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April 2018

By Bruno Cabrillac, Ludovic Gauvin, Jean-Baptiste Gossé and Florian Lalanne

In countries with very high public debt, a major shock could prevent the implementation of countercyclical fiscal policies and increase default risk. GDP-indexed bonds would help to mitigate these risks and avoid a costly and disruptive restructuring. A counterfactual analysis of the Greek case illustrates this idea.

Chart 1. Greek public debt: observed data and scenario without restructuring with GDP-indexed bonds (% of GDP). Source: IMF and authors’ calculations. * In 2012, Greek public debt was restructured through private sector involvement requiring a EUR 107 billion haircut.

The share of imports from low-wage countries in French households’ consumption increased threefold from 1994 to 2014. These less expensive imports lowered inflation in France by 0.17 pp per year on average. This direct effect of imports since 1994 represented a gain of about EUR 1,000 in terms of average household consumption in 2014. However, the indirect effects of opening up to international trade on households’ purchasing power, via wages and employment, were not taken into account.

Chart 1: Share of imports in households’ consumption (in %) Source: Carluccio et al. (2018) based on Customs and INSEE data Note: Only imports of final goods that are included in household consumption are taken into account.

By Violaine Faubert and Antoine Lalliard

Since 2008, the over-50s are the only age group in the euro area to have seen a steady rise in employment, as a result of population ageing and the increase in the effective pension age. In contrast, the number of those under 50 in work has fallen markedly over the same period, despite a recent stabilisation in the trend. The over-60s are the only group not to have seen an improvement in gross hourly wages between 2010 and 2014.

Chart 1: Number of people in work in the euro area by age group and for the entire population aged 15-74. Difference relative to the first quarter of 2008 (thousands). Source: Eurostat

By Pierre Sicsic

In France in 2016, the gross margin rate of non-financial corporations (NFCs) returned to its early 2000s level, at 32%, while the net margin rate was 15%, compared with 18% in the 2000s. Thus, using aggregates "net" of capital depreciation gives a different picture of the NFCs account. Furthermore, the NFCs' net saving rate would be close to zero, and their stock of fixed capital could only increase through external financing.

Chart 1: gross and net margin rates of French NFCs Source: Insee, table 7.101 – non-financial corporations account (S11).

This study shows that budget-neutral measures – i.e. changes in the composition of fiscal revenue and spending that leave the ex-ante total government budget unchanged – can boost economic growth. However, not all households are equally affected by these measures. In addition, measures implemented when monetary policy is accommodative have larger macro effects.

Figure 1: GDP and private investment Figure taken from Bussière et al (2017)