Research

One of the main puzzles of the 2007-20?? 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 bank’s leverage is wrongly interpreted as a decline of risks.

A fair amount of the mid-1980’s 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 1970’s 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.

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.

Unsystematic monetary policy shocks have an effect on US inflation only if your sample period includes the 1970’s Great inflation!

The real effects of monetary policy in the US appear much more due to the response of household’s 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.

Yes, mostly. But some of my co-authors may disagree with me here.

A useful summary of some of the Monetary Transmission Network results.

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.

The pioneer article on asymmetries of transmission in the then forthcoming euro area!

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.

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.

Inflation objectives of central banks have been more effective in anchoring inflation expectations than you think!

A summary of some of the Inflation Persistence Network research results.

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.

One of the main puzzles of the 2007-20?? 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 bank’s leverage is wrongly interpreted as a decline of risks.

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.

A fair amount of the mid-1980’s 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 1970’s 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.

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!