CONCEPTS OF POVERTY AND THE POVERTY LINE

Abstract. Various approaches adopted in developed economies to distinguishing between the poor and non-poor—to setting a poverty line—are reviewed. These include the budget standard, food ratio, 'official', subjective and relative poverty line methods, as well as the analysis of indicators of deprivation. There has been significant progress in recent years in the degree of sophistication involved, and a movement away from approaches with a quasi-absolute background. However, all the methods face formidable problems at conceptual and empirical levels, and no single approach is likely to dominate.     

MARGINAL COMMODITY TAX REFORMS: A SURVEY

Abstract.  As noted 30 years ago by Martin Feldstein, optimal taxes may be useless for practical purposes and emphasis should instead be placed on the possibility of enhancing welfare by reforming existing tax rates. In this perspective, marginal commodity tax reforms are gaining increasing attention due to political and economic constraints on large reforms of direct (or indirect) taxation. In this paper, we summarize the main features and results of the literature on marginal commodity tax reforms pioneered by Ahmad and Stern, further developed by Yitzhaki and Thirsk and recently reinterpreted by Makdissi and Wodon. We establish new links to other fields of research, namely the literature on the use of equivalence scales and on poverty measurement. We also critically examine some issues associated with the implementation of marginal tax reforms with special reference to the calculation of welfare weights and revenue effects. Finally, we suggest directions for future research on poverty-reducing commodity tax reforms.     

A REVIEW OF STOCHASTIC DOMINANCE METHODS FOR POVERTY ANALYSIS

Stochastic dominance techniques have been mainly employed in poverty analyses to overcome what it is called the multiplicity of poverty indices problem. Moreover, in the multidimensional context, stochastic dominance techniques capture the possible relationships between the dimensions of poverty as they rely upon their joint distribution, unlike most multidimensional poverty indices, which are only based on marginal distributions. In this paper, we first review the general definition of unidimensional stochastic dominance and its relationship with poverty orderings. Then we focus on the conditions of multivariate stochastic dominance and their relationship with multidimensional poverty orderings, highlighting the additional difficulties that the multivariate setting involves. In both cases, we focus our discussion on first‐ and second‐order dominance, though some guidelines on higher order dominance are also mentioned. We also present an overview of some relevant empirical applications of these methods that can be found in the literature in both univariate and multivariate contexts.     

REGIONAL INTEGRATION AND POVERTY: A REVIEW OF THE TRANSMISSION CHANNELS AND THE EVIDENCE

While there is an extensive literature on the impact of regional trading agreements on trade and capital flows, as well as on the relationship between international trade, growth, and poverty there is comparatively little treatment of the possible linkages between regional integration and poverty. We analyze the channels through which regional integration could impact on poverty, and then review the existing evidence on the impact of regional integration on poverty. We focus on two key characteristics that make any regional integration process different from unilateral and multilateral liberalization: first, the asymmetric nature of the liberalization process; second, the scope or ambition of the regional liberalization being undertaken and the nature of the institutional arrangements that are put into place to manage the process of regional integration. We also distinguish between short, medium, and long run effects on poverty of regional integration processes. There is some direct evidence explicitly linking regional integration and poverty, but in good part the shedding of the light depends on an indirect literature on trade, FDI, migration, and inequality.     

Downside/upside price spillovers between precious metals: A vine copula approach

We studied downside and upside price spillovers between four precious metals (gold, silver, platinum and palladium), characterizing the multivariate dependence structure using a vine copula model and computing downside and upside value-at-risk and conditional value-at-risk. We found that the dependence structure differed across precious metals, all of which displayed different average and tail dependence features. Gold and silver prices were highly dependent except at the upper tail, whereas silver prices were integrated with those for platinum and palladium except at the upper tail. The gold market was very little integrated with the platinum and palladium markets. We document asymmetric downside and upside price spillover effects that differed in magnitude across precious metals; silver, in particular, had a greater downside and upside price impact on gold. Our results, indicating that precious metals do not behave as a single asset class, have implications for risk management, trading and hedging strategies for portfolios that include precious metals.     

