Research

Publications

UIP deviations in times of uncertainty: not all countries behave alike (joint with Purva Gole & Camelia Turcu), Economics Letters, 2024, vol. 242, 111848.

In this paper, we reconsider the role of uncertainty in explaining uncovered interest rate parity (UIP) deviations by focusing on 60 emerging and developing (EMDE) and advanced (AE) economies, over the period 1995M1--2023M3. We show that differentiating between EMDE currencies and AE currencies is crucial for understanding UIP deviations as the behaviour of excess returns differs in the two groups in periods of uncertainty: deviations become wider for EMDEs and narrow for AEs. These new results are consistent with the idea that in periods of uncertainty, global investors might change their risk preferences and move from high currency-risk investments in EMDEs towards less risky ones in AEs. This evidence holds for both the short-run and long-run UIP, and becomes stronger since the Global Financial Crisis (GFC).

MaGE 3.1: Long-Term Macroeconomic Projections of the World Economy (joint with Lionel Fontagné & Gianluca Santoni), International Economics, 2022, vol.172, p. 168-189.

What will the global economy look like in a generation? The answer depends on the multiple forces driving long-term growth (demography, education, diffusion of technical progress, energy costs, investment and saving behaviour, international capital mobility) and requires a comprehensive framework to conceptualise them. We re-estimate the three-factor (capital, energy, labour) MAcro-econometric model of the Global Economy (MaGE), initially developed by Fouré et al. (2013), with a database covering 170 countries using state-of-the-art methods. We thus establish the long-term structural relationships that drive the dynamics of the World economy. The model projections to 2050 illustrate the expected changes in the World economy and their driving forces. In light of the projected volume of energy consumption, making these projections compatible with climate imperatives calls for increased technology sharing at the international level in order to decouple economic growth from energy use.

International business cycles: Information matters (joint with Eleni Iliopulos & Thepthida Sopraseuth), Journal of Monetary Economics, 2021, vol. 123, p. 19-34.

We propose a mechanism that explains standard stylized facts in both international macroeconomics and international finance. To do so, we develop a New Keynesian DSGE model with financial frictions à la Bernanke et al. (1999), in which we depart from the full-information rational expectations (FIRE) assumption. The key ingredient is home information bias (HIB) in expectations. While the FIRE model predicts high consumption co-movements, no departure from uncovered interest parity (UIP) and procyclical trade balance, assuming HIB makes the model consistent with the data by producing low consumption correlation, solving the quantitative puzzle, generating endogenous departures from the UIP and matching a countercyclical trade balance. The mechanism is empirically validated and shown to be robust to the extent of frictions in the economy.

Sovereign risk and asset market dynamics in the euro area, Journal of International Money and Finance, 2020, vol. 109, pp. 102234.

This paper studies the behavior of euro area asset market co-movements during the period 2010-2014, through the lens of a DSGE model. The economy is a two-country world consisting of a core and a periphery and featuring an international banking sector, international equity markets, home bias in sovereign bond holdings, and sovereign default. The periphery is buffeted by a sovereign risk shock, whose process is estimated from the data. The model accounts successfully for the divergence in core-periphery correlations between stock and sovereign bond returns. The simulation results indicate that the sovereign risk shock explains 50% of the increase in the sovereign spread and of the decrease in global investments, and 7% of the decrease in global output during the sovereign debt crisis.

Macroeconomic determinants of European stock and government bond correlations: A tale of two regions (joint with Wessel Vermeulen), Journal of Empirical Finance, 2016, vol. 37, pp. 214-232.

