Itinerary of a professor seconded to the Bank

1 - You now have a long history with the Bank. Could you briefly sum up your career?

Yes, I started working at the Banque de France about 15 years ago. During my course at the École Nationale de la Statistique et de l’Administration Économique (ENSAE), I had the opportunity of doing a long internship in the Business Conditions Analysis Division, where I took part in inflation forecasting exercises. This experience was important in terms of the direction I took professionally as it was my first real contact with monetary policy decision‑making and it gave me a taste for these issues. In addition, this internship gave me the opportunity to attend conferences where I learned how research is organised, produced and disseminated.

My last year at the ENSAE and my master's in macroeconomics confirmed my desire to continue on this path of research applied to economic policy issues. In 2004, the Banque de France offered to fund my PhD thesis on the topic of prices and wages. In writing this thesis, I benefited from a stimulating environment with experienced researchers, but also from great freedom and autonomy. Working on the thesis also enabled me to participate in Eurosystem research networks, which allowed me to contribute to joint projects. After defending my thesis in 2008, I was hired as an economist-researcher in the Microeconomic Analysis Division, where I continued my research on inflation.

In 2010, I was taken on at the University of Nantes as a lecturer; I then became a professor in 2012, while at the same time continuing to collaborate on research projects with economists at the Banque de France. Since 2016, I've been on leave from the university and have a position as economist-researcher in the Monetary Policy Research Division. This position corresponds to my wish to contribute more to supporting monetary policy decision-making, while at the same time pursuing my research work.

2 - The topic of prices and wages seems to be a common thread running through your career. Can you tell us about your areas of research?

My research focuses mainly on the empirical analysis of price and wage rigidities. Neo‑Keynesian macroeconomic models are based on the theoretical assumption that, at the level of firms and retailers, prices and wages do not adjust continuously. The fact that prices and wages do not react immediately to shocks has important macroeconomic implications; in particular, it helps us understand why monetary policy can have short-term real effects. However, before the 2000s, we had few empirical results that supported this assumption of nominal rigidities. From the mid-2000s onwards, the greater availability of individual price and wage data led to the emergence of empirical research in this field in Europe and the United States (Gautier 2009). These studies aimed to describe the ways in which prices and wages adjust at the macroeconomic level, to understand the nature of nominal rigidities, but also to analyse the implications of these rigidities for monetary policy.

The main purpose of my research work has been to produce original stylised facts at a detailed level for nominal rigidities in France. Regarding prices, with my co-authors, we have attempted to answer questions such as "How frequently are prices changed?" and "How do prices adjust following a shock?". We have shown for example that the lapse of time between two price changes is around one year for consumer prices (Berardi et al. 2015), and a little less for producer prices (Gautier 2008). This time lapse however varies greatly from one sector to another. Another part of my work has been aimed at understanding how prices react to shocks. It has thus been shown that the reaction of prices to shocks also depends on the nature of the shock (labour costs (Fougère et al. 2010), commodities (Gautier and Le Saout 2015), VAT (Gautier and Lalliard 2014), etc.).

With respect to wages, my starting point is that in France, as in most European countries, the great majority of employees are covered by collective wage agreements signed at both industry and/or firm level. This is expected to influence the way in which wages adjust. Our initial work was therefore aimed at assessing the interactions between the different levels of wage bargaining and how they affect the ways in which wages are changed (Avouyi-Dovi et al. 2013). Recently, my research has focused on how industry-level minimum wages are set. In particular, we show how the national minimum wage and past inflation have an impact both on the timing of wage negotiations and the increases negotiated, whereas unemployment appears to play a minor role in the wage levels negotiated (Fougère et al. 2016).

3 - A number of questions are being asked at the moment about the low level of inflation and the lack of any upturn in inflation in spite of the recovery. To what extent can your work shed light on this discussion?

Beyond the current issues, the study of individual price and wage data is useful for monetary policy as the macroeconomic models used, notably to analyse monetary policy, are based on microeconomic elements. It is therefore important to have individual data to be able to test the relevance of certain assumptions made based on these elements.

At the time when we started to see low levels of inflation, we investigated whether this new situation regarding inflation was associated with a change in the way retailers' prices were adjusted (Berardi and Gautier, 2015). Our findings for the period 1994-2014 suggest that the lower inflation from the end of 2012 onwards is the result of a lower frequency of price rises, whereas there is relatively little variation in the size of the changes. However, we do not observe a substantial break in either the frequency or the size of price changes in France, and many questions remain unanswered about the main factors that account for this low inflation.

Among the factors that today could contribute to a rise in inflation, wage growth could play an important role. When the labour market situation improves, wages rise, which reinforces upward pressures on inflation. Our analyses of wage bargaining in France show that the increases negotiated in wage agreements are fairly weakly correlated with unemployment, and depend much more on increases in the national minimum wage or past inflation. This suggests that an upturn in inflation in France, which would take place via higher wages, would be very gradual. Moreover, we show that wage negotiations are concentrated in the first quarter of the year. Thus, falling unemployment or rising inflation would not immediately lead to wage increases. The wage negotiations in early 2018 could provide an initial indication on future wage and price dynamics.

4 - What projects are you currently working on?

My current research is organised around several different projects. One of them is aimed at measuring the effect on inflation of imports from low-cost countries using individual international trade data. The preliminary results suggest a fairly small impact of globalisation on total inflation. As regards wages, another project is studying the pass-through of wage increases negotiated to basic wage dynamics. We show that industry- and firm-level wage agreements increase the frequency of wage rises, thereby supporting wage dynamics. Moreover, industry-level minimum wages appear to amplify the effect of increases in the national minimum wage on basic wages. Lastly, continuing the work on price stickiness, a further study is devoted to analysing the implications of our previous findings on individual data for monetary policy. In particular, the effect of sectoral heterogeneity with respect to price rigidity or the form this rigidity takes on aggregate dynamics is examined.

S. Avouyi-Dovi, D. Fougère and E. Gautier (2013), “Wage Rigidity, Collective Bargaining and the Minimum Wage: Evidence from French Agreement Data”, The Review of Economics and Statistics, Vol. 95, No. 4, pp. 1337-1351.

N. Berardi, E. Gautier, and H. Le Bihan (2015), "More Facts about Prices: Before and During the Great Recession in France", Journal of Money Credit and Banking, Vol. 47 No. 8, December 2015.

N. Berardi and E Gautier (2015), "Les ajustements de prix à la consommation en France en période d’inflation basse" ("Price adjustments to consumption in France in a period of low inflation"), Banque de France Bulletin, No. 202 November-December 2015.

D. Fougère, E. Gautier and H. Le Bihan (2010), “Restaurant Prices and the Minimum Wage”, Journal of Money Credit and Banking, Vol. 42, No. 7 (October 2010), pp. 1199-1234.

E. Gautier (2008), “The Behaviour of Producer Prices: Evidence from French PPI Micro-Data”, Empirical Economics, Vol. 35 No. 2, pp. 301-332.

E. Gautier and A. Lalliard (2013), "Quels sont les effets sur l’inflation des changements de TVA en France ?" ("What are the effects on inflation of changes to VAT in France?"), Banque de France Bulletin, 4th quarter, No. 194.

E. Gautier and R. Le Saout (2015), “The Dynamics of Gasoline Prices: Evidence from Daily French Micro Data”, Journal of Money Credit and Banking, 47-6, pp. 1063–1089, September 2015.