Inflation and the Income Share of the Rich: Evidence for 14 OECD Countries

This paper examines the distributional implications of inflation on top income shares in 14 advanced economies using data over the period 1920–2016. We use local projections to analyze how top income shares respond to an inflation shock, and panel regressions in which all variables are defined as 5-year averages to examine the impact of inflation on the position of the top-one-percent in the long run. Our findings suggest that inflation reduces the share of national income held by the top 1 percent. Furthermore, we find that inflation shocks and long-run inflation have similar effects on top income shares.     

Finance,income inequality and income redistribution

Using a panel fixed effects model for a large sample of countries covering 1975–2005, we test the hypothesis that income inequality caused by finance (financial development, financial liberalization and banking crises) is related to more income redistribution than inequality caused by other factors. Our results provide evidence in support of this hypothesis. We also find that the impact of inequality on redistribution is conditioned by ethno-linguistic fractionalization. Our findings are robust to the inclusion of several control variables suggested by previous studies.     

The Term Structure of Interest Differentials in a Target Zone with Time-varying Devaluation Risk

We extend Svensson's (1991b) analysis of the term structure of interest rate differentials in a target zone. First, the model includes a time-varying devaluation risk, and second, we analyse the term structure of interest differentials vis-a-vis Germany in five countries: Belgium, Denmark, France, Italy and the Netherlands. In our sample, 1983–1993, we differentiate between stable and unstable periods. The findings for Denmark and the Netherlands, and for Belgium in the relatively stable period are broadly in line with Svensson's theory, whereas the other results are more in accordance with the model that allows for a time-varying devaluation risk.
(J.E.L. E43, F31).     

Determinants of cross‐border bank acquisitions in transition economies1

We analyse the microeconomic determinants of cross‐border bank acquisitions in 11 transition economies over the period 1992–2006. We find that foreign banks target relatively large and efficient banks when they enter transition economies with weak institutions. This evidence provides support for the ‘market power’ hypothesis. However, when foreign banks enter more developed transition economies that have made progress in economic reform, they acquire less efficient banks. This result is in line with the efficiency hypothesis. We use a multilevel mixed effects logit model that allows us to explicitly incorporate the macroeconomic and institutional heterogeneity of the transition economies into our analysis.     

Budget deficits, monetization, and centralbank independence in developing countries

Using various indicators for central bank independence we examinethe relationship between central bank independence and governmentbudget deficits. Using a two-stage procedure we also analyzewhether central bank independence affects the monetization ofdeficits. First, the monetization relation in each country isestimated and then the resulting accommodation coefficientsare related to central bank independence. We conclude that onlyif the turnover rate of central bank governors or the politicalvulnerability mdex is used monetary accommodation of deficitsis negatively related to central bank independence. There isno relationship between independence and the level of budgetdeficits     

Paying for the environmental services of silvopastoral practices in Nicaragua

Agricultural landscapes can provide many valuable ecosystem services, but many are externalities from the perspective of farmers and so tend to be under-produced. This paper examines an effort to make direct payments for ecosystem services (PES) in an agricultural landscape. The Regional Integrated Silvopastoral Ecosystem Management Project is piloting the use of PES to induce adoption of silvopastoral practices in the Matiguás-Río Blanco area in Nicaragua. Silvopastoral practices could substantially improve service provision while retaining agricultural production, but they have found only limited acceptance among farmers. The Silvopastoral Project seeks to increase their adoption by paying farmers for the expected increase in biodiversity conservation and carbon sequestration services that these practices would provide. The Project developed an ‘environmental services index’ (ESI) and pays participants for net increases in ESI points. Although the Silvopastoral Project is still underway, it already appears to have succeeded in inducing farmers to increase substantially the use of practices that generate higher levels of ecosystem services. In the project's first two years, over 24% of the total area experienced some form of land use change. The area of degraded pasture fell by two thirds, while pastures with high tree density increased substantially, as did fodder banks and live fences. On-going monitoring indicates that these land use changes are in fact generating the desired services. Questions remain about the long-term sustainability of the approach, however. To ensure sustainability, long-term payments are likely to be needed, raising the question of how they will be financed. Payments by water users and by carbon buyers provide a partial answer to this challenge, but still leave many gaps.     

Are non-risk based capital requirements for insurance companies binding?

We investigate whether insurers base their solvency margins on risk factors even when operating under a supervisory regime where minimum solvency requirements do not fully take such risk factors into account. To do this, we use a dataset of about 350 Dutch insurers from all major lines of business during the pre-Solvency II period 1995–2005. We find that the levels of insurers’ actual solvency margins are related to their risk characteristics and not to regulatory solvency requirements. Consequently, the vast majority of insurers hold much more capital than required, i.e. non-risk based capital requirements generally are not binding. Requirements are found to affect solvency adjustment behaviour, though. More specifically, below-target capital ratios are raised most rapidly by those insurers whose targets are relatively close to the regulatory minimum. One implication from our results is that, because insurers already follow a risk-based approach, the transition to the new European regulatory framework, Solvency II, is likely to be smooth.     

Are small countries too powerful within the ECB?

This paper analyzes the possible consequences of diverging economic developments within the euro area, given the current decision-making process of the European Central Bank (ECB). For the German Bundesbank, the role model of the ECB, there is evidence that differences in the economic situation in the various states affected voting behavior in the Governing Council. For the euro area countries, the paper finds that, despite convergence, important differences in terms of economic performance and preferences remain. As all national central banks have one vote within the Governing Council of the ECB, there is a risk that national considerations may prevail over EMU-wide considerations.