Correlates of Narrow Bracketing

Behavior often deviates from standard predictions because individuals evaluate the consequences of choices separately (i.e., narrow bracketing) rather than jointly. The main existing theories classify different narrow bracketing phenomena as either (i) choice errors caused by cognitive limitations, or (ii) strategies to achieve self‐control. Using an online experiment, we find consistent evidence for theory (ii): mental budgets and narrow goals are related to each other and to measures of self‐control, but are distinct from other forms of narrow bracketing. Evidence for the complementary theory (i) is less consistent: few choice bracketing phenomena are related to each other and to cognitive skills.     

The Productivity Effects of Worker Mobility Between Heterogeneous Firms

We analyze the effect of worker inflows on establishments’ productivity, using German data. Previous studies for other countries have found positive effects of hiring workers from superior (more productive or higher paying) firms. Ranking establishments by their median wage, we find that inflows from inferior establishments seem to increase hiring establishments’ productivity. Further empirical analyses suggest our findings are due to a positive selection of such inflows from their sending establishments. These workers might have to find a better job match in order to advance their careers, an interpretation supported by the finding that the effect is driven by workers with short tenure at their previous employer. Our findings reflect the increasingly assortative pattern of worker mobility in Germany found in a related strand of literature.     

Drivers of the real effective exchange rates in high and upper‐middle income countries

This paper revisits the nexus between real effective exchange rate (REER) and total factor productivity (TFP) by controlling for trade openness, financial development and natural resources rents. We use a sample of 60 high‐income and upper‐middle income countries over the period 1995–2015 and employ the GMM estimation framework. Our results advance the empirical knowledge on the drivers of REER by providing robust evidence that the impact of TFP is not uniform across different country clusters. We find that in high‐income countries, increasing productivity causes the REER to depreciate hence becoming more trade competitive while the opposite is true for upper‐middle income countries. Furthermore, financial development and natural resources rents have no meaningful impact in the case of upper‐middle income countries but retain a significant effect in high‐income countries. Trade openness plays a key role in explaining the variation in REER in both country clusters.     

Credit card cash‐out as informal financing: Evidence from China

Using a proprietary account‐level database from a commercial bank in China, we document that credit card holders can ease their credit constraints through the practice of cash‐out based on bogus transactions using credit cards. We find that such behaviour might be beneficial to both cardholders and banks. First, we find that a 1% increase in the cumulative number of credit card cash‐out transactions lowers the probability of default by 9.59%. Second, for private businesses, a 1% increase in the number of abnormal cash‐out transactions lowers overdue risk by 13.45%. Third, by lowering the overdue risk, the card‐issuing bank earns a larger profit. Our results are consistent with the notion that unconventional credit card cash‐out can mitigate the extent of capital misallocation in emerging markets.     

The dynamics of financial development,globalisation, economic growth and life expectancy in sub‐Saharan Africa

The importance of life expectancy is recognised in the development economics literature because of its increasing effects on labour productivity and economic growth in long‐run. However, no published study to date empirically examines the nonlinear relationships between globalisation, financial development, economic growth and life expectancy in sub‐Saharan African (SSA) countries. Therefore, our study intends to fill this gap by using non‐parametric cointegration test and multivariate Granger causality test towards a non‐linear empirical understanding of the factors affecting the life expectancy. We consider the case of 16 sub‐Saharan African economies using annual data over the period 1970–2012. The empirical analysis indicates that financial development, globalisation and economic growth appear to have a positive impact upon life expectancy in sub‐Saharan African economies, except for Gabon and Togo. Our empirical findings may provide insightful policy implications towards improving population health conditions which are vital for promoting the productivity of labour force and long‐run economic growth in sub‐Saharan African countries. In light of these policy implications, governments should incorporate globalisation, financial development and economic growth as key economic instruments in formulating sustainable developmental policy to promote life expectancy for the people in sub‐Saharan African countries.     

