Divergence in Labor Market Institutions and International Business Cycles

This paper investigates the sources of business cycle comovement within the New Open Economy Macroeconomy framework. It sheds new light on the business cycle comovement issue by examining the role of cross-country divergence in labor market institutions. We first document stylized facts supporting that heterogeneous labor market institutions are associated with lower cross-country GDP correlations among OECD countries. We then investigate this fact within a two-country dynamic general equilibrium model with frictions on the good and labor markets. On the good-market side, we model monopolistic competition and nominal price rigidity. Labor market frictions are introduced through a matching function à la Mortensen and Pissarides (1999). Our conclusions disclose that heterogenous labor market institutions amplify the crosscountry GDP differential in response to aggregate shocks. In quantitative terms, they contribute to reduce cross-country output correlation, when the model is subject to real and/or monetary shocks. Our overall results show that taking into account labor market heterogeneity improves our understanding of the quantity puzzle.International business cycle, Search, Labor market institutions, Wage bargaining

Business cycle comovement and labor market institutions: An empirical investigation

This paper examines the impact of labor market institutions (LMI) on business cycle (BC) synchronization. We first develop a two-country right-to-manage model of wage bargaining. We find that, following a symmetric demand change, cross-country differences in LMI generate divergent responses in employment and output. We then investigate the empirical relevance of this result using panel data of 20 OECD countries observed over 40 years. Our estimation strategy controls for a large set of possible factors influencing GDP correlations, which allows to confront our results with those found in previous studies. Consistently with our theoretical results, we find that similar labor markets across countries tend to favor more their synchronized cycles. In particular, disparities in tax wedges yields lower GDP co movement. Besides, interactions between labor market institutions do matter, enhancing or dampening the effect of tax wedge divergence on BC synchronization. Our overall results suggest that the impact of distortions in demand-supply labor mechanism should be investigated in international business cycle models.International business cycle, Business cycle synchronization, Labor market institutions, Panel Data Estimation

Entrepreneurship, Liquidity Constraints and Start-up Costs

We study the effects of liquidity constraints and start-up costs on the relationship between wealth and the fraction of entrepreneurs in an economy. We develop a dynamic occupational choice model that yields predictions that can be tested on cross-sectional data with exogenous variation in liquidity constraints (e.g. access to credit) and start-up costs. We use three highly comparable micro datasets (SHARE, ELSA and HRS) focusing on the population age 50+ in 9 countries. These countries have very different levels of start-up costs and potential liquidity constraints. Reduced form results support our theoretical predictions. While higher liquidity constraints yield a steeper wealth profile for the fraction of workers in entrepreneurship, startup costs flatten this relationship by depressing the marginal value of being an entrepreneur as a function of wealth. Countries with high start-up costs such as Italy, Spain and France have flatter wealth gradients.entrepreneurship, liquidity constraints, start-up costs, occupational choice, cross-country comparisons

Distance to Retirement and The Job Search of Older Workers: The Case For Delaying Retirement Age

This paper presents a theoretical foundation and empirical evidence in favor of the view that the retirement age decision impacts on the employment of older workers before this age. Countries with a retirement age at 60 are indeed characterized by lower employment rates for workers aged 55-59. Based on the French Labor Force Survey, we show that the likelihood of employment is significantly affected by the distance from retirement, in addition to age and other relevant variables. We then extend McCall's (1970) job search model by explicitly integrating life-cycle features and the retirement decision. Using simulations, we show that the distance effect in conjunction with the generosity of unemployment benefits for older workers explains the low rate of employment just before the eligibility retirement age. Finally, we show that implementing actuarially-fair schemes, not only extends the retirement age, but also encourages a more intensive job-search by older unemployed workers.Job Search, Older Workers, Retirement

L'intermédiation financière dans l'analyse macroéconomique : Le défi de la crise

Dans cet article, nous proposons une revue de la littérature sur les frictions financières dans les modèles d'équilibre général intertemporels et stochastiques. Nous présentons en premier lieu les contributions pionnières qui ont analysé les effets d'amplification associés à l'accélérateur financier. Nous procédons ensuite à un examen de la littérature foisonnante apparue à la suite de la crise financière. Les contributions récentes visent à dépasser les limites des modèles fondateurs en proposant des modélisations plus fine de l'activité des intermédiaires financiers et de leur impact macroéconomique.Frictions financières, intermédiaire financier, politique monétaire, fluctuations.

Overshooting and Exchange Rate Disconnect Puzzle: A Reappraisal

Transitions to floating exchange rate regimes have led to sharp increases in exchange rate volatilities with no corresponding changes in the distribution of macroeconomic fundamentals. In the spirit of Dornbusch (1976), we assess whether nominal exchange rate overshooting is responsible for this phenomenon. As long as uncovered interest rate parity holds, nominal exchange rate overshooting is linked to a persistent fall in the spread between domestic and foreign nominal interest rates. We thus develop a limited participation model in a small open economy setting. With small adjustment costs on money holdings, overshooting substantially contributes to the nominal exchange rate volatility.Exchange rate disconnect puzzle, liquidity effect, overshooting, uncovered interest rate parity

Optimal Fiscal Devaluation

We study fiscal devaluation in a small-open economy with labor market search frictions. Our analysis shows the key role of both dimensions in shaping the optimal tax scheme. By reducing labor market distortions, the tax reform is welfare-improving. Yet, as it makes imports more expensive, fiscal devaluation lowers the agents' purchasing power, which is welfare-reducing. These contrasting effects give rise to an optimal tax scheme. Besides, transition matters. If the economy is better off in the long run, the required transitional saving effort increases the cost of the reform, thereby calling for a moderate magnitude of fiscal devaluation

Welfare Effects of Social Security Reforms Across Europe : the Case of France and Italy

This paper uses a calibrated life cycle model to quantify the distributional effects of Social Security reforms. We focus only on two countries: Italy and France because they adopted two different strategies to cope with aging. While France marginally modified its defined pension plan, Italy switched from a defined pension plan to a contributive system. We find both reforms redistributes welfare unevenly: high skilled workers are the primary winners of the French reform and self employed individuals, especially unskilled workers, are the losers under the new Italian Social Security arrangement.

Quantifying the Laffer Curve on the Continued Activity Tax in a Dynastic Framework

It is argued that the tax on continued activity should be removed by implementing actuariallyfair schemes. However, these schemes cannot fund the expected Social Security deficit. This paper proposes to give individuals a fraction of the actuarially-fair incentives in the case of postponed retirement. Social Security faces a trade-off between giving enough incentives to make individualselay retirement and giving little increase in pensions in order to help finance its expected deficit. This trade-off is captured by a Laffer curve. Finally, when the Social Security system aims to maximize welfare, the optimal tax on postponed retirement is still strictly positive.retirement behavior and wealth, actuarially-fair benefits.

Fluctuations Internationales et Dynamique du Taux de Change

Cet article propose une revue de la littérature des MEGIS en économie ouverte. Le MEGIS international de base est incapable de rendre compte de la synchronisation cyclique des PIB observée dans les données, de la faible corrélation croisée des consommations et des fortes variations du taux de change. Ces énigmes empiriques ont donné lieu à une suite d'enrichissements théoriques visant à rendre ces modèles plus conformes aux données. La contribution d'Obstfeld & Rogoff (1995) s'impose comme un modèle de référence car offrant des fondements microéconomiques à une cadre keynésien en économie ouverte. Les travaux récents tentent de dépasser le modèle néo-keynésien en intégrant des éléments provenant des théories du commerce international ou de choix de portefeuille.MEGIS, fluctuations internationales, taux de change