smallholder market participation concepts and evidence from eastern and southern africa abstract this paper reviews the evidence on smallholder market participation with a focus on staple foodgrains i e cereals in eastern and southern africa in an effort to help better identify what interventions are most likely to break smallholders out of the semi subsistence poverty trap that appears to ensnare much of rural africa the conceptual and empirical evidence suggests that interventions aimed at facilitating smallholder organization at reducing the costs of intermarket commerce and perhaps especially at improving poorer households access to improved technologies and productive assets are central to stimulating smallholder market participation and escape from semi subsistence poverty traps macroeconomic and trade policy tools appear less useful in inducing market participation by poor smallholders in the region

optimal taxation with endogenously incomplete debt markets abstract empirical analyses of labor tax and public debt processes provide prima facie evidence for imperfect government insurance this paper considers a model in which the government s inability to commit to future policies or to report truthfully its spending needs renders government debt markets endogenously incomplete a method for solving for optimal fiscal policy under these constraints is developed such policy is found to be intermediate between that implied by the complete insurance ramsey model and a model with exogenously incomplete debt markets in contrast to optimal ramsey policy optimal policy in this model is consistent with a variety of stylized fiscal policy facts such as the high persistence of labor tax rates and debt levels and the positive covariance between government spending and the value of government debt sales

bubbles and self enforcing debt we characterize equilibria with endogenous debt constraints for a general equilibrium economy with limited commitment in which the only consequence of default is losing the ability to borrow in future periods first we show that equilibrium debt limits must satisfy a simple condition that allows agents to exactly roll over existing debt period by period second we provide an equivalence result whereby the resulting set of equilibrium allocations with self enforcing private debt is equivalent to the allocations that are sustained with unbacked public debt or rational bubbles in contrast to the classic result by bulow and rogoff 1989a positive levels of debt are sustainable in our environment because the interest rate is sufficiently low to provide repayment incentives

the economics of food aid under subsistence farming with an application to malawi abstract we investigate how food aid affects price and production of staple food with a partial equilibrium model with non separable production and consumption the model captures the key characteristics of sub saharan africa subsistence economies simulations generate negative but also positive food aid elasticities of production conditions are identified which mitigate the negative impact and support a positive impact the share of domestic food production in total staple food demand and the share of income from staple food production in total household income are key determinants price and production equations estimated with a panel of district data of the malawi maize market for the period 1999 2010 show a small positive impact of food aid large negative impacts of food aid are not likely given production and income shares and behavioural responses

addressing food security in africa via multiple livelihood strategies of women farmers abstract because food insecurity is primarily a problem of low household incomes and poverty and not just inadequate food production projects and programs for food insecure african farmers which aim at increasing production of subsistence crops may be ineffective instead government should look for ways to improve returns to farmers resources in a broader context which may include expanded opportunities for non farm microenterprises and agricultural labor this has been the conventional wisdom since the writings of amartya sen still unclear however are the implications of his thinking for the roles of african women farmers who are traditionally the food crop producers in africa and are often food insecure immediate expansion of income earning activities such as cash cropping and non farm microenterprises may not be possible for women in male headed households in many african societies where cash income is seen as part of the male domain in addition women farmers may need a long adjustment period to diversify their income sources fully because most african countries are at the early stages of structural transformation different developmental interventions both in policy and in technology are therefore needed to address food security and economic transformations in africa in the short and long term

food aid impacts in rural kenya assessing the potential role of food aid in economic development requires that analytical attention be given to both household production and consumption consequences of food aid projects effects of a food for work ffw project in rural kenya are assessed using a peasant household firm model which incorporates a linear programming model and an almost ideal demand system the results indicate that program participants have net returns 52 percent higher than nonparticipants most of which is due to induced effects of capital formation on own farm production greater capital formation increases the opportunity cost of participants time encouraging a transition over time from ffw activities to greater own farm production ffw increases food demand employment and marketable surplus

