vincent bignon financial crises, business cycles, and ......ppp4 geneva, comments on bignon albrecht...
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Vincent Bignon Financial Crises, Business Cycles, and Bankruptcies in the Very Long Run:
France during the 19th Century
Obnoxious and wholly inappropriate comments by
Albrecht Ritschl, LSE
PPP4, Geneva, February 2011
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PPP4 Geneva, Comments on Bignon Albrecht Ritschl, LSE
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One-slide summary
Nice, interesting idea Overall a plausible story
... but fails to drive home its point My battle cry: go multivariate !
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PPP4 Geneva, Comments on Bignon Albrecht Ritschl, LSE
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The starting point: TVAR volatility in the bankruptcy series
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PPP4 Geneva, Comments on Bignon Albrecht Ritschl, LSE
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The paper’s query
1. How much of that is caused by political crises (1830, 1848, 1870/1)?
2. How much can be attributed to monetary & banking conditions?
3. [Can other factors safely be excluded?]
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PPP4 Geneva, Comments on Bignon Albrecht Ritschl, LSE
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Role of political events
Paper uses smoothing techniques & subsamples to control for this
BUT Results still likely to be contaminated Suggestion: do it properly!
– Obtain filtered series for subsamples separately – Widen the windows around the events
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PPP4 Geneva, Comments on Bignon Albrecht Ritschl, LSE
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What’s the problem? Much of the TVAR might carry over from crisis
years to others, ca +/- 3yrs
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PPP4 Geneva, Comments on Bignon Albrecht Ritschl, LSE
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Contamination from crisis years
Possible reasons Fundamental: shock to bankruptcy rate might be
compensated in later years (overshooting) Try estimating MA2 model of bankruptcy series,
simulate! Smoothing: HP etc. filters are two-sided, introduce
MA components into TS Cut series into subsamples before filtering,
experiment with taking out more years around crises, e.g. 1869-1872, 1847-1850 etc.
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PPP4 Geneva, Comments on Bignon Albrecht Ritschl, LSE
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Can other factors safely be excluded?
Not much evidence of TVAR volatility in GDP, IP series
But this may be by construction Sarferaz & Uebele (Explorations 2009) find quite a bit of business cycle
moderation for 19thc Germany from disaggregate evidence
That’s potentially bad news as Uebele (JfWG 2010) finds strong business cycle comovement between F and D, using similar evidence also for France
So there might be underlying TVAR volatility in the French economy that the GDP figures do not show
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PPP4 Geneva, Comments on Bignon Albrecht Ritschl, LSE
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How much can be attributed to monetary, banking conditions?
Examines an array of candidate series
Evidence seems mixed
Some handwaving is going on
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PPP4 Geneva, Comments on Bignon Albrecht Ritschl, LSE
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Example: BdF discount rate This does look a bit like the bankruptcy series (as it should)
But, psst: why is this so smooth pre-1860 (while identical to the LHS series after that year)?
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PPP4 Geneva, Comments on Bignon Albrecht Ritschl, LSE
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Monetary & banking conditions
Suggestions: Go beyond the univariate exercises Obtain common component in multivariate
model of bankruptcies and money/banking variables
Do the same in model with real economy variables
Best specify a model which includes both, and organize a horse race between the two
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PPP4 Geneva, Comments on Bignon Albrecht Ritschl, LSE
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Going multivariate
Just do it!
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PPP4 Geneva, Comments on Bignon Albrecht Ritschl, LSE
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Last & least
Lengthy discussion of data construction & quality in Section 1, to be relegated to appendix
Discussion of HP filter seems redundant, seems to reflect author’s thought process more than anything
Section 4 is a non sequitur but seems central to the paper, so it should be brought forward