Eco Notepad features educational articles that present the research, studies and economic expertise of the Banque de France. The blog is aimed at students, professionals, journalists and academics. Some articles will be devoted to analyses carried out by the Bank's branch network, on specific topics. The opinions expressed are those of the authors and do not necessarily reflect the position of the Banque de France, the Eurosystem, or the institutions employing these authors.
Eco Notepad editors asks authors submitting a post to the blog to confirm that they have no conflicts of interest. If one of the authors of a blog benefits of an external financing, he should state the sources of financial support for the particular research it describes.
The results of the 2020 Eco Notebook contest will be announced this autumn. The date and terms of the award ceremony will be communicated later.
The Covid-19 pandemic has prompted lender-of-last-resort interventions and massive asset purchases by central banks. Such responses are all the more necessary since the transmission of monetary policy to the real economy is asymmetric. Evidence suggests that the effects of an expansionary monetary policy are more limited than those of a contractionary policy. One reason lies in the existence of downward bank lending rate rigidity.
Chart 1 - Year-on-year changes in Eonia and bank lending rates in the euro area (per cent) Source: Levieuge and Sahuc (2020)
A pandemic is the type of challenges that can only be overcome by global action. Despite a pre-crisis context fraught with geopolitical and trade tensions, this necessary international coordination has been achieved in the economic field. However, the post-crisis phase will exacerbate conflicts of interest and constitute a "stress test" for multilateralism.
Chart 1. Measures taken by governments in response to the Covid 19 crisis (as a % of G20+ countries) Source: IMF, April 2020.
Is central bank money “magic money” that could avoid issuing government debt or extinguish existing debt? This blog explains what is central bank money, how it is created, and the relationship between central bank and government finances. There are no easy options to avoid paying for fiscal deficits.
Figure 1: Sovereign debt held by the Eurosystem as % of GDP Source : ECB ; Note : last data point 2019 Q4.
History remembers Roosevelt for pulling the United States out of the Great Depression. He did it through communication – responding to the concerns of the American people – and by changing economic policy. His goal? To break out of the vicious circle in which pessimism amplifies a recession. Although the crises may differ, this blog looks at the lessons that we can learn from this strategy for the current crisis.
Franklin D. Roosevelt during one of his “fireside chats” in 1934 Source: Harris & Ewing, Library of Congress
Using the additional comments collected at the end of the monthly business survey for March, we used text mining to construct indicators of how firms are adapting to the lockdown (short-time work, teleworking, etc.). This information provides an overview of the way industry-specific organisational structures are being adapted, and both confirms and expands on the findings of the survey.
Chart 1: Features of the 3 industry clusters Source: The Banque de France's monthly business survey (MBS).
The current recession is expected to be shallower than the Great Depression of 1929, but deeper than the Great Recession of 2008. It could be shorter than these two financial crises because of the temporary and exogenous nature of the shock that caused it. It could contribute to the deployment of the digital economy, thereby boosting productivity and growth.
Chart 1a: The current recession compared to previous ones. Euro Area. Source: www.longtermproductivity.com Note: (GDP growth in %, periods of war in dotted lines, IMF forecast in orange)
The short-time work mechanism has recently been bolstered to limit the repercussions of the Covid-19 pandemic on employment. By preventing dismissals due to temporary difficulties, the reduction in hours worked allows firms to preserve their human capital and will foster the resumption of activity. Certain windfall effects should nevertheless be avoided, outside crisis periods, even though they generally remain minor compared with the benefits of such schemes during times of crisis.
Chart 1: Development of short-time work in France due to Covid-19 (1 March – 14 April 2020). Source: Dares. Note: In France, the number of requests for short-time work due to Covid-19 amounted to 904,000 at 14 April 2020, representing 8.7 million employees (34% of salaried employment).
Covid-19 is a public health emergency. Economic activity has been suspended due to the necessary confinement measures taken almost everywhere in the world. The targeted policies of major central banks to address this economic crisis share many common features but differ in details and labels.
Chart 1: Timeline of central banks’ main responses to the Covid-19 crisis. Source: Banque de France.
What would the economic cost of a systemic firm going bust be? This post addresses this question by assessing the recessionary effect of a systemic default. Within two years, such an event is expected to be followed by a 3% decrease in aggregate consumption and by three more systemic defaults.
Figure 1: Euro area probability of consumption dropping by more than 10% or 20% (horizon= 12 months) Source: Gourieroux, Monfort, Mouabbi and Renne (2019)
The procedure for dealing with overindebtedness has been in existence for 30 years. Women have long been more vulnerable to it than men. In recent years, the overindebtedness procedure has affected the most financially vulnerable individuals, notably women raising children on their own. They account for 26% of overindebted women, almost three times their share in the total female population.
Chart 1: Admissible overindebtedness applications and proportion of women Sources: Household overindebtedness typological surveys, authors' calculations.
The United States has undergone significant macroeconomic changes over the past 30 years. Economic growth has been on a downward trend (except between 1995-2005), the labour share fell sharply in the late 1990s and sectoral concentration has increased to particularly high levels. These profound changes have been driven by the spread of information and communication technologies that have radically altered the structure of the market.
Chart 1a: Productivity gains and information and communication technologies (in %) Source: Aghion et al. (2019). Note: Productivity trends in different sectors in the United States: IT producing, IT-intensive and other sectors.
2019 saw very significant growth in labelled funds. With subscription rates higher than the industry average and broadly comparable levels of performance, the label is proving to be a factor of attractiveness for investors. However, the success of the labels is uneven and their penetration in the landscape of French collective investment management remains limited. Further educational and promotional efforts are still needed to step up the distribution of these products among savers.
Chart 1. Labelled funds accounted for only 7% of the French collective investment management market in 2019 Sources: Association française de la gestion financière (AFG – the French Asset Management Association), Banque de France and the French Ministries for the Economy and for Ecological Transition. Note: Estimate of the responsible investment collective man