Growth in advanced economies has slowed in successive stages since the 1970s. Are we likely to see a return to the growth rates observed in the 20th century? The main uncertainty lies in the pace and diffusion of technological progress. Under a secular stagnation scenario, growth is expected to remain below 1.5% in advanced economies in the period up to 2060, compared with close to 3% in the case of a new technology shock.

Chart 1: Scenarios for GDP growth up to 2060: Contributions to GDP growth
Chart 1: Scenarios for GDP growth up to 2060: Contributions to GDP growth Source: Cette, Lecat, Ly-Marin (2017) Note: Secular stagnation = Sec. stag.; Technology shock = Tech shock. Annual average % growth 2018-60; contributions in percentage points. The contribution of labour is the total number of hours worked.

By Jean Dalbard and Benoit Nguyen

By December 2018, the Eurosystem will have bought more than EUR 2,500 billion of securities as part of its Asset Purchase Programmes (APP). These purchases are governed by a number of principles, one of which is "market neutrality". This is intended to minimise the potentially distortive effects of purchases on the functioning of the financial markets, while enabling the transmission of monetary policy stimulus to the economy. We demonstrate this in this blog by comparing the Eurosystem's purchasing techniques with those of other central banks.

Chart 1: Structure of French sovereign debt and APP purchases by maturity (March 2018)
Chart 1: Structure of French sovereign debt and APP purchases by maturity (March 2018) Sources: Bloomberg, Arrata and Nguyen (2017).

Given their inflation objectives, the ECB and the Federal Reserve System closely monitor measures of inflation expectations. But what are the available sources of inflation expectations and how is their anchoring measured? This post addresses these questions and focuses on a novel approach to gauging the anchoring of inflation expectations, namely by computing the probability of future inflation being in a range that is consistent with inflation targets.

Figure 1 : Euro area and US measures of the anchoring of inflation expectations (1999-2016)
Figure 1: Euro area and US measures of the anchoring of inflation expectations (1999-2016) Source: Grishchenko, Mouabbi and Renne (2017).

By Guy Levy-Rueff

The public debt ratios of France and Germany (as a % of GDP) were similar in the early 2000s. Since 2010, the ratio has fallen sharply in Germany, but has continued to rise in France. Using a simple model, we show that the economic and financial context is now favourable to triggering a lasting reduction in France's public debt, provided that efforts to curb public spending are stepped up.

Public debt as a % of GDP in France and Germany under different scenarios
Chart 1: Public debt as a % of GDP in France and Germany under different scenarios Sources: Eurostat for the past, BdF calculations for the future

By Hadrien Camatte and Guillaume Gaulier 

The contribution of foreign trade to French growth was strongly negative between 2014 and 2016. Although, on average, the contribution from sectoral specialisation is more positive in France than for its European partners, it also implies a dependence on a limited number of sectors. The difficulties experienced by France's stronghold export sectors explain a large part of the downturn in the French trade balance between 2014 and 2016.

Chart 1 – Cumulative contributions to growth in the foreign trade coverage ratio for non-energy goods (in %)
Chart 1 – Cumulative contributions to growth in the foreign trade coverage ratio for non-energy goods (in %) Sources: Customs authorities and authors’ calculations.

No one wins a trade war. Based on a multi-region dynamic general equilibrium model (GIMF), we show that a global and generalised 10 percentage point increase in import tariffs could reduce global GDP by 1% after two years. This effect could be amplified by a fall in productivity, a rise in the financing cost of capital and a decline in investment demand. Taking all these factors into account could result in lowering global real GDP by up to 3% after two years.

Chart 1: Impact of a generalised 10 percentage point increase in tariffs on global real GDP
Chart 1: Impact of a generalised 10 percentage point increase in tariffs on global real GDP Source: author’s calculations.

By Julia Schmidt (with Walter Steingress)

Current trade disputes focus on import tariffs. However non-tariff barriers still constitute a large share of barriers to trade. Cross-country harmonisation of product standards reduces these barriers. The trade-enhancing effects of such harmonisation efforts are equivalent to a reduction in import tariffs of 1.8 percentage points, compared to an average applied tariff rate of 2.0% for the European Union.

Chart 1: Trade Restrictiveness Index
Chart 1: Trade Restrictiveness Index Source: Overall Trade Restrictiveness Index by Kee et al. (2009). The data used were computed for the year 2009.

By Cyril Couaillier and Julien Idier

Financial cycles can be broken down into four phases in which the intensity of financial risks changes. The crisis that follows the downturn is all the more pronounced as risks have accumulated during the upturn. Macroprudential policy aims to limit the impact of financial crises on the real economy: the decision to activate the countercyclical capital buffer in France meets this imperative.

The four seasons of the financial cycle
Chart 1: The four seasons of the financial cycle

By Françoise Drumetz and Rémy Lecat

Despite persistent high unemployment, recruitment difficulties have already started to arise in France. The current unemployment rate is approaching its structural level, but wages have been relatively sluggish. These pressures partly reflect temporary effects that are common during periods of intense job creation. In the medium term, more effective vocational training would help to lower the level of unemployment at which these pressures begin to emerge.

Chart 1: Downward unemployment rigidity in France?  Minimum, maximum and average unemployment rates for the 1985-2017 period
Chart 1: Downward unemployment rigidity in France? Minimum, maximum and average unemployment rates for the 1985-2017 period Source: Eurostat.

By B. Cabrillac, L. Jacolin, A. Noah

The intensification of competition in Sub-Saharan African (SSA) countries has had an ambivalent impact on credit risk. The resulting improvement in management and bank intermediation may, beyond a certain threshold, be offset by greater risk-taking. Strengthening prudential frameworks would make it possible to harness the opportunities offered by bank competition.

Chart 1: Does bank competition reduce or increase credit risk in SSA?
Chart 1: Does bank competition reduce or increase credit risk in SSA? Source: Brei et al., 2018. Relationship between the degree of bank competition (the Lerner index, between 0 and 1, measures banks’ market power) and credit risk (NPL, non-performing loans / gross loans)

By Christoph Grosse Steffen (with Marcel Fratzscher and Malte Rieth)

Countries that adopt a strict inflation target experience stronger growth and lower inflation after large natural disaster shocks. Inflation targeting can hence serve as an important shock absorber thanks mainly to a different policy mix. The results indicate that relaxing the inflation targeting regime might generate potential costs, since the stabilisation of future recessions might become more difficult.

Benefits of inflation targeting (=dark green) in the presence of large disasters
Figure 1. Benefits of inflation targeting (=dark green) in the presence of large disasters Note. Effects of a natural disaster that leads to reported insurance claims of 1% of GDP at quarter t=0. Inflation targeting countries=dark grey, non –inflation targeting countries= light green. Source: Fratzscher, Grosse Steffen and Rieth (2017)

By Emmanuelle Politronacci, Elodie Ninlias, Enda Palazzeschi, Ghjuvanni Torre

Within a monetary area, the quantity of banknotes circulating in a given Member State is unknown as banknotes move back and forth across borders and cannot be tracked. There are various estimates but these have the drawback of varying by up to a factor of three. But the issuance of the new series of euro banknotes, combined with surveys, enable these figures to be more specific. Only 10% of the banknotes issued in France are apparently used for transaction purposes in the country.

Widely differing estimates of the value of banknotes in circulation, all denomination included
Chart 1: Widely differing estimates of the value of banknotes in circulation, all denominations included (2015) Source: BdF, based on Eurosystem’s Currency Information System data

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