MEASURING MACROECONOMIC INSTABILITY: A CRITICAL SURVEY ILLUSTRATED WITH EXPORTS SERIES

For at least 40 years, the analysis of the causes and consequences of macroeconomic instability has greatly deepened our understanding of the handicaps faced by developing countries. This concern on economic instability is evidenced by a broad spectrum of indicators, based on the deviation of observed values of a given economic aggregate from its reference or trend value. In general, the choice of this or that indicator is not discussed advocating that the resulting instability indicators are closely correlated. Focusing on measurements of instability in export revenue data for 134 countries from 1970 to 2005, this paper finds that this assertion may be true for variance‐based indicators, measuring the average magnitude of deviations from the trend. However, great discrepancies may arise between different measures of the asymmetry or of the occurrence of extreme deviations around the trend when different trend computation methods are used. Our purpose is, therefore, to invite further discussions regarding the use of these indicators, and to highlight the different dimensions of instability, which have been so far unheeded by the economic literature.     

REAL BUSINESS CYCLE MODELS OF THE GREAT DEPRESSION: A CRITICAL SURVEY

Abstract.  Recent years have witnessed a revival of interest in the Great Depression of the 1930s. Among the differing new interpretations, the real business cycle (RBC) approach is particularly significant. It represents an outstanding methodological innovation in trying to cast the Great Depression within an 'equilibrium' framework. This paper critically reviews the RBC interpretation of the Great Depression, clarifying its theoretical and methodological foundations, and paving the way for future assessments of its validity.     

BIG GOVERNMENT: HOW TO CREATE POVERTY

Globally, poverty is decreasing dramatically. The more open and globalised poor countries are, the more rapid is the increase in their growth and incomes. But many countries in Western Europe have serious problems. They largely followed a path of government intervention in society. In reality, however, the freer a country's economy the less poverty it has. Government intervention is counter-productive and has become a fight against wealth. The over-taxed and heavily regulated labour markets of Western Europe have led to social exclusion for large groups: the new poor.     

NOMINAL AND REAL WAGE RIGIDITIES IN NEW KEYNESIAN MODELS: A CRITICAL SURVEY

Abstract The labour market is receiving increasing attention in the New Keynesian literature. In this paper, I critically survey this literature in order to highlight the role played by wage rigidities in the explanation of fluctuations caused by technology shocks. To this aim, I present a dynamic stochastic general equilibrium model with sticky prices, nominal wage rigidities and hiring costs. The comparison between this model and that of Blanchard and Gali highlights the non‐trivial differences which exist in the way nominal wage and real wage rigidities drive the economy's dynamics. My conclusion is that models incorporating nominal wage rigidities and some degree of price stickiness provide a better account of macroeconomic dynamics than models with real wage rigidities.     

THE INNOVATION‐EMPLOYMENT NEXUS: A CRITICAL SURVEY OF THEORY AND EMPIRICS

Understanding whether technical change is beneficial or detrimental for employment is at the center of the policy debate, especially in phases of economic recession. So far, the effects of innovation – in its manifold declinations and intrinsic complexity – on labor demand have proven to be not unequivocal. This essay critically reviews the role of technical change in shaping employment dynamics at different levels of aggregation. First, it disentangles theoretically the role of different compensation mechanisms through which employment adjusts after an innovation is introduced. Second, it critically presents the most recent empirical evidence on the topic, with a focus on methods and limitations. Finally, it provides an attempt to conceptualize a number of stylized facts and empirical regularities on the innovation‐employment nexus.     

Decreasing downside risk aversion and background risk

In this paper, we show that risk vulnerability can be associated with the concept of downside risk aversion (DRA) and an assumption about its behavior, namely that it is decreasing in wealth. Specifically, decreasing downside risk aversion in the Arrow–Pratt and Ross senses are respectively necessary and sufficient for a zero-mean background risk to raise the aversion to other independent risks.     

EXTREME VALUE THEORY IN FINANCE: A SURVEY

Extreme value theory is concerned with the study of the asymptotic distribution of extreme events, that is to say events which are rare in frequency and huge in magnitude with respect to the majority of observations. Statistical methods derived from it have been employed increasingly in finance, especially for risk measurement. This paper surveys some of those main applications, namely for testing different distributional assumptions for the data, for Value‐at‐Risk and Expected Shortfall calculations, for asset allocation under safety‐first type constraints, and for the study of contagion and dependence across markets under conditions of stress.     

