Working Papers

• • The Many Channels of Firms' Adjustment to Energy Shocks: Evidence from France, July 2023, with Lionel Fontagné and Gianluca Orefice, CEPR Discussion Paper DP18262. Based on firm level data in the French manufacturing sector, we find that firms adapt quickly, strongly and through multiple channels to energy shocks, even though electricity and gas bills represent a very small share of their total costs. Over the period 1996-2019, faced with an idiosyncratic energy price increase, firms reduce their energy demand, improve their energy efficiency, increase intermediate inputs imports and optimize energy use across plants. Firms are also able to pass-through the cost shock fully on their export prices. Their production, exports and employment fall. A consequence of these multiple adjustment mechanisms is that the fall in profits is either non-significant, small or specific to only the most energy intensive firms. We also find that the impact of electricity shocks has weakened over time, suggesting that only firms able to adapt their production process to energy cost shocks have survived. Importantly, when faced with large electricity and gas price increases, firms are less able to reduce their consumption. These results shed light on the mechanisms of resilience of the European manufacturing sector in the context of the present energy crisis

  • Trade imbalances, fiscal policies  and the rise of protectionism: evidence from G20 countries, revised version (July 2023), with Samuel Delpeuch and Etienne Fize, CEPR Discussion Paper DP15742. We investigate the role of trade imbalances in the rise of protectionism on the period 2009-2019 among G20 countries. Bilateral trade imbalances are robust (with various sets of fixed effects) predictors of protectionist attacks. The evidence on the impact of multilateral trade imbalances is less robust. The role of trade imbalances in the rise of protectionism is confirmed when we instrument trade imbalances by unanticipated government spending shocks. Countries with more expansionary fiscal policies react to the ensuing trade imbalance by a more protectionist trade policy. The role of trade imbalances and fiscal policies in the rise of protectionism is economically significant: a one standard deviation increase in the bilateral trade deficit of a country leads to a 8% rise of protectionist attacks by this country.

  • Will Schumpeter catch COVID-19? February 2021, with Mathieu Cros and Anne Epaulard. CEPR DP 15834. We estimate the factors predicting firm failures in the COVID crisis based on French data in 2020. Although the number of firms filling for bankruptcy was much below its normal level (- 36% compared to 2019) the same factors that predicted firm failures (primarily productivity and debt) in 2019 are at work in a similar way as in 2020. Hence, the selection process, although much reduced, has not been distorted in 2020. At this stage, partial hibernation rather than zombification characterises the selection into firm survival or failure. We also find that the sectoral heterogeneity of the turnover COVID shock (proxied by the change in credit card transactions) has been largely (but not fully) absorbed by public policy support because it predicts little of the probability of bankruptcy at the firm level. Finally, we sketch some potential scenarios for 2021-2022 for different sectors based on our empirical estimates of predictors of firm failures.

• The Economics of Sovereign Debt, Bailouts and the Eurozone, 2020, with Pierre Olivier Gourinchas and Todd Messer, CEPR DP 14891 and NBER No. 27421:  Abstract: Despite a formal ‘no-bailout clause’, we estimate significant transfers from the European Union to Cyprus, Greece, Ireland, Portugal and Spain, ranging from roughly 0% (Ireland) to 43% (Greece) of output during the recent sovereign debt crisis. We propose a model to analyze and understand bailouts in a monetary union, and the large observed differences across countries. We characterize bailout size and likelihood as a function of the economic fundamentals (economic activity, debt-to-gdp ratio, default costs). Because of collateral damage to the union in case of default, these bailouts are ex-post efficient. Our model embeds a ‘Southern view’ of the crisis (assistance was insufficient) and a ‘Northern view’ (assistance weakens fiscal discipline). Ex-post, bailouts do not improve the welfare of the recipient country, since creditor countries get the entire surplus from avoiding default. Ex-ante, bailouts generate risk shifting with an incentive to over-borrow by fiscally fragile countries. While a stronger no-bailout commitment reduces risk-shifting, we find that it may not be ex-ante optimal from the perspective of the creditor country, if there is a risk of immediate insolvency. Hence, the model provides some justification for the often decried policy of ‘kicking the can down the road’.