CANDELON bertrand

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This thesis studies the long-term evolution and the main determinants of equity market comovements. These issues are important for investors and regulators, as interdependencies between stock markets (i) are a key element of the benefits of international portfolio diversification and (ii) may affect financial stability by facilitating the propagation of shocks across countries. Our contributions to the literature are both methodological and empirical. We develop indicators that shed new light on the evolution of the benefits of international diversification. Then, we study the long-term impact of globalization on the increase of comovements between stock markets over the last four decades. Finally, we examine the interconnections of insurance companies that have become a central feature of macroprudential supervision of the sector.

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After September 2008, due to the freezing of the interbank market, a lack of liquidity, a loss of confidence and the difficulties of financial institutions, the transmission of monetary policy within the euro zone was severely impaired. The European Central Bank (ECB) has therefore had to resort to unconventional monetary policies. Considering, within the Eurozone, the constraints imposed on the central bank and the fragmentation of the financial markets, the objective of this empirical thesis is to evaluate the transmission channels of the ECB's conventional and non-conventional monetary policies. Since banks' lending behavior is related to their funding costs, the first essay focuses on the transmission channel of bank lending. It studies the evolution of syndicated lending activities of European financial institutions and their response to ECB policies. Central bank communication is of particular importance in a monetary union. The second and third essays focus on the signaling channel. The second essay examines communication during monthly press conferences and its effects on the predictability of monetary policy decisions and on financial market returns and volatility. The last essay focuses on the use of forward guidance, an unconventional communication informing markets of the future level of short-term interest rates. It studies the effectiveness of this announcement and its ability to influence the interest rate forecasts made by market participants.

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In this paper we study various MIDAS models for which the future daily variance is directly related to past observations of intraday predictors. Our goal is to determine if there exists an optimal sampling frequency in terms of variance prediction. Via Monte Carlo simulations we show that in a world without microstructure noise, the best model is the one using the highest available frequency for the predictors. However, in the presence of microstructure noise, the use of very high-frequency predictors may be problematic, leading to poor variance forecasts. The empirical application focuses on two highly liquid assets (i.e., Microsoft and S&P 500). We show that, when using raw intraday squared log-returns for the explanatory variable, there is a “high-frequency wall” – or frequency limit – above which MIDAS-RV forecasts deteriorate or stop improving. An improvement can be obtained when using intraday squared log-returns sampled at a higher frequency, provided they are pre-filtered to account for the presence of jumps, intraday diurnal pattern and/or microstructure noise. Finally, we compare the MIDAS model to other competing variance models including GARCH, GAS, HAR-RV and HAR-RV-J models. We find that the MIDAS model – when it is applied on filtered data –provides equivalent or even better variance forecasts than these models. JEL: C22, C53, G12 / KEY WORDS: Variance Forecasting, MIDAS, High-Frequency Data. RÉSUMÉ.

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This paper investigates whether technology spills over across national borders and technology regimes. We advocate a modeling strategy where improvements in technical efficiency capture technology spillovers as industries absorb and implement the best-practice technology. Dynamic panel-based techniques are used to determine whether efficiency series move together in the long run (cointegrate) and/or move closer together over time (converge). We control for technological heterogeneity and for cross-sectional dependence in the data. For a panel of manufacturing industries in six EU countries, we find evidence of technology spillovers and convergence among industries’ efficiency levels across countries and mainly across adjacent technology regimes.

This thesis, articulated in three chapters, aims to study the structural interdependencies between different financial markets. In Chapter 1, we study the architecture of the interdependencies between the main European markets. By modeling these interdependencies through dynamic networks, we propose a new methodology to measure, as a function of time, the direct and indirect links connecting each pair of elements within a given system. This topological measure allows us to evaluate the hierarchy of a system and its level of organization, thus constituting a complexity proxy. Our index is based on Simon's definition of complexity which links the complexity of a system to its hierarchical level of organization. We validate the relevance of our index by empirically studying the link between complexity and uncertainty. In Chapter 2, we study the impact of globalization on the economy, as an increase in interdependencies in a dynamic panel of 94 countries, from 1970 to 2011. Our contribution is to estimate the endogenized threshold of globalization on a dynamic panel. Finally, we study the role of economic uncertainty on the sovereign debt market: Chapter 3 exposes the impact of economic uncertainty on the level of sovereign rates in the Eurozone. Thus, this thesis studies the role of complexity and uncertainty on the structure of financial interdependencies.