This paper studies the dynamic correlation between stocks, between government bonds and between stocks and bonds within the Euro-zone in the last decade. In order to better understand the development of the financial market we argue that it is necessary to analyze all such relations simultaneously rather than focus at one. We firstly calculate the dynamic correlation for the previous asset classes. Results presented at the asset-region level, i.e. north-stock, north-bonds, south-stocks and south-bonds, visualize the divergence in integration in Europe and highlight the heterogeneity in these markets. Secondly, we study the macroeconomic factors that determine these correlations. We find that, when we allow for regional division, not only cross-asset correlations within regions behave differently from each other, but also cross-assets cross-regions dynamic correlations can be explained with macroeconomic factors such as the relative market uncertainty between countries and balance of payments dynamics.

Working papers

World interest rates and macroeconomic adjustments in developing commodity producing countries (joint with Vincent Bodart & François Courtoy), CEPII wp 2021-01

With commodities becoming international financial securities, commodity prices are affected by the international financial cycle. With this evidence in mind, this paper reconsiders the macroeconomic adjustment of developing commodity-exporting countries to changes in world interest rates. We proceed by building a model of a small open economy that produces a non-tradable good and a storable tradable commodity. The difference with standard models of small open economies lies in the endogenous response of commodity prices which -due to commodity storage- adjust to variations in international interest rates. We find that the endogenous response of commodity prices amplifies the reaction of commodity exporting countries to international monetary shocks. This suggests that commodity exporting countries are more vulnerable to unfavourable international monetary disturbances than other small open economies. In particular, because of the existence of the commodity price channel, even those small open commodity-exporting economies that are disconnected from international financial markets can be affected by the international financial cycle.

Les incidences économiques de l'action pour le climat. Compétitivité (joint with Lionel Fontagné & Antoine Bouët & Vincent Vicard & Mathieu Fouquet et al. ), Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-04248556, HAL, 2023. 

Les conséquences économiques et environnementales des politiques françaises de transition énergétique doivent s'envisager dans le cadre d'une économie ouverte. Tout d'abord, le rythme des efforts et les modalités de la décarbonation de l'activité économique sont en partie dictés au niveau européen, comme dans le cas du marché de quotas d'émission pour les industries hautement émissives. Mais surtout, l'Accord de Paris inscrit l'effort français au sein d'une variété d'engagements nationaux de décarbonation, tant en termes d'ambition que d'instruments mis en œuvre pour y parvenir. Cette diversité des efforts et instruments au niveau international contribue à déterminer les effets économiques des choix faits en matière de politiques climatiques adoptées au niveau européen et français. Ce rapport propose un tour d'horizon synthétique de cette dimension internationale des politiques de transition énergétique. En dépit d'éléments communs, notamment leur objectif final de réduction de l'empreinte carbone de l'activité économique, les politiques climatiques des différents pays sont hétérogènes, qu'il s'agisse de leur ambition – à savoir le niveau de leurs engagements en termes de décarbonation – ou des politiques (prix, réglementations, subventions ou crédits d'impôt) mises en œuvre. Il est dès lors illusoire de tenter de réduire les effets de cette hétérogénéité à une métrique commune de l'effort de chaque pays, comme le serait un équivalent prix des mesures réglementaires ou incitatives en place dans les différents pays. 

Work in progress

"Development Aid in Emerging Economies: Project Financing versus Government Debt" (with Pablo Winant)

"Climate change and sovereign risk in emerging economies which are dependent on commodity export", (with Florian Morvillier and Axel Ehouman) 

Sleeping projects

International shock transmission and interbank integration (with Olivier Pierrard & Fabien Tripier)

Sovereign debt default and banking in a currency union (joint with Olivier Pierrard), CEPREMAP wp 1612

This paper analyzes the role of banking in the transmission of sovereign debt default within a currency union. We build a 2-country (core and periphery) new-Keynesian model with an endogenous possibility of default on the periphery public debt. We introduce alternative banking representations, going from full integration to fragmentation. We calibrate the model on euro area data and show that the best fit to empirical data arises when we introduce some degree of fragmentation. However, we observe that a well integrated banking sector would reduce the negative consequences of default at the EA aggregated level and limit the welfare cost of stabilizing policies.