THE RISE AND DECLINE OF ECONOMIC POLICY AS AN AUTONOMOUS DISCIPLINE: A CRITICAL SURVEY

After Adam Smith's statement of market virtues, the process of gestation of economic policy as a rational set of rules for public agenda has been rather slow. Until not so long ago, economic policy as a discipline was often confined to prescribing practical rules intended to explain technical procedures of government intervention. Economic policy– as a coherent and to some extent autonomous discipline–only emerged in the late 1950s in Scandinavia, the Netherlands and Italy, when solid foundations indicating not only microeconomic but also macroeconomic market failures and a theory about the conditions for policy effectiveness and design were consistently developed. This paper intends to explain the reasons for the emergence of the discipline, the circumstances that favoured its diffusion, the reasons for its apparent setback and some factors that could facilitate its diffusion in the next years     

DATA GAPS,DATA INCOMPARABILITY,AND DATA IMPUTATION: A REVIEW OF POVERTY MEASUREMENT METHODS FOR DATA‐SCARCE ENVIRONMENTS

Questions that often come up in contexts where household consumption data are unavailable or missing include: what are the best existing methods to obtain poverty estimates at a single snapshot in time? and over time? and what are the best available methods to study poverty dynamics? A variety of different techniques have been developed to tackle these questions, but unfortunately, they are presented in different forms and lack unified terminology. We offer a review of poverty imputation methods that address contexts ranging from completely missing and partially missing consumption data in cross‐sectional household surveys, to missing panel household data. We present the various existing methods under a common framework, with pedagogical discussion on their intuition. Empirical illustrations are provided using several rounds of household survey data from Vietnam. Furthermore, we also offer a practical guide with detailed instructions on computer programs that can be used to implement the reviewed techniques.     

THE BENEFITS AND COSTS OF MONETARY UNION IN SOUTHERN AFRICA: A CRITICAL SURVEY OF THE LITERATURE

Abstract.  With the 14 members of the Southern African Development Community (SADC) having set the objective of adopting a common currency for the year 2018, an expanding empirical literature has emerged evaluating the benefits and costs of a common-currency area in Southern Africa. This paper reviews that literature, focusing on two categories of studies: (1) those that assume that a country's characteristics are invariant to the adoption of a common currency and (2) those that assume that a monetary union alters an economy's structure, resulting in trade creation and credibility gains. The literature reviewed suggests that a relatively small group of countries, typically including South Africa, satisfies the criteria necessary for monetary unification. The literature also suggests that, in a monetary union comprising all SADC countries and a regional central bank that sets monetary policy to reflect the average economic conditions (e.g. fiscal balances) in the region, the potential losses (i.e. higher inflation) from giving up an existing credible national central bank, a relevant consideration for South Africa, could outweigh any potential benefits of trade creation resulting from a common currency.     

FROM THE WAR ON POVERTY TO WELFARE REFORM: HOW THE AMERICAN UNDERSTANDING OF THE CAUSES OF POVERTY CHANGED

The American understanding of the causes of poverty has changed significantly since the War on Poverty was launched in 1964. It was then commonly believed that jobs were unavailable to the poor and that poverty should be reduced by doles. Today most observers contend that jobs are available for the poor, and that poverty stems from self-defeating behaviours that doles exacerbate.     

Traditional beta, downside risk beta and market risk premiums

The article develops a downside risk asset-pricing model, which is based on Conditional-VaR (Mean-shortfall) risk measure. As in the traditional model the model leads to a monetary separation and yields a CVaR beta analogous to the traditional beta. An empirical study indicates that CVaR beta, which considers also downside risk, has greater explanatory power than the traditional beta. This is especially true in the case of a bearish market. Moreover, a combined model, which uses both betas, outperforms both the traditional and the CVaR models.The results indicate that in a bullish economy, risk premiums may be partially explained by the traditional beta. However, in a depressed economy investors are most likely more concerned about downside risk, which is poorly captured by the traditional beta. This downside risk can best be captured by CVaR beta, which is based on historical data and avoids assuming any prior distribution.