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This paper provides new empirical evidence about the relationship that may exist between real exchange rates and commodity prices in developing countries that are specialized in the export of a main primary commodity. It investigates how structural factors like the exchange rate regime, the degree of financial and trade openness, the degree of export concentration and the type of the commodity exports affect the strength of the commodity price-real exchange rate dependence.

In this paper we analyze the stability of the money demand system in the US. To this aim, we develop an estimation and testing framework for a threshold vector error-correction model (VECM), where short-run dynamics are regime dependent and are driven by an exogenous, stationary and ergodic threshold variable. We modify a traditional Wald-type test for linearity and derive its asymptotic distribution, which turns out to be non-standard, but similar to the one proposed by Andrews [Andrews, D. 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point." Econometrica 61 (4): 821-856]. Accounting for the diversity of the potential determinants of money holdings, a broad scope of money demand systems is analyzed. The linearity test confirms that money demand is not only suffering from structural breaks, but is driven by regimes governed by business cycles. Moreover, a similar pattern and a robust dating of the regimes is observed no matter the money demand system considered, offering hence a reconciling picture of previous empirical studies. From a policy perspective, our findings supports the implementation of cyclical monetary policy by the Federal Reserve.

This paper proposes an original three-part sequential testing procedure (STP) with which to test for contagion using a multivariate model. First, conditional on breaks in the conditional mean, the procedure identifies distinct structural breaks in the volatility of a given set of countries. A further structural break test applied to the correlation matrix identifies and then dates the potential contagion mechanisms. As a third element, the STP tests for the distinctiveness of the break dates previously found. As a result of using multi-dimensional data, the STP has high testing power and is able to locate the dates of contagion more precisely. The application to European long-term interest rates shows that immediate contagion from Greece does not take place, but the dynamic spillovers are shown to increase after controlling for breaks in the different model parameters. For other countries we find evidence of both contagion and flight-to-quality mechanisms.

This paper provides new empirical evidence about the relationship that may exist between real exchange rates and commodity prices in developing countries that are specialized in the export of a main primary commodity. It investigates how structural factors like the exchange rate regime, the degree of financial and trade openness, the degree of export concentration and the type of the commodity exports affect the strength of the commodity price-real exchange rate dependence.

This article proposes an equilibrium theory of the organization of work in an economy with an implicit market for productive time. In this market, agents buy or sell productive time. This implicit market gives rise to the formation of teams, organized in hierarchies with one leader (buyer) at the top and helpers (sellers) below. Relative to autarky, hierarchical organization leads to higher within and between team payoffs/productivity inequality. This prediction is tested empirically in the context of professional road cycling. We show that 46% of performance inequality in the Tour de France is due to hierarchical organization within team whereas team composition only accounts for 6%.

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In this paper we study various MIDAS models in which the future daily variance is directly related to past observations of intraday predictors. Our goal is to determine if there exists an optimal sampling frequency in terms of volatility prediction. Via Monte Carlo simulations we show that in a world without microstructure noise, the best model is the one using the highest available frequency for the predictors. However, in the presence of microstructure noise, the use of ultra high-frequency predictors may be problematic, leading to poor volatility forecasts. In the application, we consider two highly liquid assets (i.e., Microsoft and S&P 500). We show that, when using raw intraday squared log-returns for the explanatory variable, there is a "high-frequency wall" or frequency limit above which MIDAS-RV forecasts deteriorate. We also show that an improvement can be obtained when using intraday squared log-returns sampled at a higher frequency, provided they are pre-filtered to account for the presence of jumps, intraday periodicity and/or microstructure noise. Finally, we compare the MIDAS model to other competing variance models including GARCH, GAS, HAR-RV and HAR-RV-J models. We find that the MIDAS model provides equivalent or even better variance forecasts than these models, when it is applied on filtered data.

