Livestock as a buffer against HIV and AIDS income shocks in the rural households of Zimbabwe

The objective of this study was to determine the extent to which households use livestock sales to mitigate the impact of HIV/AIDS income shocks. Using survey data from the Muzarabani and Bindura districts of Mashonaland Central Province in Zimbabwe, the econometric analysis indicated that livestock, particularly poultry and small stock, play a significant role in smoothing income fluctuations due to HIV/AIDS. Cattle sales compensate for 71 per cent of income shortfalls due to HIV/AIDS. About 90 per cent of HIV/AIDS-afflicted households, headed mainly by women or children, used poultry and goats as consumption-smoothing strategies when faced with negative income shocks. Government and other stakeholders were advised to support the use of small stock as a strategy for coping with HIV/AIDS economic shock in female- or child-headed households in rural areas.     

The consequences of health shocks on households: Evidence from China

Unexpected health shocks may bring catastrophic consequences for households. This paper examines the effect of unexpected adverse health shocks on household members' physical and mental health, labor supply, household income and asset, and health behaviors in China by analyzing two nationally representative datasets and adopting a difference-in-differences method augmented with coarsened exact matching. We find that an unexpected health shock results in a discounted out-of-pocket medical expenditure of 16,943 RMB (US$ 2647) over five years for an average household, a reduction of household income per capita of 841 RMB per year (US$ 131, or 6.0% of household annual income per capita), and a loss of net household asset per capita of 13,635 RMB (US$ 2130, or 9.7% of household asset per capita). It raises the probability of an average household applying for public poverty relief allowance by 2.8 percentage points. In addition, we document a strong intra-household spillover effect of health shocks on mental health and health behaviors. A simple back-of-envelope calculation shows that the health shock induces a private cost of 34,966 RMB (US$ 5463) over 5 years for an average household, and incurs a social financial burden of 6066 RMB (US$ 948) in 5 years per household in medical reimbursement and social welfare transfers. At a national scale, the total social burden of health shocks from cardiovascular and cerebrovascular diseases amounts to 1.1 trillion RMB (US$ 172.1 billion) over 5 years.     

Income shocks,coping strategies,and consumption smoothing: An application to Indonesian data

Using the Indonesian Family Life Survey, this study investigates whether Indonesian farmers respond differently to income shocks (crop loss) depending on the level of their asset ownership, and whether their responses are aimed at preserving consumption levels or at accumulating assets. We consider a framework in which assets contribute directly to the income generation process. In this context, the need to accumulate assets to ensure future income may lead poor farmers to behave quite differently in terms of both their responses to shocks and their consumption decisions. Our results suggest that while non-poor farmers smooth consumption relative to income, poor households use labor supply to compensate the income loss and, on average, they save half of this extra income. These results confirm the importance of savings for poor households, and highlight a crucial role for policies that support savings or, more precisely, the accumulation of productive assets.     

Shocks,Structural Change,and the Patterns of Income Diversification in Burkina Faso*

Abstract: This article investigates changes in income diversification patterns for the case of Burkina Faso between 1994 and 2003. Contrary to common beliefs, our empirical analysis shows that rural households are not increasingly diversifying their income portfolios. Beyond insuring against and coping with weather shocks, diversification behaviour reflects structural change. Higher returns to agricultural activities, in particular in the cotton and livestock sectors, appear to be the root cause for less non‐agricultural diversification and some of our findings hint at better opportunities in the non‐farm sector. Yet, average returns in the non‐farm sector appear to remain relatively low and migration increasingly turns into a desperation‐led strategy. Overall, structural change seems to be biased in favour of richer households. Regarding responses to droughts, we confirm earlier findings, especially that the poorest households are hit particularly hard, being forced to sell livestock, which is often their only asset.     

Preference shocks,international frictions,and international business cycles

Replicating the degree of cross-country comovements of macroeconomic aggregates, dynamics of prices and quantities of international trade, and the behavior of consumption and labor remains an important challenge in international business cycle literature. This paper incorporates preference shocks into a standard two-country model in which there exist international frictions, such as costs of transportation and restrictions to international asset trade. Country-specific preference shocks that generate fluctuations in each country's consumption and labor solve the puzzles, except for the discrepancy between theory and data regarding international trade variables. The presence or absence of international frictions plays a limited role in solving the puzzles.     

