A Comparison of the Fed’s and ECB’s Strategies during the Subprime CrisisBook chapterMarcel Aloy et Gilles Dufrénot, In: Monetary Policy in the Context of the Financial Crisis: New Challenges and Lessons, W. A. Barnett et F. Jawadi (Eds.), 2015-07, Volume 24, pp. 419-449,Chapitre12, Emerald Group Publishing Limited, 2015

Abstract This chapter proposes a comparative analysis of the monetary policies undertaken by the Federal Reserve Board and the European Central Bank after the 2008 subprime crisis. We point out the twin nature of the financial crises in Europe in comparison with the US crises: in addition to the role of bank funding, the euro area countries have also experienced a structural problem of balance of payment disequilibria. This explains why in the early stages of the subprime crisis, the Fed has succeeded in tackling the illiquidity problems facing the banking sector, while the ECB did not. The Fed could then focus on tackling the recession in the real sector by adopting quantitative easing policies to exert downward pressure on the long-term interest-rate. In the euro area quantitative easing policies came later, in 2013. Even the forward guidance policies have been different between the two central banks. Unlike the ECB, the Fed has gone through diverse forward guidance policies: qualitative, calendar-based, and state-contingent. The chapter proposes a new survey of the monetary policies after the subprime crisis by comparing two strategies in different contexts: the United States and the euro area.

The ECOWAS countries’ growth rates: what makes them similar and what makes them different? A quantile regression analysisJournal articleGilles Dufrénot et Hélène Ehrhart, Canadian Journal of Development Studies / Revue canadienne d'études du développement, Volume 36, Issue 3, pp. 345-365, 2015

This paper uses a quantile regression analysis to investigate differences across the ECOWAS countries of the engine of growth. Specifically, we want to see whether differences in the growth rates are related to domestic factors of economic growth (investment, human capital and financial intermediation), policy variables (inflation and government consumption) and institutional factors (degree of bureaucracy, accountability, corruption and property rights). Our empirical investigation provides evidence of heterogeneity in the determinants of economic growth depending upon the location of countries in the conditional distribution of per-capita GDP growth. We find that in the upper tails of the distribution, governance and institutional variables are more crucial in impacting growth than the standard determinants of growth in the neoclassical growth models. Conversely, for the lower tails of growth distribution, the economic growth seems to depend more heavily on the accumulation of physical capital and on education.

Reactions to Shocks and Monetary Policy Regimes: Inflation Targeting Versus Flexible Currency Board in Sub-Saharan AfricaJournal articleFadia Al Hajj, Gilles Dufrénot, Kimiko Sugimoto et Romain Wolf, The Developing Economies, Volume 53, Issue 4, pp. 237-271, 2015

The paper examines the monetary policy actions through which central banks in sub-Saharan Africa have tried to eliminate the negative impacts of the shocks facing their economies. We compare two different monetary policy regimes: a currency board regime (in the CFA zone) and an inflation targeting policy regime (Ghana and South Africa) when central banks respond to demand, supply, and fiscal shocks. We extend the usual forecasting and policy analysis system models to replicate the economic features of these economies during the period 2002–12 and to evaluate the impact of several policies in response to these shocks. We find that both policies are inappropriate in helping the economies escape from the effects of negative demand shocks, both are essential when negative shocks to primary balance occur, while inflation targeting dominates the currency board regime as a strategy to cope with positive shocks to inflation.

Is financial repression a solution to reduce fiscal vulnerability? The example of France since the end of World War IIJournal articleMarcel Aloy, Gilles Dufrénot et Anne Péguin-Feissolle, Applied Economics, Volume 46, Issue 6, pp. 629-637, 2014

This article contributes to the recent empirical literature on financial repression and focuses on the French case since the end of World War II. We find that the fiscal adjustment needed to lower the debt ratio has been smaller during the years of financial repression in comparison with those of liberalized financial markets. This was possible because the real interest rates were low. We conduct a counterfactual analysis to see whether the vulnerability of public finances would have been different, if, since the late 1980s, the governments had continued carrying out the same financial repression policies. We answer affirmatively showing that the cost of debt service would have been reduced.

