Are there too many safe securities? Securitization and the incentives for information production

We present a model that helps explain several past collapses of securitization markets. Originators issue too many informationally insensitive securities in good times, blunting investor incentives to become informed. The resulting endogenous scarcity of informed investors exacerbates primary market collapses in bad times. Inefficiency arises because informed investors are a public good from the perspective of originators. All originators benefit from the presence of additional informed investors in bad times, but each originator minimizes his reliance on costly informed capital in good times by issuing safe securities. Our model suggests regulations that limit the issuance of safe securities in good times.     

Multilateral trade agreements in Africa

This paper explores the motives behind the formation of intra-African regional integration agreements (RIAs). We focus specifically on rents because they can explain the drive for integration even in the absence of a positive effect on welfare. Whether they are meant to foster rent-seeking or to suppress it, the level of corruption is posited to have a positive effect on the willingness to enter into RIAs. However, empirical studies into this effect have come to contradictory conclusions. We find that corruption has a positive effect on the willingness of African countries to join trade agreements. This result remains significant when controlling for endogeneity and heteroskedasticity, as well as the indicator of corruption used. While small, the effect of corruption outperforms most economic variables. Nevertheless, distance and other geographical factors remain the strongest explanatory forces of African integration.     

Works Councils,Collective Bargaining,and Apprenticeship Training – Evidence From German Firms

In this paper, we investigate the effects of works councils on apprenticeship training in Germany. The German law attributes works councils substantial information and co‐determination rights to training‐related issues. Thus, works councils may also have an impact on the cost‐benefit relation of workplace training. Using detailed firm‐level data containing information on the costs and benefits of apprenticeship training, we find that firms with works councils make a significantly higher net investment in training compared to firms without such an institution. We also find that the fraction of former trainees still employed with the same firm 5 years after training is significantly higher in the presence of works councils, thus enabling firms to recoup training investments over a longer time horizon. Furthermore, all works council effects are much more pronounced for firms covered by collective bargaining agreements.     

Moral economics

An adequate normative economics – one that is consistent with recent developments in our discipline (and in philosophy and psychology) and that resonates with widely held moral intuitions – will have to address the following challenges. First, utility cannot be both the basis of our predictions of economic behaviour and the evaluation of the outcomes of this behaviour. Second, we need to conceive of individual well-being and other desiderata in ways that are interpersonally comparable and that go beyond efficiency and fairness. Third, the representation of the economy as a ‘morality-free zone’ (requiring that contracts, including employment contracts, are complete) must give way to a recognition of the unaccountable exercise of power by private actors, even in a perfectly competitive equilibrium, and the way that this may violate democratic principles and limit the freedom and compromise the dignity of other actors. Fourth, the commitment to ‘liberal neutrality’ (thereby sidestepping the evaluation of preferences) and the related assumption of ‘unrestricted preferences’ in mechanism design and public policy must be abandoned, making room for a concern about the nature of our preferences and the ways that institutions shape our values.     

Trading Kuznets curve: empirical analysis for China

Empirica - Due to inspiring growth over the past 20 years, the dynamics of Chinese exports have been the focus of many researchers. In contrast to current literature, this study examines...     

Monetary,fiscal, and structural drivers of inflation in Ethiopia: new empirical evidence from time series analysis

This study empirically investigates the drivers of inflation in Ethiopia using monthly data over the period July 1998 to September 2020. It explores short-run and long-run effects of domestic and external determinants of inflation—including demand-side, supply-side, and structural factors—using the cointegration and vector error-correction methodology. Four measures of inflation are considered: cereals, food, nonfood, and all-items Consummer Price Index (CPI) inflation. A key contribution to the existing literature is the investigation of the role of the fiscal sector in modeling inflation, a topic that has been neglected in the existing studies on inflation in Ethiopia. The empirical results show that disequilibria in the monetary sector, grains sector, and food markets have long-run effects on inflation. In the short run, inflation is driven by structural factors (notably, cereal output gaps and imported inflation) as well as demand-side factors (notably, money growth and public sector borrowing). The results hold when analysis is limited to the high growth period from 2005 onward, following the end of the International Monetary Fund (IMF) program in the country. The evidence provides valuable insights in the context of ongoing macroeconomic policy reforms in Ethiopia.     

Information sharing offices and economic growth in sub-Saharan Africa

Although credit availability is essential for economic growth, the information asymmetry problem inhibits the credit creation function of financial institutions. Among other means, information-sharing offices (ISOs) have been established, including private credit bureaus and public credit registries to provide information on the financial characteristics of citizens to reduce information asymmetry. From this background, this study used an explanatory research design with a longitudinal (panel) data approach to assess whether the coverage of information by ISOs affects sectorial and overall economic growth among sub-Saharan African (SSA) countries using the system generalized method of moments technique on data from 2005 to 2019. The results highlight that information coverage by ISOs enhances sectorial and overall economic growth by solving the information asymmetry problem. From the findings, governments in SSA countries are encouraged to support public credit registries to effectively perform their mandate while providing incentives to attract investments in private credit bureaus since they contribute to economic growth.     

Environmental policy and convexity of climate change damage functions: an experiment with New Keynesian DSGE model

International Economics and Economic Policy - The paper seeks out to investigate how varying degree of convexity of climate change damage function affect economic output and the dynamic response of...     

Bailouts and the modeling of bank distress

In this article, we develop a model for predicting distress events among large banks. We show that a bailout possibility induces different behaviors among small and large banks, and the proposed failure prediction model for large banks is thus considerably different from that for small banks. Major bank-level fundamentals show opposite conjecture directions for large versus small banks. The Tier 1 capital ratio, which is under the scrutiny of regulators and investors, has almost no distress prediction power among large banks. However, banks rescued by governments tend to maintain a lower Tier 1 ratio. The cost of funding in large banks is negatively correlated with the probability of failure, reflecting the fact that lenders internalize the too-big-to-fail (TBTF) policy and demand a lower interest rate from TBTF banks.