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This thesis aims to study the link between exchange rate regimes, exchange rate misalignments and global imbalances. It is conducted in the context of an evolving panel of economies ranging from developing to developed countries. It covers three main themes. First, we examine exchange rate misalignments in the CFA zone and the proposed monetary union in West Africa. We then study the implications of a country's choice of exchange rate regime on its resilience to external imbalances. Finally, we analyze the influence of exchange rate misalignments on the persistence of global imbalances, as well as the interactions between macroeconomic imbalances.We show that the anchor currency (the euro) plays a predominant role in explaining CFA franc misalignments, all else being equal, including the fundamentals of the CFA franc. Based on a new methodology based on the synchronization of misalignments that we propose, we show that there are similarities between the WAEMU countries, Ghana, The Gambia and Sierra Leone in the context of a monetary union. We show that the persistence of current account imbalances is strongly and asymmetrically related to exchange rate misalignments in developed countries and that macroeconomic imbalances interact strongly through a causal relationship.

Traditionally, financial crisis Early Warning Systems (EWSs) have relied on macroeconomic leading indicators when forecasting the occurrence of such events. This paper extends such discrete-choice EWSs by taking the persistence of the crisis phenomenon into account. The dynamic logit EWS is estimated using an exact maximum likelihood estimation method in both a country-by-country and a panel framework. The forecasting abilities of this model are then scrutinized using an evaluation methodology which was designed recently, specifically for EWSs. When used for predicting currency crises for 16 countries, this new EWS turns out to exhibit significantly better predictive abilities than the existing static one, both in- and out-of-sample, thus supporting the use of dynamic specifications for EWSs for financial crises.

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This paper provides new empirical evidence about the relationship that may exist between real exchange rates and commodity prices in developing countries that are specialized in the export of a main primary commodity. It investigates how structural factors like the exchange rate regime, the degree of financial and trade openness, the degree of export concentration and the type of the commodity exports affect the strength of the commod- ity price-real exchange rate dependence.

This paper proposes an original procedure which allows for testing of Granger-causality for multiple risk levels across tail distributions, hence extending the procedure proposed by Hong et al. (2009). Asymptotic and finite sample properties of the test are considered. This new Granger-causality framework is applied for a set of regional oil markets series. It helps to tackle two main questions 1) Whether oil markets are more or less integrated during periods of extreme energetic prices movements and 2) Whether price-setter markets change during such periods. Our findings indicate that the integration level between crude oil markets tends to decrease during extreme periods and that price-setter markets also change. Such results have policy implication and stress the importance of an active energetic policy during episode of extreme movements. (C) 2012 Elsevier B.V. All rights reserved.

Known as Early Warning Systems (EWS), financial crisis prediction models are called upon to play a decisive role in the orientation of economic policies at both the microeconomic and macroeconomic levels. However, in the wake of the global financial crisis, major questions are being raised about their real predictive capacity. This applied econometrics thesis aims at proposing (i) a method for systematically evaluating the predictive capabilities of EWS and (ii) new EWS specifications to improve their performance. This work is divided into four chapters. The first one proposes an original test for evaluating predictions by confidence intervals based on the assumption of binomial distribution of the violation process. The second chapter proposes an econometric evaluation strategy of the predictive capabilities of EWS. We show that this evaluation should be based on the determination of an optimal threshold on the predicted probabilities of crisis occurrence as well as on the comparison of models.The third chapter reveals that the dynamics of crises (persistence) is an essential element of the econometric specification of EWS. The results show in particular that dynamic logit models have much better predictive capabilities than static models and Markovian models. Finally, in the fourth chapter we propose an original multivariate dynamic probit model that allows us to analyze the causality patterns between different types of crises (banking, exchange rate and debt). The empirical illustration clearly shows that the switch to trivariate modeling significantly improves the forecasts for countries experiencing all three types of crises.