EFFECTS OF SMALL BUSINESS ACCOUNTING BASES AND ACCOUNTANT SERVICE LEVELS ON LOAN OFFICER DECISIONS

This study examines effects of four combinations of accounting bases and service levels — GAAP and income tax bases, and audit and review service levels — on loan officers' decisions, both separately and in interaction. It examines effects on loan decisions and perceptions of interest rates, default risk, confidence, and usefulness. The interaction of accounting basis and service level significantly affects perceived confidence but does not affect other decisions. Accounting basis and service level separately affect interest rates, default risk, and report usefulness, but do not affect the loan decision.     

Fixed Exchange Rates and Disinflation in Emerging Markets: How Large Is the Effect?

We examine developing countries which have institutional quality ratings for the effects of exchange rate rigidity on inflation. The level of institutional development exerts no effect on the impact of currency regimes. However, the interaction of institutional quality and exchange rates has, in the most plausible specifications, a negative impact on inflation. This suggests that fixed exchange rates exert at most a contingent effect on inflation, and indicates that countries in Eastern Europe and Latin America contemplating currency pegs would be better off improving institutional quality prior to adopting the euro or dollar and expecting a large subsequent disinflationary effect. JEL no.  F31, O11     

Geographic poverty traps? A micro model of consumption growth in rural China

How important are neighbourhood endowments of physical and human capital in explaining diverging fortunes over time for otherwise identical households in a developing rural economy? To answer this question we develop an estimable micro model of consumption growth allowing for constraints on factor mobility and externalities, whereby geographic capital can influence the productivity of a household's own capital. Our statistical test has considerable power in detecting geographic effects given that we control for latent heterogeneity in measured consumption growth rates at the micro level. We find robust evidence of geographic poverty traps in farm‐household panel data from post‐reform rural China. Our results strengthen the equity and efficiency case for public investment in lagging poor areas in this setting. Copyright © 2002 John Wiley & Sons, Ltd.     

Interest rate corridors and reserves

This paper evaluates reserves regimes versus interest rate corridors, which have become competing frameworks for monetary policy implementation. Rate corridors, relying on lending and deposit facilities to create ceilings and floors for overnight interest rates, evince mixed results on controlling volatility. Reserve requirements allow period-average smoothing of interest rates but, even if remunerated, are subject to reserve avoidance activities. A system of voluntary, period-average reserve commitments could offer equivalent rate-smoothing advantages. If central banks created symmetric opportunity costs of meeting or falling short of period-average reserve requirements (or commitments), they could achieve flat reserve demand on settlement day.     

RESEARCH NOTE: ERRORS IN THE OCTOBER HOUSEHOLD SURVEY 1994 AVAILABLE FROM THE SOUTH AFRICAN DATA ARCHIVE1

The on‐line electronic documentation supplied with the 1994 October Household Survey by the South African Data Archive (SADA) appears to be incorrect. In particular, the electronic version of the questionnaire does not correspond to the hard copy in the possession of the author. The most serious error is that the race classification in the electronic copy is different from the classification on the hard copy. Researchers relying on the electronic copy will erroneously interchange the categories “Coloured”, “White” and “Black”. This could lead to seriously misleading analyses. The reason for this mistake can probably be attributed to a retyping of the questionnaire using the 1993 OHS as a template.     

Competitive effects of Basel II on US bank credit card lending

We analyze the potential competitive effects of the proposed Basel II capital regulations on US bank credit card lending. We find that bank issuers operating under Basel II will face higher regulatory capital minimums than Basel I banks, with differences due to the way the two regulations treat reserves and gain-on-sale of securitized assets. During periods of normal economic conditions, this is not likely to have a competitive effect; however, during periods of substantial stress in credit card portfolios, Basel II banks could face a significant competitive disadvantage relative to Basel I banks and nonbank issuers.     

Evidence on the motivation for management forecasts of corporate earnings

A multivariate model of the process by which managers decide to release public forecasts of their firms' earnings is developed, based on factors that are hypothesized to affect the demand for and the willingness to supply such forecasts. We test the model on data from a comprehensive sample of earnings forecasts, and find support for our hypotheses about the likely joint influence of those factors. Larger firm size, greater leverage, higher and more stable earnings rates and less rapid growth rates are found to be associated with an increased propensity for management to provide earnings forecasts for their firms.     

Evolutionary Stability in the Investment-Opportunism-Retaliation Game

Can economically efficient outcomes be obtained and sustained in the absence of externally enforced property rights? We study the evolutionary properties of a game that exhibits two well-defined Nash equilibria: one generates an inefficient outcome while the other set generates an efficient outcome supported by the potential for retaliation. Although standard forward-looking refinements eliminate the efficient equilibrium, neither equilibrium type satisfies strict evolutionary stability criteria. However, both types of equilibrium define strategies that are neutrally stable, which makes them vulnerable to drift in dynamic environments. We conduct computer simulation experiments in which players learn adaptively via a tournament selection mechanism called sophisticated experimentation. Our simulations demonstrate that while the system spends a disproportionately high proportion of time in the inefficient equilibrium set, the efficient equilibrium is pervasive as the system drifts back and forth between the equilibrium sets, never settling on one or the other.