Working Papers

Working papers

  • The International Elasticity Puzzle Is Worse Than You Think, revised version, with Lionel Fontagné and Gianluca Orefice.  VOXEU column Abstract: We estimate three international price elasticities using exporters data: the elasticity of firm exports to export price, tariff and real exchange rate shocks. In standard trade and international macroeconomics models these three elasticities should be equal. We find that this is far from being the case. We use French firm level electricity costs to instrument for export prices and provide a first estimate of the elasticity of firm-level exports to export prices. The elasticity of exports is highest, around 5, for export prices followed by tariffs, around 2, and is lowest for the real exchange rate, around 0.6. The large discrepancy between these elasticities makes us conclude that the international elasticity puzzle is actually worse than previously thought. Moreover, we show that because exporters absorb part of tariffs and exchange rate movements, estimates of export elasticities that do not take into account export prices are biased.
  • The Economics of Sovereign Debt, Bailouts and the Eurozone, with Pierre Olivier Gourinchas and Todd Messer, in progress. Abstract: Despite a formal ‘no-bailout clause’, we estimate signi€cant transfers from the European Union to Cyprus, Greece, Ireland, Portugal and Spain, ranging from roughly 0% (Ireland) to 43% (Greece) of output during the recent sovereign debt crisis. We propose a model to analyze and understand bailouts in a monetary union, and the large observed di‚fferences across countries. We characterize bailout size and likelihood as a function of the economic fundamentals (economic activity, debt-to-gdp ratio, default costs). Because of collateral damage to the union in case of default, these bailouts are ex-post efficient. Our model embeds a ‘Southern view’ of the crisis (assistance was insufficient) and a ‘Northern view’ (assistance weakens fiscal discipline). Ex-post, bailouts do not improve the welfare of the recipient country, since creditor countries get the entire surplus from avoiding default. Ex-ante, bailouts generate risk shi‰fting with an incentive to over-borrow by €fiscally fragile countries. While a stronger no-bailout commitment reduces risk-shift‰ing, we €find that it may not be ex-ante optimal from the perspective of the creditor country, if there is a risk of immediate insolvency. Hence, the model provides some justi€fication for the oft‰en decried policy of ‘kicking the can down the road’.