Essays in macro finance and monetary economics

Les questions abordées dans les deux premiers articles de ma thèse cherchent à comprendre les facteurs économiques qui affectent la structure à terme des taux d'intérêt et la prime de risque. Je construis des modèles non linéaires d'équilibre général en y intégrant des obligations de différentes échéances. Spécifiquement, le premier article a pour objectif de comprendre la relation entre les facteurs macroéconomiques et le niveau de prime de risque dans un cadre Néo-keynésien d'équilibre général avec incertitude. L'incertitude dans le modèle provient de trois sources : les chocs de productivité, les chocs monétaires et les chocs de préférences. Le modèle comporte deux types de rigidités réelles à savoir la formation des habitudes dans les préférences et les coûts d'ajustement du stock de capital. Le modèle est résolu par la méthode des perturbations à l'ordre deux et calibré à l'économie américaine. Puisque la prime de risque est par nature une compensation pour le risque, l'approximation d'ordre deux implique que la prime de risque est une combinaison linéaire des volatilités des trois chocs. Les résultats montrent qu'avec les paramètres calibrés, les chocs réels (productivité et préférences) jouent un rôle plus important dans la détermination du niveau de la prime de risque relativement aux chocs monétaires. Je montre que contrairement aux travaux précédents (dans lesquels le capital de production est fixe), l'effet du paramètre de la formation des habitudes sur la prime de risque dépend du degré des coûts d'ajustement du capital. Lorsque les coûts d'ajustement du capital sont élevés au point que le stock de capital est fixe à l'équilibre, une augmentation du paramètre de formation des habitudes entraine une augmentation de la prime de risque. Par contre, lorsque les agents peuvent librement ajuster le stock de capital sans coûts, l'effet du paramètre de la formation des habitudes sur la prime de risque est négligeable. Ce résultat s'explique par le fait que lorsque le stock de capital peut être ajusté sans coûts, cela ouvre un canal additionnel de lissage de consommation pour les agents. Par conséquent, l'effet de la formation des habitudes sur la prime de risque est amoindri. En outre, les résultats montrent que la façon dont la banque centrale conduit sa politique monétaire a un effet sur la prime de risque. Plus la banque centrale est agressive vis-à-vis de l'inflation, plus la prime de risque diminue et vice versa. Cela est due au fait que lorsque la banque centrale combat l'inflation cela entraine une baisse de la variance de l'inflation. Par suite, la prime de risque due au risque d'inflation diminue. Dans le deuxième article, je fais une extension du premier article en utilisant des préférences récursives de type Epstein -- Zin et en permettant aux volatilités conditionnelles des chocs de varier avec le temps. L'emploi de ce cadre est motivé par deux raisons. D'abord des études récentes (Doh, 2010, Rudebusch and Swanson, 2012) ont montré que ces préférences sont appropriées pour l'analyse du prix des actifs dans les modèles d'équilibre général. Ensuite, l'hétéroscedasticité est une caractéristique courante des données économiques et financières. Cela implique que contrairement au premier article, l'incertitude varie dans le temps. Le cadre dans cet article est donc plus général et plus réaliste que celui du premier article. L'objectif principal de cet article est d'examiner l'impact des chocs de volatilités conditionnelles sur le niveau et la dynamique des taux d'intérêt et de la prime de risque. Puisque la prime de risque est constante a l'approximation d'ordre deux, le modèle est résolu par la méthode des perturbations avec une approximation d'ordre trois. Ainsi on obtient une prime de risque qui varie dans le temps. L'avantage d'introduire des chocs de volatilités conditionnelles est que cela induit des variables d'état supplémentaires qui apportent une contribution additionnelle à la dynamique de la prime de risque. Je montre que l'approximation d'ordre trois implique que les primes de risque ont une représentation de type ARCH-M (Autoregressive Conditional Heteroscedasticty in Mean) comme celui introduit par Engle, Lilien et Robins (1987). La différence est que dans ce modèle les paramètres sont structurels et les volatilités sont des volatilités conditionnelles de chocs économiques et non celles des variables elles-mêmes. J'estime les paramètres du modèle par la méthode des moments simulés (SMM) en utilisant des données de l'économie américaine. Les résultats de l'estimation montrent qu'il y a une évidence de volatilité stochastique dans les trois chocs. De plus, la contribution des volatilités conditionnelles des chocs au niveau et à la dynamique de la prime de risque est significative. En particulier, les effets des volatilités conditionnelles des chocs de productivité et de préférences sont significatifs. La volatilité conditionnelle du choc de productivité contribue positivement aux moyennes et aux écart-types des primes de risque. Ces contributions varient avec la maturité des bonds. La volatilité conditionnelle du choc de préférences quant à elle contribue négativement aux moyennes et positivement aux variances des primes de risque. Quant au choc de volatilité de la politique monétaire, son impact sur les primes de risque est négligeable. Le troisième article (coécrit avec Eric Schaling, Alain Kabundi, révisé et resoumis au journal of Economic Modelling) traite de l'hétérogénéité dans la formation des attentes d'inflation de divers groupes économiques et de leur impact sur la politique monétaire en Afrique du sud. La question principale est d'examiner si différents groupes d'agents économiques forment leurs attentes d'inflation de la même façon et s'ils perçoivent de la même façon la politique monétaire de la banque centrale (South African Reserve Bank). Ainsi on spécifie un modèle de prédiction d'inflation qui nous permet de tester l'arrimage des attentes d'inflation à la bande d'inflation cible (3% - 6%) de la banque centrale. Les données utilisées sont des données d'enquête réalisée par la banque centrale auprès de trois groupes d'agents : les analystes financiers, les firmes et les syndicats. On exploite donc la structure de panel des données pour tester l'hétérogénéité dans les attentes d'inflation et déduire leur perception de la politique monétaire. Les résultats montrent qu'il y a évidence d'hétérogénéité dans la manière dont les différents groupes forment leurs attentes. Les attentes des analystes financiers sont arrimées à la bande d'inflation cible alors que celles des firmes et des syndicats ne sont pas arrimées. En effet, les firmes et les syndicats accordent un poids significatif à l'inflation retardée d'une période et leurs prédictions varient avec l'inflation réalisée (retardée). Ce qui dénote un manque de crédibilité parfaite de la banque centrale au vu de ces agents.