A provincial view of consumption risk sharing in Korea:Asset classes as shock absorbers

Using a unique data set on provincial net factor income flows disaggregated across the three asset classes of debt, equity and Foreign Direct Investment reinvested earnings in Korea, we investigated how these asset channels impacted consumption risk sharing during the Global Financial Crisis and the European sovereign debt crisis. Adopting spatial panel methods, this study found in the main that net factor flows of debt, equity and Foreign Direct Investment retained earnings have all contributed favourably to consumption risk sharing during these episodes, with Foreign Direct Investment retained earnings robust in its positive contribution in buffering shocks to consumption. These results suggest that one of the alleged benefits of financial integration in terms of providing the insurance needed to cushion the economy against adverse shocks is tangible and real at least in the context of Korea. We also obtain evidence that apart from asset channels, the combination of the government's social transfer payments and a certain measure of labour mobility help to contribute in mitigating shocks to consumption.     

School attendance and economic shocks: Evidence from rural Zimbabwe

Unpredicted shocks such as weather, pests or price changes affect agricultural households negatively or positively. The shocks have two opposite effects (income and substitution) on parents’ investments in the human capital of their children, and it is not predictable from theory whether the income effect or the substitution effect of a shock has a greater impact on the investments. Therefore, it is unknown whether human capital investments (i.e. sending children to school rather than having them work) are procyclical or countercyclical. In this paper we show how hyperinflation may affect investments in the education of children by their parents using three data-sets from Zimbabwe. We find that human capital investments are countercyclical (the substitution effect dominates) in rural areas of Zimbabwe during a shock. Therefore, policymakers in Zimbabwe need to be worried about decreased schooling of children during positive shocks in the rural areas.     

Does Self Help Group Participation Lead to Asset Creation?

We evaluate the effect of Self Help Group participation on a long-term impact parameter, namely, asset creation. Indian Self Help Groups (SHGs) are unique in that they are mainly NGO-formed microfinance groups but later funded by commercial banks. The results reveal that longer membership in SHGs positively impacts asset creation, robust to various asset specifications. With longer participation in SHGs, members move away from pure agriculture as an income source toward other sources such as livestock income. Training by NGOs positively impacts asset creation but the type of SHG linkage per se has no effect.     

The impact of shocks to exchange rates and oil prices on U.S. sales of American and Japanese automakers

Since 1973, floating exchange rates and significant oil-price changes have coincided with dramatic market-share gains (losses) by Japanese (American) automakers in the U.S. market. This paper analyzes and empirically estimates the extent to which exchange rate and oil price changes have contributed to this market shift. We first develop a dynamic Cournot model of long-run profit-maximizing firms that operate in a macroeconomy characterized by shocks to income, exchanges rates, oil prices, and firm-specific demands and supplies. Using the solutions for quantities sold from this model, we then construct a structural vector autoregression (VAR) to estimate and identify a reduced-form VAR. The empirical results indicate that a strong yen increases quantities sold by American automakers and decreases quantities sold by Japanese automakers; this exchange-rate effect accounts for approximately four percent of the variance of changes in monthly-sales quantity for automakers. Oil-price increases reduce the quantity of automobiles sold by American automakers, but, contrary to the common belief, have little effect on Japanese automakers; this oil-price effect accounts for 6.5 percent of the variance of changes in monthly-sales quantities for American automakers. Over the two decades we analyze, however, the real value of the dollar has almost steadily declined against the yen, and the real price of oil has ended up unchanged, so these variables cannot explain the decline (rise) of American (Japanese) automakers. Clearly, automobile sales are exposed to exchange rate, oil price, and income risk; between 10 and 20 percent of the changes in monthly-sales quantities can be explained by the macroeconomic variables that we analyze. However, we conclude that firm-specific policies probably account for the bulk of gains and losses actually experienced by the automakers.     

External shocks and Japanese business cycles: Evidence from a sign-restricted VAR model

This study investigates the sources of Japanese business fluctuations since the 1990s, taking into account both external shocks (e.g., risk premium and foreign demand shocks) and domestic supply and demand shocks. We use the sign-restricted VAR model based on the theoretical model to identify these shocks. The presented results show that approximately 30–50% of the forecast error variances in output can be explained by external shocks. Further, we demonstrate that supply shock is the main influencing factor in Japanese business fluctuations throughout the sample period and that the role of external shocks has been growing in the post-Lehman period, including the effect of the Great East Japan Earthquake.     

