The Week That Was in Europe – Détails, épisodes et analyse

Today, we dive into the aftermath of the French parliamentary elections – a pivotal event that has captured the attention of financial markets and the broader public across Europe.

To help us navigate the complexities of the outcome and the future implications, we have a special guest, Hadrien Camatte. Hadrien is an expert on the French economy at Natixis and has been meticulously following every twist and turn of this election.

Before joining Natixis, Hadrien honed his expertise at a central bank in Paris and the French Treasury, where he held various positions.

We dive into the transformative world of Artificial Intelligence and its impact on the financial sector and central banks. AI's rapid advancements and diverse applications are creating a veritable AI bonanza, reshaping the economy and financial systems globally.

Join us as we explore these changes with Hyun Shin from the Bank for International Settlements (BIS). Hyun Shin co-leads the Monetary and Economics Department at BIS and is a member of its Executive Committee. With a distinguished academic career, including positions at Princeton, the LSE, and Oxford, Hyun provides unique insights into the future of AI in finance.

Tune in for an enlightening conversation that uncovers the implications of AI as a general-purpose technology and its potential to transform central banking around the world.

Don't miss this episode—subscribe now and stay ahead in the AI revolution! 🎧

The neutral rate is relevant for understaning the stance of monetary policy and for the fiscal outlook, as it determines the financing conditions for government debt. We explain how the neutral rate is defined, discuss its economic determinants and provide estimates of how it has changed since the pre-pandemic period. Increased government debt supply appears to have excerted substantial upward pressure on the neutral rate.

We make reference to the following papers:

Thiago Ferreira and Samer Shousha titled “The supply of safe assets and global interest rates” , Journal of International Economics, 2023.

Atif Mian, Ludwig Straub, and Amir Sufi. titled “What explains the decline in r*? Rising income inequality versus demographic shifts.” Proceedings of the Jackson Hole Symposium, 2021.

We review the fiscal position of France, Germany, Italy and Spain, discuss the need for consolidation and how it could be implemented with minimal harm to output.

Provided wage growth moderates and inflation develops as expected, the ECB will start cutting interest rates in June. We discuss the uncertainties around this outlook and recent headwinds on the inflation front.

We discuss with Prof. Harald Fadinger (University of Mannheim) how the EU taxes the carbon content of imported goods via its Carbon Border Adjustment Mechanism (CBAM).

We critically review the effectivenes of CBAM to prevent "carbon leakage", i.e., the international reallocation of production to locations with low carbon prices, and its effect on the international competitiveness of EU firms. CBAM appears to perform badly on both of these and a number of other fronts.

We also discuss alternative approaches for international carbon price adjustments, partly based on research by Harald and his coauthors:

"Designing Effective Carbon Border Adjustment with Minimal Information Requirements. Theory and Empirics", by A. Campolmi, H. Fadinger, C. Forlati, S. Stillger and U. Wagner.

We discuss with Veronika Grimm (German Council of Economic Experts) about lifting Germany's long-run growth potential. We focus on measures that increase labor supply, human capital formation and the role of long-run electricity prices.

The @ecb is getting close to cutting interest rates: it signaled following it March 7 Governing Council Meeting its readiness to start cutting rates in June, if everything goes according to plan.

We talk about recent trends and future challenges for productivity growth in the French economy. Our guest, Alain Durré, is Head of the Macroeconomics and Europe Division at the Bureau of the French Prime Minister and Rapporteur Général of the French National Productivity Board.

Euro Area inflation fell like a rock: from the peak of 10.6%, reached in October 2022, it dropped to levels below 3% a year later. We analyze how much of this decline can be attributed to policy tightening by the ECB. We find that the direct effect of ECB policy is likely small. ECB policy may have had important indirect effecta via anchoring inflation expectations, but quantifying this effect is difficult.

The podcast makes reference

Speech by ECB's Philip Lane, The ECB's hiking cycle: an interim assesssment, https://www.ecb.europa.eu/press/key/date/2023/html/ecb.sp230216_1~f8cf2cd689.en.html

Adam Shapiro, Decomposing Supply and Demand Driven Inflation, Federal Reserve Bank of San Fransciso, https://www.frbsf.org/research-and-insights/publications/working-papers/2022/10/decomposing-supply-and-demand-driven-inflation/