INCOME‐GENERATING ACTIVITY: AN AVENUE TO IMPROVE THE SUSTAINABILITY OF SHGs

Self‐help groups (SHGs) are formed to work for increased income through collective effort and use of banking facilities by initiating some income‐generating activities taking advantage of the financial strength of a group. Taking into consideration the significance of SHGs to economic growth, the present study analyzes and compares the management of the income‐generating activities of SHGs in rural and urban areas. It also explores the extent of resource mobilization through various income‐generating activities, and the constraints faced by the SHGs while undertaking these activities. It is an exploratory research in which a multi‐stage stratified cluster random sampling technique was used for the selection of SHGs. Data were collected at group level and member level through purposely developed interview schedules and focused group discussions. The study revealed that, because of various financial and marketing‐related problems occurring while initiating and conducting the activities, very few SHG members actually started new income‐generating activities. Testing of hypotheses indicated that SHGs do not fulfil all the requirements of income‐generating activities carried out by its members. An overall low to medium level of resource mobilization by a majority of the SHGs presented a poor picture of SHGs in generating resources for undertaking entrepreneurial activities.     

PERFORMANCE‐BASED FEE CONTRACT AND RISK‐TAKING STRATEGY IN ASSET MANAGEMENT TOURNAMENT

This paper investigates how performance‐based fee (PBF) contracts affect strategic risk‐taking behaviours of fund managers in an asset management tournament. In the perfect equilibrium, managers with better mid‐year performance will hold the risky asset with a higher probability in the remaining of the year, compared to managers with poorer mid‐year performance. If the volume of the cash flow into the winner fund is contingent on its level of success, the winning fund will take a more aggressive approach. When the PBF contract pays more heed to relative performance against the benchmark, managers are more likely to adopt aggressive strategies.     

How justified is abandoning money in the conduct of monetary policy in Australia on the grounds of instability in the money‐demand function?

The role of money in the design and conduct of monetary policy has reemerged as an important issue in both advanced and developing economies, especially since the 2007 global financial crisis. A growing body of recent literature suggests that the causal relationship between money supply growth and inflation remains intact across countries and over time and that this relation is not conditional on the stability of the money‐demand function or whether money is endogenous or exogenous. Moreover, critical for a rule‐based monetary policy is the presence of a long‐run stable money‐demand function, rather than a short‐run money‐demand model that may exhibit instability for many reasons, including problems with estimating a money‐demand model with high‐frequency data. Provided that a stable money‐demand function exists, it could be useful to establish long‐run equilibrium relations among money, output, prices, and exchange rates, as the classical monetary theory suggests. Within this analytical framework, this paper addresses the question of whether money has any role in the conduct of monetary policy in Australia. The conventional wisdom is that the money‐demand function in Australia has been unstable since the mid‐1980s due to financial deregulation and reforms; this led to a change in the strategy of monetary policy for price stability in the form of inflation targeting that ignores money insofar as inflation and its control are concerned. This paper reports empirical findings for Australia, obtained from a longer quarterly data series over the period 1960Q1–2015Q1, which suggest that instability in the narrow‐money‐demand function in Australia was primarily due to the exclusion of variables which have become important in the deregulated environment since the 1980s. These findings are confirmed by an expanded form of the narrow‐money‐demand function that was found stable over the past two decades, although it experienced multiple structural breaks over the study period. The paper draws the conclusion that abandoning the monetary aggregate as an instrument of monetary policy in Australia, under a rule‐based monetary policy such as inflation targeting, cannot be justified by instability in the money‐demand function or even by lack of a causal link between money supply growth and inflation.     

How should resource‐rich countries diversify? Estimating forward‐linkage effects of mining on productivity growth

Resource‐rich countries willing to diversify their economies are faced with dual policy options; to either develop resource‐based industries, or diversify their economies as a whole and invest into new activities that are not necessarily resource dependent. Not only does the economic theory fail to provide a consensual guidance on this issue but empirical evidence is also lacking. This paper empirically assesses which of these two patterns of diversification is associated with higher productivity growth outcomes for resource‐rich countries. Using panel data for 50 resource‐abundant countries over the period 1970–2010, I find that stronger downstream linkages to mining and extractives do not lead to productivity enhancements. Broadening and diversifying the production structure as a whole offers potential for productivity growth at higher levels of income.     

Accidental Bequests: A Curse for the Rich and a Boon for the Poor*

When accidental bequests signal otherwise unobservable individual characteristics, such as productivity and longevity, the population should be partitioned into two groups: those who do not receive an inheritance and those who do. The first tagged group receives a Mirrlees second‐best tax schedule; the second group, when its type is fully revealed, faces a first‐best tax schedule. Receiving an inheritance makes high‐ability types worse off and low‐ability types better off. High‐ability individuals face a bequest tax of more than 100 percent, while low‐ability types face a bequest tax that can be smaller, as well as larger, than 100 percent, and it might even be negative.