Recent Academic Publications
Recent Academic Publications
Distribution Risk and Equity Returns, with J.B. Donaldson and P. Siconolfi,
10 in The Equity Risk Premium, R. Mehra, ed., North Holland Handbook
of Finance Series, North Holland, Amsterdam, 2007.
In this paper we entertain
the hypothesis that observed variations in income shares are the result
of changes in the balance of power between workers and capital owners
in labor relations. We show that this view implies that income share variations
represent a risk factor of first-order importance for the owners of capital
The Macroeconomic Consequences of Reciprocity in Labor Relations, with André Kurmann
Scandinavian Journal of Economics, 109, (4), 857-881, 2007
We develop and analyze a structural model of efficiency wages founded on reciprocity. Workers are assumed to face an explicit trade-off between the disutility of providing effort and the psychological benefit of reciprocating the gift of a wage offer above some reference level. The model provides a rationale for rent sharing -- a feature that is very much present in the data but absent from previous formulations of the efficiency wage hypothesis. This firm-internal perspective on efficiency wages has important macroeconomic consequences: rent-sharing considerations promote wage rigidity, internal amplification and differential responses to technology and demand shocks.
Intangible Capital, Firm Valuation and Asset Pricing, with Xiangrong Jin
Economic Theory, 2007, 32: 157-177
Recent studies have found unmeasured intangible capital to be large and important. In this paper we observe that by nature intangible capital is also very different from physical capital. We find it plausible to argue that the accumulation process for intangible capital differs significantly from the process by which physical capital accumulates. We study the implications of this hypothesis for rational firm valuation and asset pricing using a two-sector general equilibrium model. Our main finding is that the properties of firm valuation and stock prices are very dependent on the assumed accumulation process for intangible capital. If one entertains the possibility that intangible investments translates into capital stochastically, we find that plausible levels of macroeconomic volatility are compatible with highly variable corporate valuations, P/E ratios and stock returns.
Efficiency Wages Revisited: The Internal Reference Perspective , with André Kurmann
Economics Letters , 2006, 90: 278-284
The missing wage rigidity
in general equilibrium models of efficiency wages is an artifact of the
external wage reference
Equity Returns and Integration: Is Europe Changing?, with Kpate Adjaouté, Oxford Review of Economic Policy, 2004 20(4):555-570
This paper analyses the consequences of the process of financial and economic integration on European equity markets. It documents significant changes in ‘fundamentals’, notably an increased synchronization of macroeconomic activities, and a non-negligible evolution in pricing, with a decrease in the cost of capital and converging equity premiums. As to equity returns themselves, in the face of what could turn out to be long-run upward trends in the correlations among both country and sector returns and a narrowing of the superiority of country factors, the benefits to be gained from finding diversification opportunities at a more disaggregated level appear to be higher than ever.
Portfolio Diversification in Europe, with Kpate Adjaouté and Dušan Isakov, chapter 5 in The Internationalisation of Asset Ownership in Europe, H. Huizinga and L. Jonung, eds, Cambridge U. Press, pp. 140-172, 2005
On the Consequences of State Dependent Preferences for the Pricing of Financial Assets, with John. B. Donaldson, Christos Giannikos and Hany Guirguis, Finance Research Letters , vol.1, 3, September 2004, pp.143-153
This paper introduces
state dependent utility into the standard Mehra and Prescott (1985) economy
by allowing the representative agent's coefficient of relative risk aversion
to vary with the underlying economy's growth rate. Existence of equilibrium
is proved and its asymptotic properties analyzed. This generalization
leads to level dependent marginal rates of substitution, a property that
sharply distinguishes this model from the standard construct. For very
low coefficients of relative risk aversion, the equilibrium risk free
and risky security returns are demonstrated to have volatilities and an
associated equity premium that substantially exceed what is found in the
data. This provides a contrasting perspective on the classic "equity
Portfolio Diversification: Alive and Well in Euroland, with Kpate Adjaouté, Applied Financial Economics, vol. 14, 1225-1231, November 2004
in Euroland appear to have improved significantly since the advent of
the euro, thus invalidating the prospects identified in the last years
of the convergence-to-EMU period. We identify low frequency movements
in the time series of return dispersions suggestive of cycles and long
swings in return correlations. The most recent post-euro period is clearly
associated with an important upswing with return dispersions exceeding
for the first time their peaks of the early nineties.
Fair Wages in a New Keynesian Model of the Business Cycle, with André Kurmann, Review of Economic Dynamics, 7, pp. 107-142, 2004.
European Financial Integration and Equity Returns: A Theory-Based Assessment, with Kpate Adjaouté, in V. Gaspar, P. Hartmann and O. Sleijpen (Eds.), The Transformation of the European Financial System, Chapter 5, pp. 185-245, 2003.
A Note on NNS Models: Introducing Physical Capital; Avoiding Rationing, with John B. Donaldson, Economic Letters, 77, pp. 433-437, 2002.
Labor Relations and Asset Pricing, with John B. Donaldson, Review of Economic Studies, 69, pp. 41-64, 2002.
The Effect of EMU on Financial Markets : A First Assessment, with F. Giavazzi and E.-L. von Thadden, to appear in C. Wyplosz, ed. EMU: Its Impact on Europe and the World, Oxford University Press, 2001
Banking : Is Bigger Really Better, in Z. Mikdashi ed., Financial Intermediation in the 21st Century, Palgrave, 2001.
Macroeconomic Frictions : What have we learned from the Real Business Cycle research programme ? with John B. Donaldson, in J. Drèze, ed. Advances in Macroeconomic Theory, Palgrave, 2001.
The Future of European Banking, Euro, N° 49, IV, pp3-6, 1999
The Future of European Banking, with F. Giavazzi, X. Vives and E.L. von Thadden, Monitoring European Integration 9, CEPR, London, 1999
A la poursuite du Graal : le successeur d'IS-LM est-il identifié ? L'Actualité économique, Revue d'analyse économique, 74, 4, pp.607-620, décembre 1998
Comment on "Business Cycle: Theory, Evidence and Policy Implications", Scandinavian Journal of Economics, 100, 1, 239-242, 1998, reprinted in Public Policy and Economic Theory, T.M. Andersen and K.O Moene editors, Blackwell Publishers 1998
Front-running by Mutual Fund Managers: A Mixed Bag, with Serge Moresi, European Finance Review, vol. 2, pp. 29-56, 1998
Productivity Growth, Consumer Confidence and the Business Cycle, with John B. Donaldson and Thore Johnsen, European Economic Review, 42, 1113-1140, 1998
Non Falsified Expectations and Asset Pricing: the Power of the Peso, with John B. Donaldson, mimeo, October 1997, forthcoming in The Economic Journal
In Search of a Successor to IS-LM, Oxford Review of Economic Policy, 13, 3, 135-144, 1997