Girardin

Publications

Bank liquidity creation: A new global dataset for developing and emerging countriesJournal articleCarmela D’Avino, Eric Girardin and Mimoza Shabani, Review of World Economics, Volume 158, pp. 529-570, 2022

The pre-Global Financial Crisis build-up, followed by the post-crisis collapse, in bank liquidity creation in developed countries is well-documented (Berger and Bowman, Berger and Bouwman, Review of Financial Studies 22:3779–3837, 2009). Comparable analyses on developing and emerging countries (DECs) have been severely hindered by the lack of detailed bank-by-bank balance sheet data. This paper proposes a new, high-frequency, Aggregate Bank Liquidity Creation (A-BLC) measure for 114 DECs on a comparable cross-country basis, which relies on macroeconomic, country-wide, banking systems’ balance sheet data. The A-BLC database allows us to assess the extent of bank fragility arising from illiquidity associated with intermediation at the banking system level for every DEC, at a monthly frequency over the period 2001–2016. Our measure captures more accurately than other measures proposed in the literature the evolution of bank liquidity creation in the DECs. Stylised facts and panel-regression analysis suggest a sharp pre-crisis build-up and post-crisis fall in liquidity creation in DECs, larger then that observed for developed countries. In addition, financial depth and stability appear as particularly important drivers of A-BLC in DECs.

The Role of the Real Estate Sector in the Structural Dynamics of the Chinese Economy: An Input–Output AnalysisJournal articleYongming Huang, Jamal Khan, Eric Girardin and Umair Shad, China & World Economy, Volume 29, Issue 1, pp. 61-86, 2021

Market-oriented housing reforms and the rapid urbanization process have led to spectacular growth in the Chinese real estate sector (RES). However, the changes in the role played by this sector in the structural dynamics of the Chinese economy have not been examined sufficiently. Accordingly, we analyze the intersectoral structural changes to the Chinese RES, its linkages with the rest of the economy, and its growth sources, using four Chinese input–output tables from 2002 to 2017. We depart from existing work on the RES by using the causative matrix approach and structural decomposition analysis, and obtain three main results. First, the RES, which received little non-RES feedback during the 2002–2007 period, has subsequently received much more substantial feedback. Second, the impact of the RES on China's economic growth stems mainly from its forward linkages. Third, the growth in the RES has been driven mainly by domestic demand expansion. Our results highlight that the Chinese RES, which plays a key role in value chains, is highly dependent on its own final demand and a fall in its demand would impede economic development. An important implication of these results is that developing the national economy by stimulating the RES would not be as effective as developing the RES through stimulating the national economy.

Mexico's Monetary Policy Communication and Money MarketsJournal articleAlicia García-Herrero, Eric Girardin and Arnoldo Lopez-Marmolejo, International Journal of Economics and Finance, Volume 11, Issue 2, pp. 81-97, 2019

Central bank communication is becoming a key aspect of monetary policy. How much financial markets listen and, possibly, understand Banco de Mexico’s communication on its monetary policy stance should be a key consideration for the central bank to further modernize its monetary policy toolkit. In this paper, we tackle this issue empirically by using our own index of the tone of communication based on Banco de Mexico’s speeches and statements and find that Mexican money markets do not only listen but they also understand the stance of monetary policy conveyed in the central bank’s words. Regarding the ability to listen we find that both the volatility and volume in the money market rates change right after communication from Banco de Mexico’s governing body. As for the markets’ understanding, we document a statistically significant rise in money market rates the more hawkish communication is. All in all, our results show strong evidence of effective oral and written communication from the Central Bank towards Mexico’s money markets.

The January effect in the foreign exchange market: Evidence for seasonal equity carry tradesJournal articleEric Girardin and Fatemeh Salimi Namin, Economic Modelling, Volume 81, Issue C, pp. 422-439, 2019

In this study, we investigate monthly seasonality in the foreign exchange market. Given the well-known recurrent higher returns in some month than in others in stock markets around the world, we consider it likely that a seasonal outperformance of a country’s stock market over another is associated with similar seasonal patterns in capital flows and exchange rates. A seasonal profit (carry trade) opportunity can be created by the simultaneous appreciation of a country’s currency and the outperformance of its stock market. By focusing on the world’s key currency pairs, the US dollar-Deutsche mark and the US dollar-euro, and by using a Markov-switching framework, we document persistent January and December effects in the foreign exchange market from 1971 to 2017. Analysis of the German-US stock returns differential and their bilateral capital flows reveal similar month effects in 65% of the whole sample.

Demystifying China’s Stock Market: The Hidden Logic behind the PuzzlesBookEric Girardin and Zhenya Liu, Springer Books, 2019-12, Number 978-3-030-17123-0, XXI,125 pages, Springer International Publishing, 2019

Mainstream research has rationalized China’s stock market on the basis of paradigms such as the institutional approach, the efficient market hypothesis, and corporate valuation principles. The deviations from such paradigms have been analyzed as puzzles of China’s stock market. Girardin and Liu explore to what extent, in the perspective of Chinese cultural and historical characteristics, far from being puzzles, these 'deviations’ are rather the symptoms of a consistent strategy for the design, development and regulation of a government-dominated financial system. This book will help investors, observers and researchers understand the hidden logic of the design and functioning of China’s modern stock market, taking a political economy view.

