Claire Célérier

Forecasting Inflation in France

The paper develops a model for forecasting inflation in France. As this model has to be integrated in the Eurosystem projection exercises, the projections are conditional to specific assumptions and must be consistent with the Macroeconomic projection exercise of the Banque de France. The specification of the model is thus highly constrained. The theoretical foundations of the model are based on the markup model for prices, but the resulting empirical model also has elements relating to the purchasing power parity and the Phillips curve. The model aggregates forecasts of the main HICP subcomponents. We show that the model exhibits better performance than a standard AR(4) model.

Catering to Investors through Security Design: Headline Rate and Complexity

This study investigates how banks design financial products to cater to yield-seeking investors. We focus on a large market of investment products targeted exclusively at households: retail structured products. These products typically offer a high return under their best-case scenario—the headline rate—that is nested in a complex payoff formula. Using a text analysis of the payoff formulas of the 55,000 products issued in Europe from 2002 to 2010, we measure product headline rates, complexity, and risk. Over this period, product headline rates depart from the prevailing interest rates as the latter decrease, complexity increases, and risky products become more common. In the cross section, the headline rate of a product is positively correlated with its level of complexity and risk. Higher headline rate, more complex, and riskier products appear more profitable to the banks distributing them. Our results suggest that financial complexity is a by-product of banks catering to yield-seeking investors.

Returns to Talent and the Finance Wage Premium

We empirically test the hypothesis that relatively high returns to talent explain the wage premium for working in finance. We exploit a special feature of the French educational system to build a precise measure of talent that we match with compensation data on graduates of elite French institutions. Using this measure, we show that wage returns to talent are three times higher in the finance industry than in the rest of the economy.This greater sensitivity to talent almost fully explains the level of the finance wage premium, its evolution since the 1980s, and, at the individual level, the pay increase workers obtain when joining the finance industry. Finally, returns to talent correlate with the share of variable compensation.

Unbanked Households: Evidence of Supply-Side Factors

This paper studies the impact of financial inclusion on wealth accumulation. Exploiting the US interstate branching deregulation between 1994 and 2005, we find that an exogenous expansion of bank branches increases low-income household financial inclusion. We then show that financial inclusion fosters household wealth accumulation. Relative to their unbanked counterparts, banked households accumulate assets in interest bearing accounts, invest more in durable assets such as vehicles, have a better access to debt, and have a lower probability of facing financial strain. The results suggest that promoting financial inclusion for low-income populations can improve household wealth accumulation and financial security.

Credit Supply Shocks and Human Capital: Evidence from a Change in Accounting Norms

We exploit changes in accounting norms for bank defined benefit pension plans in Portugal to identify the effects of exogenous credit supply shocks on firm ability to attract and retain skilled workers. Using bank-firm credit exposures, matched with a census of Portuguese employees, we show that firms in a relationship with affected banks borrow less and reduce employment mostly of high-skilled workers. These high-skilled workers are more likely to exit and less likely to join affected firms. Overall, credit market frictions might have long lasting effects on firm productivity and growth through firm accumulation of human capital.We identify the effects of exogenous credit constraints on firm ability to attract and retain skilled workers. To do so, we exploit a shock to the value of the pension obligations of Portuguese banks resulting from a change in accounting norms. Using bank-firm credit exposures that we match with a census of all Portuguese employees, we show that firms in a relationship with affected banks borrow less and reduce employment mostly of high-skilled workers. High-skilled workers are more likely to exit and less likely to join affected firms. Overall, credit market frictions might have long lasting effects on firm productivity and growth through firm accumulation of human capital.