The law and economics of good faith in the civil law of contract

Good faith plays a central role in most legal systems, yet appears to be an intractable concept. This article proposes to analyse it economically as the absence of opportunism in circumstances which lend themselves to it. One of the objectives underlying the law of contract on an economic view is to curtail opportunism. In spelling out what this means, the paper proposes a three-step test: bad faith is present where a substantial informational or other asymmetry exists between the parties, which one of them turns into an undue advantage, considered against the gains both parties could normally expect to realise through the contract, and where loss to the disadvantaged party is so serious as to provoke recourse to expensive self-protection, which significantly raises transactions costs in the market. The three-step test is then used to analyse a set of recent decisions in international commercial transactions and three concepts derived from good faith: fraud, warranty for latent defects and lesion.

International Business Cycles: What Are the Facts?

Modern business cycle theory involves developing models that explain stylized facts. For this strategy to be successful, these facts should be well established. In this paper, we focus on the stylized facts of international business cycles. We use the generalized method of moments and quarterly data from nineteen industrialized countries to estimate pairwise cross-country and within-country correlations of macroeconomic aggregates. We calculate standard errors of the statistics for our unique panel of data and test hypotheses about the relative sizes of these correlations. We find a lower cross-country correlation of all aggregates and especially of consumption than in previous studies. The cross-country correlations of consumption, output and Solow residuals are not significantly different from one another over the whole sample, but there are significant differences in the post-1973 subsample.

International Transmission of the Business Cycle in a Multi-Sector Model.

