- Étienne Farvaque (University of Lille and CIRANO) presented the highlights of the document "Misplaced Childhood: When Depression Babies Grow Up As Central Bankers", paru en septembre 2017.
We examine how much an early – i.e., childhood – experience of recession influences the behavior of central bankers. We first develop a model of decision by a committee whose leaders exhibits recession-aversion due to their personal experience and, second, analyze the determinants of the interest rate setting by central banks in a discrete-choice modeling framework, augmented by the committee members' experience characteristics. The model reveals that recession aversion could lead to a reluctance of the policymaker to increase policy rates (in empirical terms, the more recession averse will be the policy-maker, the higher should the proportion of “cuts” be, relatively to “hikes”). In a panel multinomial logit model for nine major central banks analyzed over the period 1999-2015, we verify that growing-up in a recession indeed matters, especially in adverse periods. Central bankers' early personal experiences of recessions thus shape the policy reactions at the head of their institutions, with policy-relevant magnitudes. The results are robust to the tests of alternative behavioral hypotheses.
- Samuel Ligonnière (ENS Paris-Saclay and University of Lille) presented the highlights of the document "Fire Sales and Debt Maturity".
Hoes does debt maturity affect fire sales? By introducing debt maturity in a Fisherian deflation model, I demonstrate how it could trigger financial crises. Using a stock-flow analysis, I show that long-term debt could alleviate the risk of currentbinding collateral constraint, but an excessive reliance on long-term debt could generate future binding collateral constraints over long horizons. It is empirically confirmed by a study based on 121 developing countries over the period 1970-2012. I highlightthat debt maturity structure is a good early-warning indicator of financial crises, which provides information that adds up to the level of external debt.