future rent seeking and current public savings abstract the conventional wisdom is that politicians rent seeking motives increase public debt and deficits this is because myopic politicians face political risk and prefer to extract political rents as early as possible in this paper we study the determination of government debt and deficits in a dynamic political economy model we show that this conventional wisdom relies on economic volatility being low relative to political uncertainty if economic volatility is high relative to political uncertainty then a rent seeking government actually over saves and over taxes along the equilibrium path relative to a benevolent government this result emerges because of the option value of rent seeking a rent seeking government over values future funds because of the possibility of using them for future rents instead of cutting taxes in the event of a future boom when marginal utility of private consumption is low this over saving bias is temporary since in the long run the rent seeking government over borrows relative to the benevolent government as it eventually squanders the funds it has accumulated we find that both the under saving and over saving bias of the government can be solved by a rule of capping deficits

does food aid have disincentive effects on local production a general equilibrium perspective on food aid in ethiopia this paper examined impacts of food aid on domestic food production employing a computable general equilibrium modelling technique and using data from ethiopia the simulation experiments have shown that food aid has unambiguous disincentive effects on domestic food production the removal of food aid caused a modest increase in food prices but this stimulated food production employment and income generation effects of the latter outweighed the adverse effect of the former consequently the removal of food aid led to improvements in aggregate household welfare contrary to some concerns in the food aid literature that any reduction in food aid would hurt the poor the simulation experiments suggested that actually poor rural households and urban wage earners are the ones who benefit most in absence of food aid but entrepreneurs are more likely to encounter a marginal welfare decline we have distinguished between in kind food aid and cash equivalent transfers in order to isolate the disincentives that in kind transfers would make to domestic production from those that are related to household purchasing power problem the expansionary effect of removing food aid becomes significantly larger when it is accompanied by cash equivalent payments because the latter would provide demand side stimulus to agriculture while the removal of in kind transfers would stimulate supply side with the supply and demand side effects reinforcing each other in our modelling framework the only adverse effect would be a modest deterioration in the external current account because the expansionary effects of food aid would cause imports to rise but exports to fall

delaying the inevitable interest rate defense and balance of payments crises the classical model of balance of payments crises implicitly assumes that the central bank sits passively as international reserves dwindle in practice however central banks typically defend pegs aggressively by raising short term interest rates this paper analyzes the feasibility and optimality of raising interest rates to delay a potential bop crisis interest rate policy works through two distinct channels by raising demand for domestic interest bearing liquid assets higher interest rates tend to delay the crisis higher interest rates however increase public debt service and imply higher future inflation which tends to bring forward the crisis we show that under certain conditions it is feasible to delay the crisis but raising interest rates beyond a certain point may actually hasten the crisis a similar nonmonotonic relationship emerges between welfare and the increase in interest rates it is thus optimal to engage in some active interest rate defense but only up to a certain point i

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

when is it optimal to abandon a fixed exchange rate the influential krugman flood garber kfg model of balance of payment crises assumes that a fixed exchange rate is abandoned if and only if international reserves reach a critical threshold value from a positive standpoint the kfg rule is at odds with many episodes in which the central bank has plenty of international reserves at the time of abandonment we study the optimal exit policy and show that from a normative standpoint the kfg rule is generally suboptimal we consider a model in which the fixed exchange rate regime has become unsustainable due to an unexpected increase in government spending we show that when there are no exit costs it is optimal to abandon immediately when there are exit costs the optimal abandonment time is a decreasing function of the size of the fiscal shock for large fiscal shocks immediate abandonment is optimal our model is consistent with evidence suggesting that many countries exit fixed exchange rate regimes with still plenty of international reserves in the central bank s vault copyright 2008 wiley blackwell

