Enisse Kharroubi

Some Preliminary Evidence on the Globalization-Inflation Nexus

This paper aims at evaluating the impact of globalization, if any, on inflation and the inflation process. We estimate standard Phillips curve equations on a panel of OECD countries over the last 25 years. We first show that the impact of commodity import price inflation on CPI inflation depends on the volume of commodity imports while the impact of non-commodity import price inflation is independent of the volume of non-commodity imports. Second, focusing on the role of intra-industry trade, we provide preliminary evidence that this variable can account (i) for the low pass-through of import price to consumer price and (ii) for the flattening of the Phillips curve, i.e. the lower sensitivity of inflation to the output gap.

Financial (Dis)Integration

This paper addresses the macroeconomic impact of international financial integration. I first provide empirical evidence that foreign banking penetration can be associated with a contraction of banking credit, especially in countries with poor credit markets. Second I present a model in which the presence or the absence of foreign lenders endogenously modifies firms credit constraints and hence the volume of credit extended in the economy. Specifically, I show on the one hand that foreign lenders consider loans from domestic lenders as firm collateral. This implies that their lending supply is positively associated with the volume of capital a firm is able to borrow from domestic lenders (collateral effect). On the other hand, the presence of foreign lenders raises competition, reduces domestic lenders profits and hence reduces domestic lenders capital supply (competition effect). Two different cases are then possible. If foreign lenders are able, in spite of the collateral effect, to extend a large volume of loans even when domestic lenders lending capacity has shrinked (due to increased competition on the capital market), then the economy benefits at the steady state both from a large capital supply and a low cost of capital. Integration then raises the economys growth rate. On the contrary, if foreign lenders are not able, due to the collateral effect, to extend a large volume of loans when domestic lenders lending capacity has shrinked, then competition reduces domestic lenders lending capacity and the collateral effect prompts foreign lenders to reduce their capital supply. Integration then depresses the economys growth rate, firms cost of capital and the volume of credit extended in the economy.

Domestic Savings and Foreign Capital: The Complementarity Channel

Recent empirical work has shown that current account deficits have been associated with lower growth in developing countries while they have been associated with higher growth in developed countries. This paper shows that this can be rationalized in an environment where firms face (i) transaction costs on the capital market and (ii) complementarity between domestic and foreign sources of capital. In this case, larger current account deficits are associated with lower investment and lower growth. However, the positive relationship between current account balance and growth is dampened with lower transaction costs and eventually gets reversed.

Liquidity, Moral Hazard and Inter-Bank Market Collapse

This paper proposes a framework to analyze the functioning of the inter-bank liquidity market and the occurrence of liquidity crises. The model relies on three key assumptions: (i) liquidity provisioning is not verifiable -it cannot be contracted upon-, (ii) banks face moral hazard when confronted with liquidity shocks-unobservable effort can help overcome the shock-, (iii) liquidity shocks are private information - they cannot be diversified away-. Under these assumptions, the equilibrium risk-adjusted return on liquidity provisioning increases with the aggregate equilibrium volume of ex ante liquidity provision. As a consequence, banks may provision too little liquidity compared with the social optimum. Within this framework we derive two main results. First inter-bank market collapse is an equilibrium. Second such an equilibrium is more likely when (i) the individual probability of the liquidity shock is lower, (ii) ex ante competition between banks on illiquid long term assets is larger.

Why Does Credit Growth Crowd Out Real Economic Growth

We examine the negative relationship between the rate of growth in credit and the rate of growth in output per worker. Using a panel of 20 countries over 25 years, we establish that there is a robust correlation: the higher the growth rate of credit, the lower the growth rate of output per worker. We then proceed to build a model in which this relationship arises from the fact that investment projects that are more risky have a higher return. As their borrowing grows more quickly over time, entrepreneurs turn to safer, hence lower return projects, thereby reducing aggregate productivity growth. We take this theoretical prediction to industry-level data and find that credit growth disproportionately harms output per worker growth in industries that have either less tangible assets or are more R&D intensive.

Domestic and Foreign Capital: The Complementarity Channel

Recent empirical work has shown that current account deficits have been associated with lower growth in developing countries while they have been associated with higher growth in developed countries. This paper shows that this can be rationalized in an environment where firms face (i) transaction costs on the capital market, and (ii) complementarity between domestic and foreign sources of capital. In this case, larger current account deficits are associated with lower investment and lower growth. However, the positive relationship between current account balance and growth is dampened with lower transaction costs and eventually gets reversed.