As part of the Brown Bag Lunch series, the International Economics Department at the Graduate Institute is pleased to invite you to a public talk given by Gregory Auclair, PhD student in International Economics.

He will present his research titled Sector Imbalances and Corporate Deleveraging. The Role of Uncertainty and Precautionary Behavior.

Abstract: The sector breakdown of national and financial accounts can provide valuable insights into global imbalances. Over the 2000s and 2010s, the corporate sector was a net lender of funds and firms increased saving and reduced investment. As a consequence of higher net lending, there is a trend increase in corporate asset holdings – relative to debt, capital, and output – that is persistent and general across countries. To explain these shifts, an analytical framework investigates how a financial constraint may induce precautionary behavior by firms. The constraint takes the form of a risk premium on loans. Firm owners face a dynamic trade-off between distributing profits and building financial buffers to avoid paying the risk premium. As the variance of productivity shocks increases, the expected loss from the risk-premium is higher and firms accumulate additional financial assets and reduce capital in response. An exercise using industry-level data shows the variance of productivity shocks generally increased over the 2000s, using a sample that covers around 65% of world GDP. Subsequent econometric analysis establishes higher productivity dispersion could indeed explain the deleveraging trend.