Christophe Cahn

Estimating Potential Output with a Production Function for France, Germany and Italy

This paper discusses the supply conditions for economic growth in terms of potential GDP estimated by the production function approach for France, Germany and Italy for the 1986:2003 period. The aim of this study is twofold: first, we keep a consistent framework as regards national account institutional sectors. Second, after defining Total Factor Productivity (TFP) in the so-called productive sector from the Solow residual, we specify it in a general framework for the three countries as a function of a time trend corrected for the effects of the age of equipments and the capacity utilisation rate (CUR). This framework allows to distinguish temporal considerations: in the medium to long term, the variables that could generate short to medium term fluctuations in potential output growth are assumed to be stable at a structural level. This implies modifications of the functional specifications related to the time horizon.

Competition, R&D, and the Cost of Innovation

This paper proposes a model in the spirit of Aghion et al. (2005) that encompasses the magnitude of the impact of competition on RD at the extreme end, in certain sectors, the curve is so at that competition policy is not an appropriate tool for boosting the research effort of firms.

Can the Provision of Long-Term Liquidity Help to Avoid a Credit Crunch? Evidence from the Eurosystem's LTROs

We exploit the Eurosystem’s longer-term refinancing operations (LTROs) of 2011-2012 to analyze the effects that a large provision of central bank liquidity to banks has on the credit supply to firms. We control for credit demand by examining firms that borrow from several banks, in addition to controlling for banks’ risk. We find that LTROs enhanced loan supply in France. Nevertheless, the transmission took place mostly with the first operation of December 2011, in which constrained banks bid more, and larger borrowers benefited more. The opportunity to substitute long-term central bank borrowing for short-term borrowing was instrumental in this transmission.

Assessing the Macroeconomic Effects of LTROs

In response to the 2008-2009 crisis, faced with distressed financial intermediaries, the ECB embarked in long-term refinancing operations (LTROs). Using an estimated DSGE model with a frictional banking sector, we find that such liquidity injections can have large macroeconomic effects, with multipliers up to 0.5. However, the latter depend in an important way on how standard monetary policy is adjusted in conjunction with these non-standard measures. We find that the effects are larger when the separation principle is breached, that is to say when we force monetary policy not to react to the stimulative effects of LTROs.

External Credit Ratings and Bank Lending

We study how corporate credit ratings produced by a central bank and available to banks influence credit allocation. We exploit a refinement of this rating information, which makes some firms receive a positive rating surprise and discloses the central banks private information on borrowers. We show that affected firms enjoy greater and cheaper access to bank credit, especially when they are informationally opaque and lenders are less informed. Furthermore, firms receiving the rating surprise start new bank relationships more easily and invest more. We conclude that these ratings reduce information asymmetries, and improve the functioning of the credit market.We study how third-party rating information influences firms’ access to bank financing and real outcomes. We exploit a refinement in the rating scale that occurred in France in 2004. The new rules made some firms upgraded relative to others within each rating class. We find that upgraded firms enjoy greater and cheaper access to bank credit. Such effects are stronger the higher the cost for banks to screen the borrowing firms. Thanks to the greater access to credit, upgraded firms reduce their reliance on equity, increase their investment and hiring, and are less likely to fail. Overall, our findings uncover a new bank lending technology whereby banks rely on indicators based on hard and soft information produced by a third-party entity. ∗The views expressed herein are those of the authors and should under no circumstances be interpreted as reflecting those of the Banque de France or the Eurosystem. †Banque de France; christophe.cahn@banque-france.fr; 31 rue Croix des Petits Champs 75049, Paris CEDEX 01, France. ‡Banque de France; mattia.girotti@banque-france.fr; 31 rue Croix des Petits Champs 75049, Paris CEDEX 01, France. §PSB Paris School of Business; f.salvade@psbedu.paris; 59 rue Nationale 75013, Paris, France.

Entrepreneurship and Information on Past Failures: A Natural Experiment

We analyze how public information on past entrepreneurial failure affects entrepreneurs’ ability to borrow. We exploit a policy shock from 2013 in France, which eliminated a highly salient public reporting to banks of managers involved in non-fraudulent corporate liquidations. We find that the flag removal makes failed entrepreneurs significantly more likely to restart a business or to borrow from a surviving business, despite the fact that bankers can find the failure information from other public sources for a small cost. Restarters create companies that have a higher probability of default.

Unconventional Monetary Policy and Bank Lending Relationships

How to support private lending to firms in recessions is a major open question. This paper uses an unexpected change in the collateral framework of the European Central Bank that reduced the cost of funding loans to a subset of firms in France in 2012, to examine how bank adjust their corporate lending portfolio in a downturn. It provides causal evidence that targeted unconventional monetary policy can be an effective lever to increase private credit and reduce contagion of financial distress. The effect is strongly driven by firms with only a single bank relationship, especially less risky borrowers with information intensive banking relationships.

Competition, Innovation, and the Business Cycle

This paper reports quantitative implications of a stochastic endogenous growth model in which growth displays a concave relationship with respect to competition. This model is consistent with unavoidable facts related to market structure, that other innovation-based endogenous growth models fail to replicate. This model shows promising empirical properties in both the short- and long-term. The current paper argues that this model might be better suited to measuring welfare implications of phenomena involving growth effects. An illustrative exercise reports and compares measurement of the welfare cost of imperfect competition and fluctuations.

Simulations Under Uncertainty (Variantes en Univers Incertain) (French)

In this paper, we try to illustrate the interest of the Bayesian approach for the evaluation of economic policies, often realised by analysing the response of the economy to a standard shock. We present a Stochastic Dynamic General Equilibrium model for the euro area. The Bayesian estimation gives a measure of the uncertainty on the parameters, from which we can derive the uncertainty of the responses to standard shocks. As an illustration, we simulate the effects of a fiscal shock (announced VAT increase).