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.
By Marc-Olivier Strauss-Kahn, Chairman of the Citéco Scientific Council
“Cité de l’économie”, Citéco, is the new Parisian interactive museum for economic education: the first of its kind in Europe! Citéco is housed in Hôtel Gaillard, a private mansion built in the 19th century and then bought by the Banque de France (hereafter BDF). The BDF financed the restoration and adaptation to the general public of this historic monument. Citéco now offers up to twelve hours of visits with about 50 entertaining videos and 25 educational games (see Picture 1).
Picture 1: Educational games in the historical ballroom Source: The author
Global systemically important banks (GSIBs) – those whose failure could adversely affect the economy – are subject to stricter regulations than other banks, leading them to curb the expansion of their balance sheets to a greater extent and resulting in a fall in their share of global bank assets. We show that, despite this, GSIBs have not reduced their lending to the economy. The G20’s goals have thus been met: GSIBs have been made more resilient to shocks without negatively affecting the financing of the economy.
Chart 1: Decline in GSIBs’ share of the total assets of large banks Source: S&P Market Intelligence – Sample of 97 large banks (34 of which were designated as GSIBs at least once over the period under review).
On the occasion of the celebration of the 75th anniversary of the Bretton Woods Conference, this post reflects on the history of the international monetary system of the same name (1944 - 1971). The Bretton Woods system did not work as expected. Rather than cultivating the myth of a golden age, it is preferable to recognise the adaptability of monetary and financial multilateralism over time.
Figure 1: The hotel where the Bretton Woods Conference was held (New Hampshire, USA) Source : https://commons.wikimedia.org/wiki/File:The_Mount_Washington_Hotel,_Bretton_Woods,_NH.jpg
Cyberattacks have emerged as a major threat, including to global financial stability. By capturing the strategic interaction between cyber criminals and their targets, Game Theory provides valuable policy insights. It highlights the limitations and side effects of uncoordinated deterrence policies, and the importance of information sharing across public authorities. International cooperation is essential. The G7 is leading the way.
Figure 1: Game Theory in action: How deterrence can preserve the status quo Note : adapted from Zagare,2019
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 Source: Adrian et al. (2019) Note: one-year-ahead density forecasts of US real GPD growth.
By Constant Bourdeloux, Henri de La Guéronnière, Cristina Jude, Astrid Labouret
Leveraged loans are loans extended to highly indebted companies. Their strong growth in the US over the last five years and their packaging into securitised financial products bear a number of similarities with the subprime market that triggered the 2008 crisis. While the comparison is debatable, the risks posed by the leveraged loan market to financial stability should not be ignored.
Chart 1: Outstanding amount of institutional leveraged loans in the United States and in Europe Sources: S&P LCD and Bloomberg data, Banque de France calculations. Estimates as to the exact size of the market differ due to insufficient data and the lack of a standard definition.
By Liang Bai (University of Edinburgh) and Sebastian Stumpner (Banque de France)
In recent years, the share of US expenditure on imports from China has increased rapidly. Using detailed consumption data from US households for the period 2004-15, we estimate that, due to Chinese penetration, prices of consumer tradable goods have grown by roughly 0.2 percentage point less per year. Other things being equal, this translates into a reduction in the cost of living of roughly USD 200 per household in 2015.
Chart 1: China has become the largest exporter of goods to the United States. Source: Authors’ calculations based on data from CEPII and the Bureau of Economic Analysis (BEA).
Since 2018, the ACPR and the AMF have studied how financial institutions adjust their business practices to demographic ageing. Senior consumers are particularly likely to experience vulnerability. Yet, according to preliminary results, a commercial offer based solely on an age criterion, the most commonly used today, is far from satisfactory.
Chart 1. Population projection for the European Union by age category. Source: Eurostat.
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.
Chart 1: Expected distribution of euro area quarterly GDP growth between 2001 and 2018 Sources: Eurostat, Banque de France, authors' calculations.
The weakening of global value chain dynamics is considered as one of the causes of the slowdown in world trade since the 2008 crisis. However, measured as the share of trade in parts and components in the volume of world trade, and given the evolution of the business cycle, the development of international value chains continued after the crisis.
Chart 1: Share of Parts & Components (P&C) in manufacturing world trade in volume Source: Authors' calculations based on CEPII WTFC data (about 5,000 products for the bilateral trade of over 200 countries) and IMF data (world output gap).
On its 20th anniversary, the euro is enjoying remarkably high levels of support. However, a paradox exists in public opinion: each country appears to believe that the single currency is more beneficial for the other countries. Improving the functioning of national and European institutions could mitigate this paradox and strengthen attachment to the euro.
Chart 1: The benefits of the euro are more widely recognised at the European level than at the national level. Source: Flash Eurobarometer. Note: Average gap between the perceived benefits of the euro for the EU and for the individual countries, 2011-2018, excluding Latvia and Lithuania due to the period under review. The darker the green, the larger the gap.
A credible central bank can more easily anchor agents’ expectations, and therefore long-term interest rates. Thus credibility would reduce the need to make an intensive use of key rates. There is indeed an inverse relationship between credibility and interest rate volatility.
Chart 1: Inverse relationship between credibility and interest rate volatility Note: "Credibility" is the indicator proposed by Levieuge & Al. (2018), ranging from 0 (minimum credibility) to 1 (maximum credibility). The conditional variance of the interest rate reflects the volatility of the main monetary policy instrument.