Current economic developments

Post n°125

Where is euro area inflation in relation to the “Phillips cone”?

Published on 07/26/2019

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By Clémence Berson, Hadrien Camatte, Antoine Lalliard and Julien Le Roux

The “Phillips cone” is a range of possible values for inflation obtained using different specifications of the Phillips curve. The Eurosystem’s June 2019 projection for euro area inflation is slightly below the median forecast in the Phillips cone for the entire projection horizon, and even slightly below the cone at the start of the horizon. This suggests that the Eurosystem’s projection is fairly prudent.

Chart 1: The euro area projection is prudent relative to the Phillips cone
Chart 1: The euro area projection is prudent relative to the Phillips cone Source: Eurostat, Eurosystem, authors’ calculations Note: after the first quarter of 2019, the black line shows the Eurosystem’s June 2019 projection.
Updated on 02/11/2020 11:31
Post n°120

Forecasting in an Uncertain Economic Environment

Published on 07/09/2019

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By Florens Odendahl (Banque de France)

If we consider that future economic outcomes are inherently uncertain, this gives rise to the notion of economic risk. For instance, what is the probability of a contraction in future GDP growth? Extending this idea to the case of several variables, we can address questions about the joint development of risks to GDP growth and inflation, for example.

Figure 1: The central tendency alone does not reflect information about macroeconomic risk
Figure 1: The central tendency alone does not reflect information about macroeconomic risk Source: Adrian et al. (2019) Note: one-year-ahead density forecasts of US real GPD growth.
Updated on 02/17/2020 15:05
Post n°116

What are the financial risks to euro area growth?

Published on 05/27/2019

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By Naomi Cohen, Laurent Ferrara, Matteo Mogliani and Jean-Guillaume Sahuc

Monetary policy decisions require a prior assessment of different economic scenarios, including the most extreme ones. Assessed on the basis of the Banque de France's Financial Conditions Index, financial risks that are likely to weigh on the distribution of future euro-area GDP growth appear limited.

Expected distribution of euro area quarterly GDP growth between 2001 and 2018
Chart 1: Expected distribution of euro area quarterly GDP growth between 2001 and 2018 Sources: Eurostat, Banque de France, authors' calculations.
Updated on 02/17/2020 11:37
Post n°110

The impact of structural reform on rent creation, rent sharing and productivity

Published on 03/28/2019

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By Gilbert Cette, Jimmy Lopez and Jacques Mairesse

The positive effect on productivity of reducing product market regulation and employment protection legislation has been extensively documented and analysed, leading to many structural reforms in OECD countries. On the basis of new measures of rent creation and rent sharing, we show that further product market deregulation could substantially increase productivity, notably in France and Italy.

Chart 1: Expected total factor productivity gains from product market deregulation
Chart 1: Expected total factor productivity gains from product market deregulation Sources: Authors’ calculations assuming a switch to the most pro-competitive regulations
Updated on 02/14/2020 10:32
Post n°109

Does the Trump corporate tax reform impact the composition of the US current account?

Published on 03/21/2019

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By Cristina Jude and Francesco Pappadà

The US Tax Cuts and Jobs Act implemented in 2018 impacts both the domestic and the international activity of US corporates. Nevertheless, the corporate tax cut has only had a transitory effect on the composition of US foreign direct investment income, without having so far delivered any significant improvement in the trade balance.

Chart 1. US primary income
Chart 1. US primary income Source: US Bureau of Economic Analysis (BEA).
Updated on 02/14/2020 10:21
Post n°105

Unemployment insurance: What can we learn from the US system?

Published on 02/28/2019

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By Jean-Baptiste Gossé (Banque de France) and Roger Vicquéry (London School of Economics)

A federal unemployment insurance scheme has been in place in the United States for more than 80 years. It has helped to cushion the effects of successive crises without the need for large fiscal transfers between American states. It provides an example of an unemployment insurance model based on temporary transfers and subsidiarity between federal and state governments.

Chart 1. Permanent federal transfers are limited outside periods of exceptional crisis
Chart 1. Permanent federal transfers are limited outside periods of exceptional crisis Note: Net annual transfers as a % of GDP. Exceptional crisis: increase of more than 5 percentage points in the jobless rate over 3 years. Sources: authors’ calculations based on NBER, Department of Labor and Bureau of Economic Analysis.
Updated on 02/13/2020 16:17
Post n°103

Is the European Union really in surplus vis-à-vis the United States?

Published on 02/14/2019

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By Rafael Cezar and Florian Le Gallo

The European Union’s exchanges with the United States generate a significant trade surplus but are also characterised by a substantial foreign direct investment deficit. This deficit reflects certain choices made by multinational firms with regard to their activities’ locations, particularly the placing of US subsidiaries in Europe. We propose an interpretation of these transatlantic exchanges using an aggregate that is broader than the balance of goods and services alone.

An expanded EU-US balance almost in equilibrium (2012 to 2017)
Chart 1: An expanded EU-US balance almost in equilibrium (2012 to 2017) Sources: Eurostat (customs data on exports of goods, non-financial services) and BEA (customs data on imports of goods, financial services, foreign direct investment flows). Authors' calculations.
Updated on 02/13/2020 11:28
Post n°101

The G7, an engine for multilateralism

Published on 01/30/2019

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By Ludivine Berret, Bruno Cabrillac and Céline Rochon

G7 countries activated several economic policy levers to respond to the 2008 crisis, in particular monetary and fiscal policy. As a result, their ability to stimulate the economy or deal with future crises has been reduced. Consequently, the temptation to conduct beggar-thy-neighbour policies, despite their harmful effects, could be exacerbated. Even though its weight in global GDP has declined significantly since the late 1980s, the G7—whose presidency is held by France in 2019—remains the appropriate forum for curbing this temptation.

Chart 1: Reduction of the weight of the G20 and the G7 in global GDP
Chart 1: Reduction of the weight of the G7 in global nominal GDP Source: Datastream and IMF-World Economic Outlook (WEO).
Updated on 02/13/2020 11:02
Post n°94

Broadband internet changes the geography of international trade

Published on 12/12/2018

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By Clément Mazet-Sonilhac and Clément Malgouyres (with Juan Carluccio and Thierry Mayer)

The diffusion of information and communication technology (ICT) is considered to be a factor for economic growth, notably in developed countries. In particular, the diffusion of broadband internet could improve firms’ ability to find trading partners abroad as well as products suited to their needs. In France, the roll-out of broadband between 1998 and 2008 corresponds to a substantial improvement in firms’ imports.

Chart 1: A decade of gradual broadband roll-out
Chart 1: A decade of gradual broadband roll-out Source: Banque de France and authors’ calculations
Updated on 02/11/2020 16:55
Post n°91

Have the growth gains from ICT been exhausted?

Published on 10/18/2018

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By Gilbert Cette and Ombeline Jullien de Pommerol

The diffusion of information and communication technology (ICT) and the associated benefits in terms of growth appear to have petered out at the start of the 2000s in advanced countries. This suggests we are experiencing a pause in the third industrial revolution, ahead of the incipient shock linked to the digital economy.

Chart 1 – Stabilisation of the nominal ICT capital coefficient since 2000
Chart 1 – Stabilisation of the nominal ICT capital coefficient since 2000 Source: authors' calculations using ICT investment data from the OECD.
Updated on 02/20/2020 15:56

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