Asymmetric effects of inflation shocks on inflation uncertainty

The empirically documented regularity that dis-inflationary shocks are associated with larger output changes than are positive shocks presents an interesting puzzle to macroeconomists. This paper presents, and empirically supports, a new explanation for this asymmetry. The authors show, using a TARCH model, that negative inflationary shocks result in greater inflation uncertainty than positive shocks. As Friedman [1977] argues, and a body of empirical evidence demonstrates, inflation uncertainty leads to lower output growth. Drawing on this explanation, this essay points to an avenue by which the output asymmetry of inflationary shocks can be explained.     

Can systemic risk measures predict economic shocks? Evidence from China

In this paper, we investigate how the systemic risk affects macroeconomic activity in China and examines the forecasting power of 12 different measures of systemic risk. Quantile regression is employed to capture the nonlinear relationship between the systemic risk and the distribution of future macroeconomic shocks. We find that the systemic risk skews the distribution of future shocks, which cannot be identified in the central tendency analysis within the traditional linear regression. In particular, when the systemic risk builds up, the risk of severe economic downturns increases while the risk of moderate economic downturns barely changes. When comparing the forecasting power of different systemic risk measures, we use both a fixed rolling window and a time-varying method to make the result robust. We find that, of the 12 widely used measures, 8 demonstrate significant predictability for subsequent shocks to economic growth in China and can thus serve as early warning signals.     

The regional effects of macroeconomic shocks in China

The extent and persistence of the inequality of regional output is an important policy issue in China and its sources have been the subject of considerable empirical research. Yet we have relatively little empirical knowledge of the effects on the regional distribution of output of shocks to national macroeconomic variables such as GDP and investment. This is an important gap in the empirical literature since much government macroeconomic policy seeks to influence GDP using instruments such as investment expenditure. It is likely that such national shocks will have differential regional impacts and so affect the regional output distribution. Policy-makers need to know the sign, size and timing of such effects before making policy decisions at the national level. We simulate the effects of aggregate shocks on individual provinces' GDP within the framework of a vector autoregressive (VAR) model restricted in a manner following Lastrapes (Economics Letters, 2005). We use annual data from 1980 to 2012 to estimate the model which includes 28 of China's provinces and simulate the effects on provincial outputs of shocks to aggregate output and investment. We find great diversity of effects across the provinces with discernible geographic patterns. There is evidence that output shocks benefit coastal provinces with developed industrial structure, export-exposure and less reliance on SOEs; the opposite is found for the effects of an investment shock and we conjecture that this is likely to have been the result of the strong bias in central government investment policy in favour of the interior provinces during a substantial part of our sample period.     

News shocks and Japanese macroeconomic fluctuations

Are the changes in the future technology process, the so-called “news shocks,” the main contributors to the macroeconomic fluctuations in Japan over the past forty years? In this paper, we take two structural vector-auto-regression (SVAR) approaches to answer this question. First, we quantitatively evaluate the relative importance of news shocks among candidate shocks, estimating a structural vector-error–correction model (SVECM). Our estimated results suggest that the contribution of the TFP news shocks is nonnegligible, which is in line with the findings of previous works. Furthermore, we disentangle the source of news shocks by adopting several kinds of restrictions and find that news shocks on investment-specific technology (IST) also have an important effect. Second, to minimize the gap between the SVAR approach and the Bayesian estimation of a dynamic stochastic general equilibrium model, we adopt an alternative approach: SVAR with sign restrictions. The SVAR with sign restrictions reconfirms the results that the news shocks are important in explaining the Japanese macroeconomic fluctuations.     

Negative economic shocks and child schooling: Evidence from rural Malawi

This study investigates the impacts of negative economic shocks on child schooling in households of rural Malawi, one of the poorest countries in sub-Saharan Africa. Both individually-reported and community-level shocks are investigated. There is evidence that community-level shocks negatively impact the school enrolment of children. The point estimates suggest that this effect is larger when shocks and school enrolment are reported by men as compared with women. However, we cannot conclude with statistical confidence that the impact of idiosyncratic shocks is larger when reported by males than when reported by females. Similarly, although the point estimates suggest that the impact of community-level shocks on the school enrolment of children is larger than that of idiosyncratic shocks, we cannot conclude with statistical significance that the impacts of community-level and idiosyncratic shocks are different.     

