BENOIT MERCEREAU

Home Address:    28 High Street, Apt. 2    New Haven, CT 06511    Tel: (203) 787-4295 Office Address: Department of Economics Yale University Box 208268 New Haven, CT 06520-8268 Fax: (203) 432-5779 Birth Date: September 22, 1974 Citizenship: European Union/France

Fields of Concentration

International Economics Macroeconomics

Desired Teaching:

International Economics Macroeconomics Political Economy (undergraduate level) Applied Econometrics (introductory level)

Comprehensive Examinations Completed:

May 2000 (Oral): Macroeconomics and International Economics May 1999 (Written): Microeconomics and Macroeconomics

Dissertation Title:

Stock Markets, Current Account Dynamics, and Exchange Rate Determination

Committee:

Professor Christopher A. Sims (Princeton University) Professor William C. Brainard Professor Giancarlo Corsetti

Expected Completion Date:

Summer 2002

Degrees:

Ph.D., Yale University, expected Summer 2002 (Visiting student at Princeton University, 2000-2001) M.Phil, M.A., Yale University, May 2001 Diplôme d’Ingénieur, Statistics and Economics, ENSAE (Ecole Nationale de Statistiques et d’Administration Economique), France, EU, June 1999 Diplôme d’Ingénieur, Mathematics and Ecology, Ecole Polytechnique, France, EU, June 1997 Zertifikat Deutsch, Goethe Institut, with Distinction, May 2000

Fellowships, Honors and Awards:

Yale dissertation fellowship, Spring 2002 John Perry Miller Fellowship, Summer 2001 (declined) Sasekawa Young Leaders Fellowship, 2000 Cowles Foundation Prize, 1999 Yale fellowship: 1998-present. Bernhard fellow 1999-2000; Overbrook fellow 2000-01 Yale: received 14 Honors out of 14 PhD courses taken Ecole Polytechnique fellowship: 1995-1997

Teaching Experience:

Teaching Assistant, Introductory Macroeconomics, Yale University, Fall 2001

Research Experience:

European Central Bank (forthcoming, March-June 2002): Research on the impact of stock markets on the nominal exchange rate, with an application to the Euro/dollar rate. Frankfurt, Germany, EU International Monetary Fund (Summer 2001): Research on the empirical determinants of exchange rate volatility. Washington D.C., USA French diplomatic services in Taiwan (April-July 1997): wrote studies on past and future international development strategies of Taiwanese multinationals. The studies were later sold to private companies. Taipei French Institute, Taiwan. Cepremap (July-August 1998): Macroeconomic policy simulations using the IMF Multimod model, Paris, France, EU.

Papers:

"Does Wall Street Matter? Role of Stock Markets in Current Account Dynamics: a Time Series Approach," November 2001. "How to Test (and not to Test) a Present Value Model in the Presence of Persistence," November 2001. "Why are People against Free Trade? Tariffs as the Result of the Manipulation of Public Opinion by a Lobby" (Mimeo, April 2000). "Can the Portfolio Balance Theory Help us Understand Exchange Rate Volatility?" (Joint with Roberto Garcia-Saltos, July 2001.

Languages

French, English, German

References:

Professor Christopher A. Sims Department of Economics Princeton University 104 Fisher Hall Princeton, NJ 08544-1021 Tel: (609) 258-4033 Fax: (609) 258-6419 E-mail: sims@princeton.edu Professor Giancarlo Corsetti Department of Economics Yale University Box 208268 New Haven, CT 06520-8268 Fax: (203) 432-5779 E-mail: corsetti@econ.yale.edu Professor William C. Brainard Department of Economics Yale University Box 208268 New Haven, CT 06520-8268 Tel: (203) 432-3585 Fax: (203) 432-5779 E-mail: william.brainard@yale.edu

Dissertation Abstract:

How important is the stock market to the current account? Given the extraordinary development of financial markets and growth in international flows of equities during the last two decades, one would expect stock markets events to play an important role in the dynamics of the current account. Yet there are surprisingly few models studying this role. The aim of the first two chapters of this dissertation is to explore theoretically and empirically this issue. In a first paper, I develop a present-value model in which events in the stock market cause movements in the current account. In a second paper, I test this model using US data and find that the markets matter. Some aspects of conventional tests of present-value models are inappropriate when the variables involved, like the current account, are persistent. The second paper includes a critique of the conventional econometric techniques and provides some guidelines on how to do the test properly. The third paper turns to the influence of stock markets on the exchange rate. Chapter 1: Does Wall Street Matter? Role of Stock Markets in Current Account Dynamics: a Time Series Approach This chapter develops a simple model to study the impact of stock market events on the current account. The model allows an arbitrary number of risky assets, which form an incomplete market, as well as a risk free bond. A closed form solution for the current account is derived from the optimal portfolio and consumption/saving choices of a representative agent. It relates the current account to the present and expected future performance of the stock markets, as well as to the evolution of the structure of risk across markets and assets. Formally, the model can be seen as a stock market augmented version of the so-called "fundamental equation of the current account" popularized by Sachs. In order to make the main points of the model clear, I first solve it taking prices as given. A general equilibrium is then analyzed, in which the risky assets prices are derived endogenously. One insight of the model is that the current account may help predict future stock market performance. This forecasting property can be formally expressed by a set of Granger causality and Granger causal priority propositions. The model has implications for a variety of policy or structural changes, such as the impact of future financial liberalization on the current account. While traditional portfolio rebalancing theories predict that the country should run a CA surplus the day the reform is implemented, the model predicts that the country should run a current account deficit, and this even before the plan is implemented. I suggest that the model also sheds light on the recent US current account deficit. Some claim that this current account deficit reflected over-optimistic ("irrationally exuberant") expectations of future stock market performance. The model, on the other hand, suggests that it is optimal for a country to run a current account deficit even if people do not expect the stock market boom to last (expectations of a continuing boom would only result in a deficit of a larger magnitude). Chapter 2: How to Test (and not to Test) a Present Value Model in the Presence of Persistence. This chapter provides a test of the aforementioned model using US data. I first discuss the econometric methodology used. The traditional Sachs model had been extensively tested using techniques developed by Campbell and Shiller for present value models. I show that some aspects of this methodology can be misleading when one of the time series is highly persistent. Unfortunately, this is typically the case of current account data. Hence my analysis casts doubts on some of the results found in the large empirical literature on the Sachs model. More precisely, in the presence of the singularity created by persistence, the linear approximation on which part of the Campbell-Shiller methodology was based is not valid. As a consequence, use of the methodology can lead to a rejection of the model when it should have been statistically accepted, and vice versa. The concepts of "visual evidence" and of variance analysis, which had contributed to the popularity of the methodology, are also shown to be potentially misleading. Illustrative examples are provided using US data. Since the methodology applies to any present value model, the chapter provides guidelines to anybody testing such models in the presence of persistence. With these econometric considerations in mind, I test the model of chapter 1 using US data. Some aspects of the model receive empirical confirmation. The model performs somewhat better than the traditional Sachs model without stock markets.  While the Sachs model is strongly rejected, the model is consistent with the data at annual frequency.  At quarterly frequency, though, both models are rejected.   The role of the current account in predicting future stock market performance also received preliminary empirical confirmation.   The results hold even when past stock market performance are included in the VAR.  Although one should take these results with caution, this suggests that the curent account may have predictive power and above lagged stock market performance. Chapter 3 The third chapter intends to introduce a monetary dimension in the analysis. Doing so will allow one to investigate how stock markets influence the nominal exchange rate. More precisely, the paper will be an empirical study on whether and how international stock market events can explain the fluctuations of the euro against the dollar since its introduction in January 1999.