Multi-country models have not been very successful in replicating important features of the international transmission of business cycles. Standard models predict cross-country correlations of output and consumption which are respectively too low and too high. In this paper, we build a multi-country model of the business cycle with multiple sectors in order to analyze the role of sectoral shocks in the international transmission of the business cycle. We find that a model with multiple sectors generates a higher cross-country correlation of output than standard one-sector models, and a lower cross-country correlation of consumption. In addition, it predicts cross-country correlations of employment and investment that are closer to the data than the standard model. We also analyze the relative effects of multiple sectors, trade in intermediate goods, imperfect substitution between domestic and foreign goods, home preference, capital adjustment costs, and capital depreciation on the international transmission of the business cycle.

Methodology in Economics: the Logic of Appraisal

This Paper Intends to Develop a Coherent Methodological Framework Concerned with the Appraisal of Scientific Theories in Economics, and Which Is Based on a Postulated Aim of Science. We First Define the Scope of a Methodological Inquiry (Precise Definition of What Is Meant by the Logic of Appraisal of Scientific Theories) and Review the Work of Popper and Lakatos in the Philosophy of Science. We Then Use Their Results to Develop a Rational Structure of Scientific Activity. We Identify and Analyse Both a Micro and Macro Framework for the Process of Appraisal and Single Out the Importance of So-Called 'Fundamental Assumptions' in Creating Externalities in the Appraisal Process Which Forces Us to Adop a Multi-Level Analysis. Special Attention Is Given to the Role and Significance of the Abstraction Process and the Use of Assumptions in General. the Proposed Structure of Scientific Activity Is Illustrated with Examples From Economics.

Investment Under Demand Uncertainty: the Newsboy Problem Revisited.

In this article we study the effect of uncertainty on an entrepreneur who must choose the capacity of his business before knowing the demand for his product. The unit profit of operation is known with certainty but there is no flexibility in our one-period framework. We show how the introduction of global uncertainty reduces the investment of the risk neutral entrepreneur and, even more, that the risk averse one. We also show how marginal increases in risk reduce the optimal capacity of both the risk neutral and the risk averse entrepreneur, without any restriction on the concave utility function and with limited restrictions on the definition of a mean preserving spread. These general results are explained by the fact that the newsboy has a piecewise-linear, and concave, monetary payoff witha kink endogenously determined at the level of optimal capacity. Our results are compared with those in the two literatures on price uncertainty and demand uncertainty, and particularly, with the recent contributions of Eeckhoudt, Gollier and Schlesinger (1991, 1995).

Non-Commitment and Savings in Dynamic Risk-Sharing Contracts

We characterize the solution to a model of consumption smoothing using financing under non-commitment and savings. We show that, under certain conditions, these two different instruments complement each other perfectly. If the rate of time preference is equal to the interest rate on savings, perfect smoothing can be achieved in finite time. We also show that, when random revenues are generated by periodic investments in capital through a concave production function, the level of smoothing achieved through financial contracts can influence the productive investment efficiency. As long as financial contracts cannot achieve perfect smoothing, productive investment will be used as a complementary smoothing device.

Finite-Sample Inference Methods for Simultaneous Equations and Models with Unobserved and Generated Regressors

We propose finite sample tests and confidence sets for models with unobserved and generated regressors as well as various models estimated by instrumental variables methods. The validity of the procedures is unaffected by the presence of identification problems or \"weak instruments\", so no detection of such problems is required. We study two distinct approaches for various models considered by Pagan (1984). The first one is an instrument substitution method which generalizes an approach proposed by Anderson and Rubin (1949) and Fuller (1987) for different (although related) problems, while the second one is based on splitting the sample. The instrument substitution method uses the instruments directly, instead of generated regressors, in order to test hypotheses about the \"structural parameters\" of interest and build confidence sets. The second approach relies on \"generated regressors\", which allows a gain in degrees of freedom, and a sample split technique. For inference about general possibly nonlinear transformations of model parameters, projection techniques are proposed. A distributional theory is obtained under the assumptions of Gaussian errors and strictly exogenous regressors. We show that the various tests and confidence sets proposed are (locally) \"asymptotically valid\" under much weaker assumptions. The properties of the tests proposed are examined in simulation experiments. In general, they outperform the usual asymptotic inference methods in terms of both reliability and power. Finally, the techniques suggested are applied to a model of Tobin’s q and to a model of academic performance.

