet times that prevailed between 1999 and 2007. As evident since the Greek debt crisis, financial markets are now pricing sizable and volatile Sovereign debts default premia accross euro area countries!
When did unsystematic monetary policy have an effect on inflation?, June 2008,
European Economic Review
52, (3) (download).
Unsystematic monetary policy shocks have an effect on US inflation only if your sample period includes the 1970s Great inflation!
Monetary Transmission in the Euro Area, co-edited with with Ignazio Angeloni and Anil Kashyap,
Cambrigde University Press
2003 (download).
The output composition puzzle: a difference in the monetary transmission mechanism in the euro area and U.S., with Ignazio Angeloni, Anil Kashyap and Daniele Terlizzese,
Journal of Money Credit and Banking
, 2003:1265-1306 (download).
The real effects of monetary policy in the US appear much more due to the response of households consumption than is the case in the euro area. More on this in the above mentioned paper on output composition and the 1984-2007 Great Moderation.
Monetary Transmission in the Euro Area : Does the interest rate explain it all?, with Ignazio Angeloni, Anil Kashyap and Daniele Terlizzese, Concluding Chapter, in
Monetary policy transmission in the euro area
, I Angeloni, A Kashyap and B Mojon (eds), Cambridge University Press, 2003 (download).
Yes, mostly. But some of my co-authors may disagree with me here.
New Macroeconomic Evidence on the Transmission Mechanism in the Euro Area, with P. van Els, A. Locarno and J. Morgan,
Journal of the European Economic Association 1 (2-3)
2003
A useful summary of some of the Monetary Transmission Network results.
Investment and monetary policy in the euro area, with Frank Smets and Philip Vermeulen,
Journal of Banking and Finance
2002:pp2111-2129 (download).
Liquidity constraint of some (smaller) firms is a fact of life. That this constraints become tighter following changes in the stance of monetary policy is another story. And we show that evidence of this "credit channel" has quite weak in continental Europe for the period under review. This result may not hold during severe crises.
A VAR description of the effects of monetary policy in the individual countries of the euro area, with Gert Peersman, Chapter 3 in
Monetary policy transmission in the euro area
, Ignazio Angeloni, Anil Kashyap and Benoit Mojon (eds), Cambridge University Press, 2003 (download).
The Transmission of Monetary Policy in the European Countries, with Fernando Barran and Virginie Coudert, in
European Monetary Policy
, edited by S. Collignon, Pinter Press, London and Washington 1997.
The pioneer article on asymmetries of transmission in the then forthcoming euro area!
The Transmission of Monetary Policy: Is the European Union an Homogenous Area? with Fernando Barran and Virginie Coudert,
Economie Internationale
(65): pp 93-122, 1996 (in French).
Monetary Policy under a Quasi-Fixed Exchange Rate Regime, The case of France between 1987 and 1996,
Banca Nationale del Lavorro Quarterly Review
52 (211) pp 401-30, 1999 (download).
The Transmission of Monetary Policy and Bank Credit: The Case of Three OECD Countries, with with Fernando Barran and Virginie Coudert,
Revue Economique
46 (2): pp 393-413, 1995 (in French).

Inflation Dynamics

Global inflation, with Matteo Ciccarelli,
Review of Economics and Statistics 2010 (3)
(download).
Why study inflation rate separately when you can so easily study them all at once! Indeed, 70% of the variance of inflation of OECD countries is common. Not only this comovement is related to the traditional determinants of inflation when measured at the Global level, but also, this comovement can be used to help you forecast national inflation rates.
Can aggregation explain the persistence of inflation, with Filippo Altissimo and Paolo Zaffaroni, March 2009,
Journal of Monetary Economics
56 (1) (download).
We show that heterogeneity across sectors in their response to a macroeconomic shock that we estimate with a factor model from 404 sectoral inflation rates matters for persistence. Aggregate persistence is only loosely related to average micro-persistence.
Are Inflation Targets Good Forecasts?, with M. Diron, January 2008,
Economic Perspective, Federal Reserve Bank of Chicago
(download).
Inflation objectives of central banks have been more effective in anchoring inflation expectations than you think!
Sectoral and Aggregate Inflation Dynamics in the Euro Area, with Filippo Altissimo, Laurent Bilke, Andrew Levin and Thomas Mathae 2006,
Journal of the European Economic Association
, 4(2-3) (view).
A summary of some of the Inflation Persistence Network research results.
Breaks in the mean of inflation: how they happen and what to do with them, with Sandrine Corvoisier, March 2005,
ECB Working Paper
, 451 (download).
Taking a broad look at inflation in OECD countries since 1960, we show that breaks in the mean of inflation has taken place in every countries. We also show considerable evidence that these breaks reflect changes in monetary policy regimes.

Business Cycle

Monetary Policy, Output Composition and the Great Moderation?
Federal Reserve Bank of Chicago Working Paper 2007-07
(download).
A fair amount of the mid-1980s stabilization of the US business cycle is due to a drop in the variance of US unsystematic monetary policy. In particular, the real economy instability in the 1970s comes largely from the co-movement of household investment (in cars, houses,...) with the rest of domestic demand. And this co-movement is itself due to extremely large unsystematic monetary policy shocks.
Some stylised facts on the euro area business cycle, Anna-Maria Agresti, in
Monetary policy transmission in the euro area
, Ignazio Angeloni, Anil Kashyap and Benoit Mojon (eds), Cambridge University Press, 2003 (download).
Using synthetic data of the pseudo euro area (aggregating country data all the way back to 1970), we show that the business cycle of a euro area looks very much alike the one of the United States. This paper legitimates the estimation of macroeconomic models of the euro area economy eventhough it did not exist at the time!