Edouard Vidon

Bio: Edouard Vidon is an academic researcher from Banque de France. The author has contributed to research in topics: Market liquidity & Interbank lending market. The author has an hindex of 4, co-authored 12 publications receiving 68 citations. Previous affiliations of Edouard Vidon include Georgetown University.

Cross-Cutting Themes in Employment Experiences during the Crisis

Abstract: The human cost of the recent global crisis is reflected in its impact on the labor market. Explaining why economies with similar downturns had very different employment trends can help design policies to reduce such costs and improve labor markets. This paper analyzes the recent employment experiences of six economies: Germany, Korea, Mexico, New Zealand, Spain, and Sweden. These economies represent a wide range of labor market institutions, policy responses, and outcomes to the crisis. The divergence of labor market outcomes and of the effectiveness of policies during the crisis can be explained by the interaction between the nature of the shocks and differences in the structure and institutions of each country’s economy. The worst job losses compared to the drop in output followed permanent shocks, particularly in dual labor markets and in the presence of wage rigidities. Policies to avoid job cuts were much more effective when they were well-targeted and responded to temporary shocks. In contrast, policies to facilitate labor movements were more appropriate following permanent shocks.

Liquidity, Moral Hazard and Inter-Bank Market Collapse

Abstract: This paper proposes a framework to analyze the functioning of the inter-bank liquidity market and the occurrence of liquidity crises. The model relies on three key assumptions: (i) liquidity provisioning is not verifiable -it cannot be contracted upon-, (ii) banks face moral hazard when confronted with liquidity shocks-unobservable effort can help overcome the shock-, (iii) liquidity shocks are private information - they cannot be diversified away-. Under these assumptions, the equilibrium risk-adjusted return on liquidity provisioning increases with the aggregate equilibrium volume of ex ante liquidity provision. As a consequence, banks may provision too little liquidity compared with the social optimum. Within this framework we derive two main results. First inter-bank market collapse is an equilibrium. Second such an equilibrium is more likely when (i) the individual probability of the liquidity shock is lower, (ii) ex ante competition between banks on illiquid long term assets is larger.

Liquid assets, liquidity constraints and global imbalances

Abstract: The world distribution of current account balances has been steadily drifting away from “normality” since 1997. This puzzling development has occurred in parallel with large scale accumulation of official foreign reserve assets in emerging Asia and commodity exporting countries, and a growing role of portfolio flows in financing the US external deficit. The theoretical toolbox that was used to understand “old puzzles” of international macroeconomics may still be relevant to address these new puzzles, to the extent that it focuses more specifically on liquidity aspects: uneven supply of liquid assets, borrowing constraints, and externalities related to financial infrastructures that foster market liquidity. The paper discusses how these various features have been introduced in the most recent literature on global imbalances. One aspect that may require further examination is the role of fi nancial market liquidity as a “public good externality”: in the absence of appropriate provision of such a public good in emerging economies, reserve accumulation may be seen as an attempt to import the “public services” benefi ts of holding liquid “risk-free” assets. This may in turn possibly result in a form of “congestion” if US dollar reserve accumulation outpaces the issuance of US Treasuries or equivalent securities. Large reserve holders have thus turned to a wider range of asset classes, including asset-backed securities whose liquidity has all but vanished in the course of recent fi nancial market turbulences. These developments could therefore affect the fi nancing conditions of the US current account deficit, and undermine some of its structural determinants.

Liquidity, Moral Hazard and Inter-Bank Market Collapse

Abstract: This paper proposes a framework to analyze the functioning of the inter-bank liquidity market and the occurrence of liquidity crises. The model relies on three key assumptions: (i) liquidity provisioning is not verifiable -it cannot be contracted upon-, (ii) banks face moral hazard when confronted with liquidity shocks-unobservable effort can help overcome the shock-, (iii) liquidity shocks are private information - they cannot be diversified away-. Under these assumptions, the equilibrium risk-adjusted return on liquidity provisioning increases with the aggregate equilibrium volume of ex ante liquidity provision. As a consequence, banks may provision too little liquidity compared with the social optimum. Within this framework we derive two main results. First inter-bank market collapse is an equilibrium. Second such an equilibrium is more likely when (i) the individual probability of the liquidity shock is lower, (ii) ex ante competition between banks on illiquid long term assets is larger.

Precautionary Saving in the Small and in the Large

Abstract: The theory of precautionary saving is shown in this paper to be isomorphic to the Arrow-Pratt theory of risk aversion, making possible the application of a large body of knowledge about risk aversion to precautionary saving, and more generally, to the theory of optimal choice under risk In particular, a measure of the strength of precautionary saving motive analogous to the Arrow-Pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving, and to give a new interpretation of the Oreze-Modigliani substitution effect

Financial Constraints, Competition and Hedging in Industry Equilibrium

Abstract: We analyze the hedging decisions of firms, within an equilibrium setting that allows us to examine how a firm's hedging choice depends on the hedging choices of its competitors. Within this equilibrium some firms hedge while others do not, even though all firms are ex ante identical. The fraction of firms that hedge depends on industry characteristics, such as the number of firms in the industry, the elasticity of demand, and the convexity of production costs. Consistent with prior empirical findings, the model predicts that there is more heterogeneity in the decision to hedge in the most competitive industries.

Some evidence on the uniqueness of bank loans

Abstract: This paper presents evidence that banks provide some special service with their lending activity that is not available from other lenders. I find evidence that bank borrowers, not CD holders, bear the cost of reserve requirements on CDs. In addition, I find a positive stock price response to the announcement of new bank credit agreements that is larger than the stock price response associated with announcements of private placements or public straight debt offerings. Finally, I find significantly negative returns for announcements of private placements and straight debt issues used to repay bank loans.

Education, Market Rigidities and Growth

Abstract: This note investigates the effects of the education level, product market rigidities and employment protection legislation on growth. It exploits macro-panel data for OECD countries. For countries close to the technological frontier, education and rigidities are significantly related to TFP growth. The contribution of the interaction between product market regulation and labour market rigidity seems particularly substantial.