African Development: Beyond Income Convergence

In examining some big questions on African development, I provide evidence that the dynamics of some development indicators could support both endogenous and neoclassical growth theories in the convergence debate. This paper investigates convergence in real per capita gross domestic product and inequality‐adjusted human development in 38 African countries, disaggregated into 10 homogenous panels based on regions (Sub‐Saharan and North Africa), income levels (low, middle, lower middle and upper middle), legal origins (English common law and French civil law) and religious dominations (Christianity and Islam). The main finding is that the income component of the Human Development Index moves slower than others in the convergence process, and thus requires a more focused policy intervention. As a policy implication, looking beyond income convergence can provide a concrete agenda for development involving all aspects of economic, institutional and social life.     

The Effect of the Tipped Minimum Wage on Employees in the U.S. Restaurant Industry

According to federal law in 2013, employers can take a credit of up to $5.12 for tips received by workers in satisfying the minimum‐wage requirement of $7.25. This article uses interstate variation in laws regarding tip credits and minimum wages to identify the effects of reducing or eliminating the tip credit on employment, hours, and earnings in the U.S. restaurant industry. Using data from the Quarterly Census of Employment and Wages and the Current Population Survey, we find that a reduction in the tip credit increases weekly earnings but reduces employment in the full‐service restaurant industry and for tipped workers. The results are robust to controls for spatial heterogeneity in employment trends and are supported by a series of falsification tests.     

Normative and positive theories of public finance: contrasting Musgrave and Buchanan

This paper assesses James M. Buchanan's claim of following a positive approach in stark contrast to the normative approach to public finance of Richard A. Musgrave. The goal of this paper is to shed light on the foundations of modern American public finance by analysing one aspect of the methodology of its two most prominent fathers. I show (1) that it is difficult to distinguish Musgrave's and Buchanan's theories of public goods along the positive/normative dividing line and (2) that Buchanan's theory can also be considered normative. In the first three parts, I follow the Weberian methodological tradition in looking for value judgements in the theories, and by reflecting on the nature of ideal types. In the last part, I propose a broader interpretation of Buchanan's methodological stance within the academic context of the 1960s.     

Monetary shocks,exchange rates,and the extensive margin of exports

This paper develops a two-country Dynamic General Equilibrium model to assess the relationship between the real exchange rate and the extensive margin of exports. Exchange rate pass-through to consumer prices governs the relative strength of a demand channel onto the exporting decision of a firm. With incomplete pass-through, a favorable movement in the real exchange rate generates increased export participation and an expansion in the extensive margin of exports. This result is consistent with firm-level studies, and contributes to an ongoing empirical debate as to the importance of changes in export participation over the business cycle.     

Do Surveillance Cameras Affect Unruly Behavior? A Close Look at Grandstands

How do surveillance cameras affect unruly spectator behavior? I examine this question using a natural experiment from the Swedish soccer league. Stadiums in Sweden introduced surveillance cameras at different points in time during the years 2000 and 2001. I exploit the exogenous variation that occurred because of differences across stadiums in the processing time taken to obtain permits for cameras as well as delays in the supply of equipment. Conditioning on stadium fixed effects, unruly behavior was found to be approximately 65 percent lower in stadiums with cameras compared to stadiums without cameras. The identification strategy provides a unique possibility to address problems regarding endogeneity, simultaneous policy interventions, and displacement effects.     

Relative Performance Incentives and Price Bubbles in Experimental Asset Markets

We study experimental markets in which participants face incentives modeled upon those prevailing in markets for managed funds. Each participant's portfolio is periodically evaluated at market value and ranked by relative performance as measured by short‐term paper returns. Those who rank highly attract a larger share of new fund inflows. In an environment in which prices are typically close to intrinsic value, the effect of these incentives is mild. However, in an environment in which markets are prone to bubble, mispricing is greatly exacerbated by relative performance incentives and becomes even more pronounced with experience.     

AN EXAMPLE OF AN OPTIMAL FORECAST EXHIBITING DECREASING BIAS WITH INCREASING FORECAST HORIZON

Motivated by a central banker with an inflation target, we show that the optimal forecast bias under non‐quadratic loss functions and non‐normal forecast errors can decrease or initially increase and then decrease with the forecast horizon. We initially proof that, if the variable to forecast can be described by a generalized Rayleigh distribution, its conditional mean does in general not constitute the optimal prediction under a symmetric target zone loss function. Subsequently, we approximate the target zone loss function to show the potential for variation in optimal bias over the forecast horizon.     

Equilibrium unemployment as a discipline device when finding employment is costly

Abstract In this paper, we study a model that incorporates costly job search into an efficiency wage model. We show that the relationship between wages and detection rates is ambiguous in this framework. The model can generate a positive relationship, consistent with empirically reasonable values for unemployment rates, job finding rates, and employment duration.     

Turning Unemployment into Self‐Employment: Effectiveness of Two Start‐Up Programmes*

Turning unemployment into self‐employment has become a major focus of German active labour market policy (ALMP) in recent years. If effective, this would not only reduce Germany's persistently high unemployment rate, but also increase its notoriously low self‐employment rate. Empirical evidence on the effectiveness of such programmes is scarce. We evaluate the effectiveness of two start‐up programmes for the unemployed, where we include the probability of being employed, the probability of being unemployed and personal income as outcome variables. Our results show that at the end of the observation period, both programmes are effective. The considerable positive effects present a stark contrast to findings from evaluations of other German ALMP programmes in recent years. Hence, ALMP programmes aimed at moving the unemployed into self‐employment may prove to be among the most effective, both in Germany and elsewhere.     

The role of autoregressive conditional skewness and kurtosis in the estimation of conditional VaR

This paper investigates the role of high-order moments in the estimation of conditional value at risk (VaR). We use the skewed generalized t distribution (SGT) with time-varying parameters to provide an accurate characterization of the tails of the standardized return distribution. We allow the high-order moments of the SGT density to depend on the past information set, and hence relax the conventional assumption in conditional VaR calculation that the distribution of standardized returns is iid. The maximum likelihood estimates show that the time-varying conditional volatility, skewness, tail-thickness, and peakedness parameters of the SGT density are statistically significant. The in-sample and out-of-sample performance results indicate that the conditional SGT-GARCH approach with autoregressive conditional skewness and kurtosis provides very accurate and robust estimates of the actual VaR thresholds.