Credit and liquidity risks in euro area sovereign yield curves

In this paper, we propose a model of the joint dynamics of euro-area sovereign yield curves. The arbitrage-free valuation framework involves five factors and two regimes, one of the latter being interpreted as a crisis regime. These common factors and regimes explain most of the fluctuations in euro-area yields and spreads. The regime-switching feature of the model turns out to be particularly relevant to capture the rise in volatility experienced by fixed-income markets over the last years. In our reduced-form set up, each country is characterized by a hazard rate, specified as some linear combinations of the factors and regimes. The hazard rates incorporate both liquidity and credit components, that we aim at disentangling. The estimation suggests that a substantial share of the changes in euro-area yield differentials is liquidity-driven. Our approach is consistent with the fact that sovereign default risk is not diversifiable, which gives rise to specific risk premia that are incorporated in spreads. Once liquidity-pricing effects and risk premia are filtered out of the spreads, we obtain estimates of the actual –or real-world– default probabilities. The latter turn out to be significantly lower than their risk-neutral counterparts.default risk, liquidity risk, term structure of interest rates, regime-switching, euro-area spreads.

Household wealth, portfolio selection and consumption behavior

In the past twenty years, household wealth undergoes profound changes and in particular a notable increase of the share of financial wealth. The hike of stock market prices in the late 1990s, the burst of the speculative bubble since the summer of 2000 and the continued upsurge of housing prices lead to important swings of the value of household wealth. These large changes raise a number of issues concerning their consequences, both real - in terms of consumption and savings - and financial - in terms of portfolio selection. This article studies the break up of wealth between different assets (portfolio choice theory) and the impact of aggregate wealth on consumption (wealth effect), taking into account population ageing. The age of consumers indeed influences both the level of their savings (life-cycle theory) and their investment horizon (short vs. long-run). We should expect that older households, on average, would lean towards more liquid assets as their remaining life span is narrowing. The share of housing wealth in aggregate wealth should decrease. Population aging should also lead to an increase of the aggregate saving rate for at least the coming twenty years.household wealth, wealth effect, portfolio selection, population ageing

Required Capital for Long-Run Risks

National audienceOne of the objectives of the recent microprudential regulation is to separate the computation of required capital for short-run and long-run risks. This paper provides a coherent framework to define, compute, and update these components. The approach is developed in greater details in the context of the transition to low-carbon economies. A numerical example is given

Demographic changes and economic growth: a macroeconomic projection for 2020

Exploring the economic consequences of demographic changes is often carried out within simple accounting frameworks. Such approaches consist of projecting the impact of ageing on social security expenditures under exogenous assumptions about economic growth, productivity, wages and employment. Alternative attempts to consider richer interactions between economic and demographic variables are carried out with calibrated computable general equilibrium models with overlapping generations. These models are basically neoclassical. Up to now in France, this question seldom has been examined with macroeconometric models of keynesian inspiration. Studying the results provided by such models for France may therefore be of interest. This is the purpose of this work, which presents an economic outlook for 2020 carried out with MESANGE macroeconometric model. This model has short term keynesian and long term neo-classical properties. This exercise integrates the impact of demographic changes on savings, consumption, social expenditures and disequilibrium on the labour market. Labour force projections and the natural dynamics of the model lead to employment levels that remain insufficient to ensure balance in social accounts. Additional taxes would therefore be required. Two possibilities are explored: the CSG or Generalized Social Contribution (a constant tax rate on capital and labor income) or employers and employees social contributions (with or without an impact of employees contributions on the fiscal wedge). The model predicts that the level of employment is less penalised by the former modality. We also explore the consequences of tougher conditions to get full pensions which, at the 2020 horizon, would lead to a one-year increase of the age of new retirees. In this case, the increase of the CSG that would be required to meet Maastricht criteria amounts to 4.3 points. Choosing between CSG and social contributions might nevertheless depend on other considerations, such as their incidence on the relative standards of living of workers and pensioners, or the wish to keep a strong correspondence between pension benefits and contributions paid during working life.retirement, ageing, growth, sustainability of public spending

Monitoring and conservation of the critically endangered Alaotran gentle lemur Hapalemur alaotrensis

The Alaotran gentle lemur Hapalemur alaotrensis is a Critically Endangered lemur, which exclusively inhabits the marshes around Lac Alaotra in northeast Madagascar. In the past decades the population of H. alaotrensis has experienced a dramatic decline due to poaching, habitat destruction and degradation. Surveys have been carried out periodically to follow the status of the population. Here we present the results of a survey carried out between May and June 2008 in the southwestern part of the marshes around Alaotra and discuss the key findings derived from the analysis of the data collected. Our study indicates that the probability of detecting the species in an area where it is present is very low and depends on factors that vary in space and time. These results stress the need to account for imperfect detection when monitoring this species, an issue especially relevant when reporting population trends. Our analyses also show that habitat fragmentation is a key determinant of habitat suitability for H. alaotrensis, with fragmented areas of marsh showing low suitability. Finally, our observations and analysis suggest that the protection provided by the local community to H. alaotrensis in Andreba is contributing to the conservation of this Critically Endangered species. This highlights the need to continue working on engaging the local communities in the conservation of the marshes at Lac Alaotra as a critical element to secure the future of H. alaotrensis

A compact fluorescence sensor for low-cost non-invasive monitoring of gut permeability in undernutrition

Undernutrition is associated with approximately 45% of deaths among children under the age of 5. Furthermore, in 2020, around 149 million children suffered impaired physical/cognitive development due to lack of adequate nutrition. Environmental enteropathy (EE) is associated with undernutrition and is characterized by a multifaceted breakdown in gut function, including an increase in intestinal permeability that can lead to inflammatory responses. However, the role and mechanisms associated with EE (particularly gut permeability) are not well understood. This is partly because current techniques to assess changes in gut permeability, such as endoscopic biopsies, histopathology and chemical tests such as Lactulose:Mannitol assays, are either highly invasive, unreliable or difficult to perform on specific groups of patients (such as infants and patients with urine retention problems). Therefore, low-cost, non-invasive and reliable diagnostic tools are urgently needed for better evaluation of intestinal permeability. Here, we present a compact transcutaneous fluorescence spectroscopy sensor for non-invasive evaluation of gut permeability and report the first in vivo data collected from volunteers in an undernutrition trial. Using this technique and device, fluorescence signals are detected transcutaneously after oral ingestion of a fluorescent solution. Preliminary results demonstrate the potential use of the presented sensor for clinical assessment of gut permeability in low-income settings