More Facts about Prices: France Before and During the Great Recession

Using microprice data, we document new facts on price rigidity in France: (i) each month 20.1% of prices are changed, which compares to 24.1% in the United States—excluding sales, however, the fraction of prices modified each month is about the same in France and in the United States (around 17%); (ii) the distribution of price changes is quite dispersed; (iii) the frequencies of price increases and decreases contribute a lot to inflation variations, and price increases are more frequent in January (even when sales are excluded); (iv) sales contribute significantly to the volatility of inflation but play a minor role in the transmission of macroeconomic fluctuations to prices; and (v) during the Great Recession patterns of price adjustment were only slightly modified.     

Financial Regulation,Financial Globalization,and the Synchronization of Economic Activity

We analyze the impact of financial globalization on business cycle synchronization using a proprietary database on banks’ international exposure for industrialized countries during 1978 to 2006. Theory makes ambiguous predictions and identification has been elusive due to lack of bilateral time‐varying financial linkages data. In contrast to conventional wisdom and previous empirical studies, we identify a strong negative effect of banking integration on output synchronization, conditional on global shocks and country‐pair heterogeneity. Similarly, we show divergent economic activity due to higher integration using an exogenous de‐jure measure of integration based on financial regulations that harmonized EU markets.     

Emission Taxes and Product Differentiation in the Presence of Foreign Firms

Industries characterized by differentiated products are important contributors of greenhouse gases and currently subject to market‐based policies such as emission taxes. In the context of developing countries, fears about foreign investment leaving the country are often used as an argument not to address industry emissions through emission taxes. This paper develops a Cournot model with product differentiation in the presence of abatement efforts where host and foreign firms are subject to an emission tax. The analysis indicates that abatement efforts and differences in pollution intensity coefficients across firms may play a significant role in the characterization of optimal policy. The analysis also suggests that the government may opt to encourage foreign, less pollution‐intensive firms via higher taxation. Additionally, this paper examines how an optimal emission tax may be adjusted as products become more differentiated; industry emissions may fall/rise as a result of more differentiated products. One important contribution of this paper is that it emphasizes the role of abatement efforts, product differentiation, and differences in pollution intensity coefficients across firms in the characterization of the optimal emission tax.     

Price Setting in the Euro Area: Some Stylized Facts from Individual Producer Price Data

This paper summarizes the microevidence on the setting of producer prices in the euro area. The main findings are: (i) 21% of producer prices are adjusted each month, (ii) producer prices are changed more frequently and by smaller amounts than consumer prices (even after controlling for product characteristics), (iii) price decreases are relatively frequent, (iv) inflation correlates positively with the difference between the frequency of price increases and decreases, and (v) there is substantial variation in price flexibility across sectors, which can be explained in part by differences in the cost structure, the degree of competition, and the level of sectoral inflation.     

Progressive Taxation, Tax Exemption, and Irreversible Investment under Uncertainty

We analyze the impact of progressive taxation on irreversible investment under uncertainty. We show that if tax exemption is lower than sunk cost, higher tax rate will decelerate optimal investment by increasing the optimal investment threshold, while if tax exemption exceeds sunk cost, three different regimes arise. For “small” volatilities the optimal investment threshold is a positive function of volatility, but independent of tax rate. For “medium” volatilities it is independent of both tax rate and volatility. Finally, for “high” volatilities the optimal investment threshold depends positively on volatility, but negatively on tax rate so that we have “tax paradox”.