Spillover effects of the 2008 global financial crisis on the volatility of the Indian equity markets: Coupling or uncoupling? A study on sector-based dataJournal articleGilles Dufrénot et Benjamin Keddad, International Review of Financial Analysis, Volume 33, Issue C, pp. 17-32, 2014

This paper focuses on the following question: has the global financial stress in the US markets during the subprime crisis induced a persistent volatility of Indian equity stocks? We answer this question using sector-based data and we propose a simple stochastic volatility model augmented with exogenous inputs (financial stress indicators in the US market). We derive analytically the autocorrelation of the squared returns using cross-moments and estimate the impact of several variables such as the CDS spreads, the ABCP spreads, market liquidity, the volatility of the S&P 500 using a Kalman filter approach with the impact captured through Almon polynomials. We find a strong evidence of persistent volatility irrespective of the sector and interpret this finding as the result of two factors: the lower liquidity of the Indian equity markets during the subprime crisis and a wake-up call effect.

Global Imbalances And Financial Sector Instabilities: IntroductionJournal articleVladimir Borgy, Carine Bouthevillain et Gilles Dufrénot, International Journal of Finance & Economics, Volume 19, Issue 1, pp. 1-2, 2014

This special issue provides several views about the sources of the current crisis and policy solutions to cope with it. It brings together papers from academic institutions, international organizations and central banks. The first three papers argue that the crisis was triggered by the lack of confidence of the investors in the markets. This was reflected, for instance, in the pricing of the public debt (with an increase in the sovereign debt spreads) and in the reduced syndicated lending in wholesale lending markets. The other three papers focus on policy aspects by analyzing indicators that could serve as early warning signals of increasing stress and vulnerability. The authors propose three set of indicators: policy‐based indicators, some variables used in the macro‐prudential literature and financial indexes. The papers are a selection of papers presented at a Conference on Macroeconomic and financial vulnerability indicators in advanced economies co‐organizes by the Banque de France and the University of Strasbourg on 13–14 September 2013. Copyright © 2013 John Wiley & Sons, Ltd.

Managing the fragility of the Eurozone by Paul de GrauweJournal articleVladimir Borgy, Carine Bouthevillain et Gilles Dufrénot, International Journal of Finance & Economics, Volume 19, Issue 1, pp. 3-11, 2014

This paper discusses sources of self‐fulfilling equilibria in the Eurozone when some governments are highly susceptible to movements of distrust by investors who fear some payment difficulty. Self‐fulfilling prophecies occur when countries become insolvent only because investors fear insolvency. They induce multiple equilibria, some of which correspond to bad equilibria and others to good equilibria. An important issue then is to solve this problem, notably to eliminate the bad equilibria. In the short‐run, the role of the central bank as a lender of last resort is key. But this raises issues about the risk inherent to its intervention (inflation, solvency). In the medium run, macroeconomic policies in the euro are central (structural reforms and the reduction of external imbalances). In the long run, it may be worth proceeding to the consolidation of national budgets and debts, which would protect the countries of being forced with default by the financial markets. Copyright © 2013 John Wiley & Sons, Ltd.

Business cycles synchronization in East Asia: A Markov-switching approachJournal articleGilles Dufrénot et Benjamin Keddad, Economic Modelling, Volume 42, Issue C, pp. 186-197, 2014

This paper attempts to analyze the relationships between the ASEAN-5's business cycles. We examine the nature of business cycle synchronization trying to disentangle between intraregional and interregional synchronization by considering the important role of China, Japan and the US in synchronizing the activity within the ASEAN-5. We employ a time-varying transition probability Markov switching framework in order to allow the degree of synchronization to fluctuate across the phases of the business cycles. We provide evidence that the signals contained in some regional and global leading business cycles can impact the ASEAN-5's business cycles.

New tools to assess fiscal and financial vulnerabilities in advanced economiesJournal articleVladimir Borgy, Carine Bouthevillain, Claude Diebolt et Gilles Dufrénot, Applied Economics, Volume 46, Issue 6, pp. 587-588, 2014

This introduction presents a selection of articles dealing with the issue of measuring the fiscal and financial vulnerabilities in the advanced economies. These articles were presented at a conference organized jointly by the Banque de France and BETA in Strasbourg on 13–14 September. The authors show that the improvement of macroeconomic toolkit goes hand in hand with the strengthening of fiscal frameworks and the tools for managing financial tensions. They propose several indicators in order to capture the variety of vulnerabilities observed in the industrialized countries since the recent great depression: funding needs, market perceptions risks, stress dependence among sovereigns and the reactions of governments to cope with these new challenges.

Market Microstructure and Nonlinear Dynamics - Keeping Financial Crisis in ContextBookGilles Dufrénot, Fredj Jawadi et Waël Louhichi (Eds.), 2014, 315 pages, Springer International Publishing, 2014

This book discusses market microstructure environment within the context of the global financial crisis and investigates the recent econometric tools toimprove financial markets dynamics in calm and turbulent times. In the first ...