The 1st and 2nd prizes in the “2019 Eco Notepad Challenge” will be awarded by Olivier Garnier, sponsor of the Eco Notepad blog and Director General Statistics, Economics and International at the Banque de France, on 6 November in Lyon, during the Journées de l’Économie (JECO) conference. Don’t miss the 1st prize-winning blog, which will be published on our website the same day.

By Bruno Cabrillac and Baptiste Meunier

The net international investment positions (NIIP) of the G20 countries have diverged since 1990. While this divergence results partly from persistent imbalances in goods and services, NIIPs have their own dynamics: the portfolio generates income and capital gains or losses. These dynamics have had a stabilising effect at the cost of financial risks for some debtors, i.e. the United States, and an excessive accumulation of safe assets by some creditors.

Chart 1 – Financial effects and real factors
Chart 1 – Financial effects and real factors Sources: Lane and Milesi-Ferretti (2017), authors’ calculations

1st prize-winning blog in the 2019 Eco Notepad Challenge - By Nicolas Laine (ESCP)

The technological revolution raises numerous questions as it permeates every aspect of our daily lives. Real hopes or legitimate concerns? To separate true from false, let’s take a look at this conversation between two friends, overheard in rue Croix des Petits Champs…

Source: author, with the help of Ariane Mostamandy (drawings)

By Florian Lalanne and Irena Peresa

Responding to China’s greater capital account openness, major investment indices have started incorporating renminbi-denominated securities. This is expected to support portfolio inflows into China and increase the correlation between domestic asset prices and external factors. The consequences for other emerging markets are uncertain.

Composition of the MSCI Emerging markets index (%).
Chart 1: Composition of the MSCI Emerging markets index (%). Source: MSCI. Note: The index is composed of equity securities. China A-shares are renminbi-denominated equities traded in Shanghai and Shenzhen, while China offshore shares are mainly traded in Hong Kong.

While the duration of an expansion can intuitively be associated with its age, a study of historical GDP data for the euro area reveals that this is not the case. Old economic expansions are as likely to disappear as new ones. Like J. R. R. Tolkien's Elves, expansions are "biologically immortal": they do not die of old age, but of exogenous causes.

Chart 1 - The duration of expansions does not depend on their age
Chart 1 - The duration of expansions does not depend on their age Source: Author's calculations. The Durland and McCurdy (1994) model is applied to the euro area growth rate.

By S. Avouyi-Dovi and G. Horny

The Banque de France conducts a research patronage policy through partnerships and the action of its Foundation. The partnerships are collaborations with French research institutions, while the Foundation promotes research work by awarding grants and various prizes to researchers in France and abroad. What does the Banque de France’s research patronage consist in?

By Patrick Branthomme and Laurent Paul

Launched in September 2013 by the Chinese authorities, the “new silk road” project aims to better connect Asia and Europe. The latter must defend its economic interests and the multilateral framework to the best of its ability. To this end, it will be able to draw on the recent progress of the G20, which has established principles for the transparency of financing, the quality of infrastructure and compliance with environmental and corporate social responsibility standards.

Image: land and sea trade corridors of the “new silk road”
Image: land and sea trade corridors of the “new silk road” Source: Hong Kong Trade Development Council (HKTDC) Research

By Barbara Castelletti-Font, Pavel Diev and William Honvo

Severe financial market stress can result in significant errors in the forecasting of quarterly GDP growth. This post focuses on the impact of financial variables on the short-term forecasting of GDP in France. A financial conditions indicator can provide useful qualitative information to the forecaster on the risks associated with the baseline projection.

Severe financial market stress can result in significant errors in the forecasting of quarterly GDP growth. This post focuses on the impact of financial variables on the short-term forecasting of GDP in France. A financial conditions indicator can provide
Chart 1: Relationship between the Country-Level Index of Financial Stress (CLIFS) and GDP growth in France GDP quarter-on-quarter growth, 10% of the obs. with lowest GDP, rest of the obs. Sources: Banque de France, ECB and INSEE

By Sanvi Avouyi-Dovi, Pierre Bui-Quang et Pierre Sicsic

The primary income surplus has been growing for several years. Since 2010, the increase of around EUR 10 billion in the income of French residents working abroad has been higher than that of direct investment (DI) income. The improvement in the income balance is now driven by employee compensation.

Chart 1: A significant improvement in the balance of compensation of cross-border commuters since 2010
Chart 1: A significant improvement in the balance of compensation of cross-border commuters since 2010 Source: Banque de France’s Annual Report on the Balance of Payments. Note: primary income surplus expressed in billions of euro (EUR bn). PI: Portfolio investment; OI: Other investment

By Irena Peresa and Edouard Vidon

Amid slowing growth and corporate deleveraging, State intervention in certain Chinese banks is again on the table. 20 years ago, asset management companies (AMCs) were set up to bolster the largest lenders, but their purpose has radically changed since. To address current bad loan issues, the priority should be to develop the secondary NPL market.

Figure 1: Four AMCs were originally set up to bolster the largest state-owned banks Source: Authors

By Yannick Kalantzis and Camille Thubin

The trade balance as a share of GDP reflects decisions regarding consumption, and therefore saving, and investment. Over the past 40 years, its dynamics in France have been dominated by the cycle of construction: the balance deteriorates in boom phases. The rise in household saving, which contributed to the surplus of the 1990s, was offset after the crisis by a higher share of government consumption in GDP.

Chart 1: Contributions to the Trade Balance,% of GDP in deviation from 1981
Chart 1: Contributions to the Trade Balance,% of GDP in deviation from 1981 Source: INSEE.

What are French banks and insurers doing to prepare for climate change? Where do they stand in terms of implementing France’s Energy Transition Law? Our analyses show significant though mixed progress with regard to transparency and governance of risks, and a growing but still incomplete recognition of climate risk as a financial risk.

Chart 1: Geographical breakdown of the exposures of French banks
Chart 1: Geographical breakdown of the exposures of French banks Source: ACPR. Note: as a percentage of total outstanding amounts for the 7 main French banks at 30 June 2018

By Philippe Aghion (Collège de France and LSE), Antonin Bergeaud (Banque de France), Richard Blundell (UCL and IFS) and Rachel Griffith (University of Manchester and IFS)

Technical progress forces workers to adapt to new production methods. It thus favours the most highly skilled workers as they earn relatively higher wages than the least skilled. However some less qualified employees can also benefit from these technical changes provided, they have the skills sought after by innovative firms.

Chart 1: Average hourly wage by age and skill level for low-skilled occupation workers in innovative and non-innovative firms
Chart 1: Average hourly wage by age and skill level for low-skilled occupation workers in innovative and non-innovative firms Note: Data for the United Kingdom taken from the Annual Survey of Hours and Earnings, matched to the Business Expenditure on Research and Development survey (2004-2016). Hourly wages in GBP on a logarithmic scale. Source: Aghion et al. (2019).

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