We develop a framework to quantitatively assess the links between traditional and shadow banks and how these links are modified by regulatory reforms in the traditional banking sector. In the model, banks screen projects and originate loans, and then sell some of these loans (securitize them) to shadow banks, in order to redeploy capital and invest in alternative productive investment opportunities. This capital redeployment towards profitable investment implies a potentially socially beneficial role for shadow banks. However, the availability of securitization might also lead banks to screen projects less intensively and increase risk-taking. We explore the quantitative implication of this tradeoff and how it is affected by regulation of the traditional bank sector.
We develop a dynamic general equilibrium model to assess how information produced by financial analysts about banks impacts financial stability and economic performance. In the model, banks screen projects and originate loans but may sell some of these loans on a secondary market to redeploy capital. A financial analyst produces and releases information about banks' asset quality, increasing transparency in the secondary market and limiting banks' ability to sell bad loans. Our results show that the presence of financial analysts strengthens banks' incentives to invest in initial project screening, thereby enhancing market discipline and banking sector stability. Furthermore, we demonstrate that the information provided by financial analysts helps stabilize investment and economic activity in response to financial shocks.
This paper analyzes the macroeconomic implications of risk scenarios for the Canadian economy using a Vector Autoregressive (VAR) model. We focus on three scenarios: an aggressive monetary policy easing, an unexpected rise in oil prices, and a sudden slowdown in U.S. economic activity. By illustrating how these scenarios would cause the economy to deviate from baseline macroeconomic forecasts, we demonstrate the value for policymakers of assessing the potential outcomes of key shocks through this type of analysis. We highlight the varied impacts of these shocks—for example, the sensitivity of industrial production and housing markets to monetary easing, the demand-driven gains from rising oil prices, and the contractionary effects of a U.S. recession. Structural decomposition reveals how specific shocks shape economic outcomes, offering insights into their transmission mechanisms. These findings underscore the importance of incorporating conditional forecasts into policy discussions to better understand the potential risks facing the Canadian economy.
We evaluate the impact of acquisitions of local banks in the West African Economic and Monetary Union (WAEMU) by Pan-African banking groups on the granting of loans. We use a Difference-in-Difference approach with staggered treatment timing, considering acquisition as the treatment to be evaluated. Our results indicate that the overall average impact of the acquisition of a local bank on total loans granted is positive and statistically significant. We also report a shift from short-term to medium- and longterm lending, though with weaker statistical significance. Finally, our results suggest substantial heterogeneity in the impact of acquisitions, with very significant effects for banks acquired in the 2013 cohort and more modest effects for those acquired in 2015 and 2017. This heterogeneity in effects thus calls for caution on the part of regulatory authorities when assessing such mergers and acquisitions.
Several local banks in the West African Economic and Monetary Union (WEAMU) were absorbed by pan-African banking groups over the last two decades. These absorptions occur in the context of a rapid and ongoing expansion of these banking groups that is transforming Africa's banking landscape. This paper estimates the impact of two waves (2013 and 2017) of absorption of local banks by pan-African banking groups on the absorbed banks' profitability, using a dynamic difference-in-differences method allowing for heterogeneous treatment effect (Calloway and Sant'Anna, 2021). We find the absorption treatment has positive and significant impacts on the return on assets of the local banks, but negative ones on their return on equity. This suggests that pan-African banking groups successfully operate local banks they absorb but do so at lower returns for the capital engaged in these banks.
"Unifying Portfolio Diversification Measures Using Rao's Quadratic Entropy'' (with Benoit Carmichael and Gilles Boevi Koumou). Journal of Quantitative Economics 21(4): 769-802. 2023. Link to paper.
``Learning in the Oil Futures Markets: Evidence and Macroeconomic Implications'' (with Sylvain Leduc and Robert Vigfusson). The Review of Economics and Statistics 105(2): 392-407. 2023 Link to paper
``Macroeconomic Uncertainty and the COVID-19 Pandemic: Measure and Impacts on the Canadian Economy'' (with Dalibor Stevanovic and Adam Kader Touré). Canadian Journal of Economics 55(S1): 379-405. 2022. Link to paper
``Does Confidence Data Help Forecast Business Cycles? New Evidence from Canada'' (with Imad Rherrad and Aimé Simplice Nono). Applied Economics 51(21): 2289-2312. 2019. Link to paper.
``Gradual learning about shocks and the forward premium puzzle'' (with Aimé Simplice Nono). Journal of International Money and Finance 88:79-100. 2018. Link to paper.
``Rao's Quadratic Entropy and maximum diversification indexation'' (with Benoit Carmichael and Gilles Boevi Koumou). Quantitative Finance 18(6): 1017-1031. 2018. Link to paper.
``Exchange Rate Fluctuations and Labour Market Adjustments in Canadian Manufacturing Industries'' (with Gabriel Bruneau): Canadian Journal of Economics 50(1): 73-93. 2017. Link to paper.
``Forecasting at the Regional Level with Factor Models: The Use of National and International Data'' (with Alexandre Kopoin and Jean-Pierre Paré): Economics Letters 121:267-270. 2013. Link to paper.
``The Role of Bank Capital in the Propagation of Shocks'' (with Césaire Meh), Journal of Economic Dynamics and Control} 34:555-576. 2010. Link to paper.
``Trend Inflation, Wage and Price Rigidities, and Welfare'' (with Robert Amano, Stephen Murchison and Andrew Renison), Journal of Monetary Economics 56:353-364. 2009. Link to paper.
``Are Inflation Expectations Rational?'' (with David Andolfatto and Scott Hendry), Journal of Monetary Economics 55: 406-422. 2008. Link to paper.
``Forecasting Canadian Time Series with the New-Keynesian Model'' (with Ali Dib and Mohamed Gamoudi), Canadian Journal of Economics 41: 138-165. 2008. Link to paper.
``Labour Markets, Liquidity, and Monetary Policy Regimes'' (with David Andolfatto and Scott Hendry), Canadian Journal of Economics 37: 392-420. 2004. Link to paper.