Reactions to Shocks and Monetary Policy Regimes: Inflation Targeting Versus Flexible Currency Board in Sub‐Saharan Africa

The paper examines the monetary policy actions through which central banks in sub‐Saharan Africa have tried to eliminate the negative impacts of the shocks facing their economies. We compare two different monetary policy regimes: a currency board regime (in the CFA zone) and an inflation targeting policy regime (Ghana and South Africa) when central banks respond to demand, supply, and fiscal shocks. We extend the usual forecasting and policy analysis system models to replicate the economic features of these economies during the period 2002–12 and to evaluate the impact of several policies in response to these shocks. We find that both policies are inappropriate in helping the economies escape from the effects of negative demand shocks, both are essential when negative shocks to primary balance occur, while inflation targeting dominates the currency board regime as a strategy to cope with positive shocks to inflation.     

Farmers' Preference for Farming: Evidence From a Nationally Representative Farm Survey in India

Using data from a nationally representative farm survey in India, we have analyzed Indian farmers' stated preference for farming as a profession. Findings show that more than 40% of farmers dislike farming as a profession because of low profits, high risk, and lack of social status, yet they continue with it owing to a lack of opportunities outside agriculture. Farmers who express a preference for moving out of agriculture are mostly those with small landholdings, poor irrigation facilities, fewer productive assets including livestock, and follow a cereal‐centric cropping pattern. They also have relatively lower access to credit, insurance, and information, and are weakly integrated with social networks such as self‐help groups and farmers' organizations. Importantly, the disinclination for farming, conditional on other covariates, is not significantly differentiated by caste, an important indicator of social status in rural India. Yet, within a caste group, the dislike for farming moderates with larger landholdings.     

Capitalization of Flood Insurance and Risk Perceptions in Housing Prices: An Empirical Agent‐Based Model Approach

Federally regulated or insured lenders in the United States are mandated to require flood insurance on properties that are located in areas at high risk of flooding. Despite the existence of this mandatory flood insurance requirement, take‐up rates for flood insurance have been low, and the federal government's exposure to uninsured property losses from flooding remains substantial. Meanwhile, the value of capital at risk varies significantly with flood events and changing risk perceptions, which necessitates mechanisms that stabilize these dynamics. In this article we discuss how a scenario of complete insurance uptake, under various risk attitudes, affects the value of properties in the 100‐year and 500‐year flood zones. Our results indicate that an increase in flood insurance uptake may provide such a mechanism by lowering the value of capital at risk in the flood zone consistently, independent of homeowners' risk attitudes. We apply an empirical adaptive agent‐based model to examine the capitalization of insurance costs, risk premiums, and their interaction in housing prices. Our approach combines widely‐used empirical hedonic analysis with the computational economic framework. We highlight the usefulness of our method in capturing the marginal implicit price of homeowners' preferences that may change over time and separately assess the effect of various factors and policies on property values, illustrating the agent‐based modeling as a valuable complement to traditional hedonic analysis.     

Identification and information in monotone binary models

This paper considers binary response models where errors are uncorrelated with a set of instrumental variables and are independent of a continuous regressor v$v$, conditional on all other variables. It is shown that these exclusion restrictions are not sufficient for identification and that additional identifying assumptions are needed. Such an assumption, introduced by Lewbel [Semiparametric qualitative response model estimation with unknown heteroskedasticity or instrumental variables. Journal of Econometrics 97, 145–177], is that the support of the continuous regressor is large, but we show that it significantly restricts the class of binary phenomena which can be analysed. We propose an alternative additional assumption under which β$\beta$ remains just identified and the estimation unchanged. This alternative assumption does not impose specific restrictions on the data, which broadens the scope of the estimation method in empirical work. The semiparametric efficiency bound of the model is also established and an existing estimator is shown to achieve that bound. The efficient estimator uses a plug-in density estimate. It is shown that plugging in the true density rather than an estimate is inefficient. Extensions to ordered choice models are provided.     

