Université de Lille and CIRANO
ENS Paris-Saclay and Université de Lille
Étienne Farvaque 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 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.
When: Monday, June 4, 2018, 12:00 pm - 2:00 pm
Where: Center for Interuniversity Research and Analysis of Organizations