The Backing of Government Debt and the Price Level

This paper studies the interdependence between fiscal and monetary policies, and their joint role in the determination of the price level. The government is characterized by a long-run fiscal policy rule whereby a given fraction of the outstanding debt, say d, is backed by the present discounted value of current and future primary surpluses. The remaining debt is backed by seigniorage revenue. The parameter d characterizes the interdependence between fiscal and monetary authorities. It is shown that in a standard monetary economy, this policy rule implies that the price level depends not only on the money stock, but also on the proportion of debt that is backed with money. Empirical estimates of d are obtained for OECD countries using data on nominal consumption, monetary base, and debt. Results indicate that debt plays only a minor role in the determination of the price level in these economies. Estimates of d correlate well with institutional measures of central bank independence.

A Theory of Random Consumer Demand

This paper presents a new theory of random consumer demand. The primitive is a collection of probability distributions, rather than a binary preference. Various assumptions constrain these distributions, including analogues of common assumptions about preferences such as transitivity, monotonicity and convexity. Two results establish a complete representation of theoretically consistent random demand. The purpose of this theory of random consumer demand is application to empirical consumer demand problems. To this end, the theory has several desirable properties. It is intrinsically stochastic, so the econometrician can apply it directly without adding extrinsic randomness in the form of residuals. Random demand is parsimoniously represented by a single function on the consumption set. Finally, we have a practical method for statistical inference based on the theory, described in McCausland (2004), a companion paper.

Bayesian Analysis for a Theory of Random Consumer Demand: The Case of Indivisible Goods

McCausland (2004a) describes a new theory of random consumer demand. Theoretically consistent random demand can be represented by a \"regular\" \"L-utility\" function on the consumption set X. The present paper is about Bayesian inference for regular L-utility functions. We express prior and posterior uncertainty in terms of distributions over the indefinite-dimensional parameter set of a flexible functional form. We propose a class of proper priors on the parameter set. The priors are flexible, in the sense that they put positive probability in the neighborhood of any L-utility function that is regular on a large subset bar(X) of X; and regular, in the sense that they assign zero probability to the set of L-utility functions that are irregular on bar(X). We propose methods of Bayesian inference for an environment with indivisible goods, leaving the more difficult case of indefinitely divisible goods for another paper. We analyse individual choice data from a consumer experiment described in Harbaugh et al. (2001).

Why Have Aggregate Skilled Hours Become So Cyclical Since the Mid-1980's?

This paper documents and discusses a dramatic change in the cyclical behavior of aggregate hours worked by individuals with a college degree (skilled workers) since the mid-1980’s. Using the CPS outgoing rotation data set for the period 1979:1-2003:4, we find that the volatility of aggregate skilled hours relative to the volatility of GDP has nearly tripled since 1984. In contrast, the cyclical properties of unskilled hours have remained essentially unchanged. We evaluate the extent to which a simple supply/demand model for skilled and unskilled labor with capital-skill complementarity in production can help explain this stylized fact. Within this framework, we identify three effects which would lead to an increase in the relative volatility of skilled hours: (i) a reduction in the degree of capital-skill complementarity, (ii) a reduction in the absolute volatility of GDP (and unskilled hours), and (iii) an increase in the level of capital equipment relative to skilled labor. We provide empirical evidence in support of each of these effects. Our conclusion is that these three mechanisms can jointly explain about sixty percent of the observed increase in the relative volatility of skilled labor. The reduction in the degree of capital-skill complementarity contributes the most to this result.