Why do parents make their children work? A test of the poverty hypothesis in rural areas of Burkina Faso

It is often argued that child labour is caused by poverty. However,much child labour takes place in rural areas characterized bysubstantial labour market imperfections. A model of rural householdlabour supply is developed that provides testable implicationsfor two versions of the poverty hypothesis: that child labouris due to a binding subsistence constraint and that child leisureis a luxury good. We find that in rural Burkina Faso childrendo not provide labour to meet households' subsistence needsand that child leisure is a normal good. The evidence suggeststhat labour market imperfections are a main reason for usingchild labour.     

Outsourcing and firm performance nexus: An analysis using the conventional and panel double-bootstrap procedure

Industrial performance is an essential element of economic progress. In this study, we examine the impact of outsourcing on industrial performance using the firm-level data of 191 textile companies in India over the period 2000–2015. First, we follow the conventional non-parametric two-stage procedure and analyse the nexus between outsourcing and firm performance under a single-objective setting. We then test the influence of outsourcing on the performance of multiple-objective firms using reverse directional distance function scores. To address the bias in efficiency estimation and the serial correlation issue in the second-stage regression, we use truncated regression and the double-bootstrap procedure for panel data analysis. Our results show an improvement in industrial performance over the study period. Our analysis following the conventional two-stage procedure shows that the outsourcing of manufacturing activities and professional jobs contributes to industrial performance. The relation between outsourcing and firm performance essentially remains the same in a more reliable analysis using a panel double bootstrap procedure.     

INTER‐TEMPORAL LABOUR FORCE PARTICIPATION AMONG MARRIED WOMEN IN JAPAN*

This paper investigates the components that affect inter‐temporal labour force participation among married women in Japan. We estimate linear probability models and simple, dynamic probit models with a variety of specifications. We find that serially correlated transitory errors have a significant effect on the participation behaviour of married women, while the first‐order lagged dependent variable has no significant effect. The result that serially correlated transitory errors influence married women's inter‐temporal labour force participation suggests that exogenous rather than endogenous causes have a significant effect on long‐term economic disparity among married women.     

Viewing Tax Policy Through Party‐Colored Glasses: What German Politicians Believe

Abstract. The process of globalization has an important impact on national tax policies. Most of the literature does not focus directly on the political decision‐making process and assumes that the desired tax policy is responding to objective underlying tradeoffs. Based on an original survey of members of the German national parliament (Bundestag) in 2006/07, we document a strong ideological bias among policy‐makers with respect to the perceived mobility of international tax bases (real capital and paper profits). Ideology also influences, directly and indirectly, the perceived national autonomy in tax setting and preferences for a European Union minimum tax for companies. There seems little consensus as to what the efficiency costs of capital taxation in open economies are, even though our survey falls in a period of extensive debate about, and actual adoption of, a company tax reform bill in Germany.     

Property rights imperfections and asset allocation: Co-ownership in Bulgaria

This paper analyzes how imperfections of property rights affect households’ allocation of assets using micro-survey data from Bulgaria. Co-ownership of assets is widespread in many countries due to inheritance. Central and Eastern Europe offers an interesting natural experiment to assess the effects of this type of property rights imperfection because of the asset restitution process in the 1990s. In Bulgaria, where co-ownership is very prominent and land is strongly fragmented, the land reform and inheritance legislation allows identifying the impact of co-ownership by taking advantage of a discontinuity created by a minimum plot size law. We find that land in co-ownership is more likely to be used by less efficient farm organizations or to be left abandoned, and that it is related to significant welfare losses. The paper hence provides evidence of sub-optimal land allocation following a privatization that established formal but imperfect property rights.     

An investigation of issues relating to where energy should enter the production function

This paper examines the impact of imposing different separability assumptions in the specifications of the standard hierarchical KLEM production function in a computable general equilibrium (CGE) model. The appropriate means of introducing energy to production functions has been a source of debate for a number of years. However, while modellers often subject results to parametric sensitivy analysis regarding the values associated with elasticities of substitution between inputs, it is rarely the case that the structure of the production function is subjected to testing. However, the chosen structure reflects the modeller's view about elasticity between different inputs and will have implications for model results wherever there are changes in relative prices. We illustrate our argument by introducing a simple demand shock to a CGE model of the Scottish economy (targeted at the energy supply sector) under different assumptions regarding the structure of the KLEM production function and separability assumptions therein.