Spatial propagation of macroeconomic shocks in Europe

This paper implements a spatial vector autoregressive model that takes into account both the time and the spatial dimensions of economic shocks. We apply this framework to analyze the propagation through space and time of macroeconomic (inflation, output gap and interest rate) shocks in Europe. The empirical analysis identifies an economically and statistically significant spatial component in the transmission of macroeconomic shocks in Europe.     

Separating shocks from cyclicality in Indian aggregate supply

Simultaneity issues as well as incorrect measurement of shocks and of the cyclical variable bias estimated slopes of the Indian aggregate supply curve (AS). Our initial Generalised Method of Moments estimation, based on a filtered output gap variable and including supply shocks, also gives an unrealistic downward sloping AS. But we find measures of asymmetries in price changes outperform traditional measures of supply shocks. Estimation using marginal costs as a proxy for the output gap gives a positive coefficient that reduces in size on including our comprehensive supply shock variable, implying the correct AS has a small positive slope, but is subject to multiple shifts. The semi-structural specification, closer to firms’ actual decisions, gives estimates of structural parameters such as degree of price stickiness and extent of forward-looking price adjustment. The results more correctly separate shocks from cyclicality, help to interpret India's growth and inflation experience, and have implications for policy.     

Income diversification before and after economic shocks: evidence from urban and rural Zimbabwe

The article examines changes in income and activity diversification in Zimbabwe before and after macroeconomic policy changes and the droughts of the early 1990s. Data from two comparable national surveys straddling a period of economic volatility show that the percentage of households earning income from private and informal sources grew considerably, while income from government and formal sources declined. In general, rural households tend to have a more diversified portfolio of income than urban households, and the degree of income diversification decreases with the level of urbanisation. Following the shocks, there was a marked reduction in income diversification, notably among the poor. The findings thus strengthen the need for public provision of well-designed safety nets.     

The saving–investment correlation and origins of productivity shocks

This paper shows how savings and investment can be positively correlated despite capital being perfectly mobile across countries. The saving-investment (SI) correlation depends on the origin and the volatility of macroeconomic (productivity) shocks, the persistence of these shocks and country-size. Simulating a two-country Real Business Cycle (RBC) model we show that as the variance of common shocks increases (relative to country-specific shocks), as the persistence of these shocks decreases and as country-size increases, the SI correlation increases. Using annual data from 1960 to 2002, productivity changes in 11 OECD countries are decomposed into common and country-specific shocks (from which foreign shocks are also constructed). The empirical findings show that the 11 countries share a statistically significant common component in productivity changes and common shocks generally account for at least half of the variations in the countries’ productivity changes. We then use the estimated variances of the shocks, in addition to each country's size, in the RBC model to compute the predicted SI correlation for each country, under the assumption that capital is perfectly mobile. The predicted SI correlation is then compared to the actual correlation to assess the relative degree of capital mobility in the 11 countries. The findings indicate that Norway, the Netherlands and the US have the highest degree of capital mobility whereas in Canada, Sweden, Belgium and Japan capital mobility has been the lowest.     

LINKING POVERTY AND INCOME SHOCKS TO RISKY SEXUAL BEHAVIOUR: EVIDENCE FROM A PANEL STUDY OF YOUNG ADULTS IN CAPE TOWN

Is there a link between household income and income stress, and risky sexual behaviour of young people? Anecdotal and qualitative evidence suggests this may be the case, but there is little quantitative research measuring this relationship. We use two waves of new data from the Cape Area Panel Study to investigate this link for 2,993 African and coloured youths aged 14 to 22 in 2002. In the process, we discuss one type of research design that could allow for a causal interpretation of the effect of income poverty on HIV risk. This design plausibly separates out the effect of income stress from the effect of living in a poor household by comparing behaviours across households with and without negative economic shocks, conditional on baseline income. Our results indicate that females in poorer households are more likely to be sexually active in 2002 and more likely to sexually debut by 2005. In addition, girls in households experiencing negative economic shocks are more likely to reduce condom use between 2002 and 2005. However, they are less likely to have multiple partners in 2002 or have transitioned to multiple partners by 2005. Males who experienced a negative shock are more likely to have multiple partners. Despite the tight research design for assessing shocks, the findings on the impacts of shocks do not generate clear recommendations for policy. There appears to be no systematic difference in condom use at last sex by household income levels or income shocks.