Reducing current account imbalances is often equated with curbing excessive exports or imports. However, legacies of the past can develop their own dynamics due to accruing income flows. Indeed, in some countries that have accumulated large foreign liabilities, current account adjustment has been impeded by large negative income flows despite substantial improvements in the trade balance.

Figure 1 Current account dynamics Source: IMF BoPS

By Pierre-Henri Bono, Quentin David, Rodolphe Desbordes, and Loriane Py

Attracting international capital flows and understanding their determinants are major challenges for public policy. The analysis of 140,000 foreign direct investment (FDI) projects carried out between 2003 and 2014 in 3,500 cities worldwide suggests that investing in subway transport infrastructures may be a means to attract more FDI. In this respect, the Grand Paris Express could therefore contribute to bolstering the international attractiveness of the French capital.

Chart 1: The number of FDI projects received and size of subways: a positive relationship Source: Bono, David, Desbordes, and Py (2017)

By Klodiana Istrefi

Monetary policy nowadays is usually decided by a committee. A narrative approach of the history of the U.S Federal Open Market Committee suggests that the Fed Chair’s economic beliefs and the Committee’s center of gravity of policy preferences matter for decision making.

Figure 1. Hawks and Doves at the FOMC (1960-2015) Notes: The Hawk – Dove Balance is the share of Hawks minus the share of Doves in a given meeting of the FOMC (excluding the chair). The shade of the chart indicates the type of the Fed chair, red for Hawk and blue for Dove. Source: Istrefi (2018)

Central banks have adopted new unprecedented strategies to fight recent financial crises. In the euro area in 2012, one such tool allowed banks to use a wider set of corporate loans as guarantees when they borrow from the Eurosystem. Two recent studies show that this policy has been critical in fostering banks’ lending to firms during the crisis.

Chart 1: Comparative trends in credit for newly eligible firms Source: Cahn, Duquerroy and Mullins (2017).

By Gilbert Cette and Jean-François Ouvrard

Changes in the value added sharing are the focus of considerable debate. In France, the assessment depends largely on the scope of analysis chosen and the degree to which it is aggregated, and it differs depending on the sector: since the crisis, the labour share has increased in market services but has declined in industry.

Chart 1: Labour share in value added (% of the cost of labour in gross value added at factor costs) Source: Insee, authors’ calculations

By Pierre Sicsic

In France, the gross investment rate of non-financial corporations is trending upwards, and was half a percentage point higher in 2016 than its previous peak of 2007-2008. However, after deducting capital depreciation, the net investment rate, which corresponds to the increase in productive capital, was one percentage point lower than its 2008 peak and equivalent to its mid-2000s level. The acceleration in depreciation stems from the increase in both capital per unit produced and in the average depreciation rate, which is itself linked to the greater share of intangible assets in investment.

Chart 1: Real gross and net investment rate in France (NFCs-IEs approximation) Sources: National Accounts tables 6.302 and 6.462. The nominal investment rate of NFCs was 23.3% in 2008 and 2016, table 7.101.

Short-time work schemes have been implemented in many OECD countries with a view to protecting jobs in companies experiencing temporary difficulties. While such schemes made it possible to save jobs during the Great Recession of 2008-2009, they may also have adverse effects on the economy. However, these effects would be minimised by sensible reforms.

Chart 1. Short-time work and growth Source: OECD.

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)

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