Fundamentals and the volatility of real estate prices in China: A sequential modelling strategyJournal articleYongheng Deng, Eric Girardin and Roselyne Joyeux, China Economic Review, Volume 48, Issue C, pp. 205-222, 2018

In a similar way to the stock market, the housing market in China has often been portrayed as highly speculative, giving rise to “bubble” concerns. Over the last decade, residential prices increased every year on average by double digits in Beijing or Shanghai. However many observers and researchers argue that fundamentals of the housing sector, both sector-specific and macroeconomic, may have been the driving force behind housing price volatility. While existing empirical work exclusively relies on the government housing prices which may suffer from the well-documented downward bias, this paper uses original high frequency unit price as well as transaction series for the residential resale housing markets of Beijing and Shanghai between January 2005 and December 2010 to test alternative hypotheses about housing prices volatility.

Inflation Dynamics of Franc-Zone Countries Determinants, Co-movements and Spatial InteractionsJournal articleEric Girardin and Cheikh A. T. Sall, Open Economies Review, Volume 29, Issue 2, pp. 295-320, 2018

This paper shows the uneven role played in the inflation dynamics of African franc zone countries by their integration in a regional monetary union. We obtain three main results sharply contrasting the central- (CEMAC) and west-African (WAEMU) regions. First, differences in the structure of economies and national fiscal stances play a similar role in both unions and appear as potential sources of inflation differentials. Second, even though co-movements are the principal drivers of inflation dynamics in both subregions, global factors dominate regional ones in WAEMU while both play an equal role in CEMAC. Thirdly, spatial interactions are unimportant in CEMAC due to little intra-zone trade, but take an asymmetric form in WAEMU due to the large size of Ivory Coast and Senegal.

Stock Market Bubble Migration: From Shanghai to Hong Kong: Essays in Honor of Georges PratBook chapterEric Girardin, Roselyne Joyeux and Shuping Shi, In: Uncertainty, Expectations and Asset Price Dynamics, 2018-12, pp. 173-192, Springer International Publishing, 2018

The speculative nature of the stock market in Mainland China has attracted the attention of many observers. However while the degree of integration of the Hong Kong market with its Mainland counterpart has monopolized the interest of researchers, they have neglected the diffusion of bubbles from the latter to the former. We thus propose the first study of such bubble migration. Focusing on the period 2005–2017, we use the Phillips et al. (Int Econ Rev 56:1043–1078, 2015a; Int Econ Rev 52:201–226, 2015b) recursive explosive root test to detect and date speculative episodes in both markets. We then implement the Greenaway-McGrevy and Phillips (NZ Econ Pap 50:88–113, 2016) methodology to detect the presence of migration between the two markets. We detect significant, but dwindling, bubble migration from Shanghai to Hong Kong.

Global slack and open economy Phillips curves – A province-level view from ChinaJournal articleChangsheng Chen, Eric Girardin and Aaron Mehrotra, China Economic Review, Volume 42, Issue C, pp. 74-87, 2017

The “global slack hypothesis” implies that greater integration of the world economy, i.e. globalisation, should have made inflation more responsive to global than domestic economic slack. Many previous studies have accordingly estimated national inflation equations with measures of global output gaps. We use three and a half decades of subnational data from China's provinces to test the global slack hypothesis. Using tests for non-nested regressions, for many provinces we can reject a Phillips curve with a province-level measure of economic slack against a model with China's national output gap, which is consistent with the hypothesis. We also show that the real exchange rate matters for inflation dynamics in many Chinese provinces, in particular those most open to international trade. In addition to supporting the global slack hypothesis, our results emphasise the importance of cross-border factors for China's inflation developments.

Do as I Do, and Also as I Say: Monetary Policy Impact on Brazil’s Financial MarketsJournal articleAlicia García-Herrero, Eric Girardin and Enestor Dos Santos, Economía, Volume 17, Issue 2, pp. 65-92, 2017

We analyze how Brazilian financial markets, in particular interest rate futures, react to monetary policy in terms of both deeds (that is, changes in the policy rate) and words (that is, central bank communication). Using daily data from 2005 to 2014, we find that interest futures rates react in the expected direction to both the central bank’s actions and its words: futures rates rise (fall) after both an increase (decrease) in the reference interest rate and a hawkish (dovish) communication by the Central Bank of Brazil. We also find that the Central Bank’s words create noise, since they increase the volatility of futures rates. Our analysis further reveals that the effectiveness of monetary policy communication increased after the 2008 international crisis, as measured by its larger impact on future rates and reduced volatility. At the same time, deeds became less relevant: the effect of changes in the Central Bank’s policy rate on futures rates declined.