government finance in the wake of currency crises we address three questions i can classical models be reconciled with the fact that many crises are marked by high rates of depreciation and small increases in seignorage revenue ii what are the implications of different financing methods for post crisis rates of inflation and depreciation iii how do governments pay for the fiscal costs associated with currency crises to study these questions we use a general equilibrium model in which prospective government deficits trigger a currency crisis we then use our model in conjunction with fiscal data to interpret government financing in the wake of three recent currency crises korea 1997 mexico 1994 and turkey 2001

the time consistency of optimal monetary and fiscal policies we show that optimal monetary and fiscal policies are time consistent for a class of economies often used in applied work economies appealing because they are consistent with the growth facts we establish our results in two steps we first show that for this class of economies the friedman rule of setting nominal interest rates to zero is optimal under commitment we then show that optimal policies are time consistent if the friedman rule is optimal for our benchmark economy in which the time consistency problem is most severe the converse also holds if optimal policies are time consistent then the friedman rule is optimal

factors affecting food poverty in ghana household production theory is applied to the ghana household budget survey data to 1 identify the main determinants of food poverty and 2 determine the net contribution of children to household food availability results suggest income fertility and maturity indices age sex and education significantly explain household calorie gaps hypothesis test results at one per cent and five per cent suggest the contribution of children to household food availability is less than their caloric intake estimated non linear equations permit the prediction and monitoring of the calorie gap for a given household or set of households with given household income and demographic features in a given location

a cheap lunch for emerging markets removing international financial market imperfections with modern financial instruments summary this paper develops a market based procedure to significantly reduce the indebtedness of emerging markets by applying an asset backed security approach to a pool of emerging market bonds in an extensive simulation study based on historical data the cumulated interest savings over a horizon of 10 years amount to about 20 of the credit sum on average with a standard deviation of 8 and up to 44 for individual countries dependent on the internal distribution of the surplus the theoretical structure of the transaction is explicitly derived in cooperation with professionals from major commercial banks and it implies only negligible implementation cost the implementation requires neither institutional reforms nor debt forgiveness but can supplement or substitute previous measures

optimal time consistent government debt maturity this paper develops a model of optimal debt maturity in which the government cannot issue statecontingent debt as the literature has established if the government can perfectly commit to fiscal policy it fully insulates the economy against government spending shocks by purchasing short term assets and issuing long term debt these positions are quantitatively very large relative to gdp and do not need to be actively managed by the government our main result is that these conclusions are not robust when lack of commitment is introduced under lack of commitment large and tilted debt positions are very expensive to finance ex ante since they ex post exacerbate the government s problem stemming from a lack of commitment in contrast a flat maturity structure minimizes the cost entailed by a lack of commitment though this structure also limits the ability to insure against shocks and increases the volatility of fiscal policy distortions we show that the optimal time consistent maturity structure is nearly flat because reducing average borrowing costs is quantitatively more important for welfare than reducing fiscal policy volatility thus under lack of commitment the government actively manages its debt positions and can approximate optimal policy by confining its debt instruments to consols

risk aversion in the theory of expected utility with rank dependent probabilities expected utility with rank dependent probability theory is a model of decision making under risk where the preference relations on the set of probability distributions is represented by the mathematical expectation of a utility function with respect to a transformation of the probability distributions on the set of outcomes this paper defines based on g teaux differentiability measures of risk aversion for such preferences which characterize the relation more risk averse and applies these measures to the analysis of unconditional and conditional portfolio choice problems

economic costs of alternative monetary policy responses to speculative currency attacks abstract the outcome of a speculative attack on the foreign exchange rate can be classified into three cases i immediate depreciation of the nominal exchange rate ii successful defense or iii failed defense this paper explores which of these outcomes yields the lowest cost in terms of output and unemployment in the short and medium run ex ante the outcome of a speculative attack is uncertain therefore the appropriate response of monetary authorities to a speculative attack depends on the cost of an immediate depreciation compared with that of the expected outcome of a currency defense our empirical analysis focuses on a sample of 73 emerging and developing countries over the 1960 2011 period our results indicate that an immediate depreciation is the policy response that is associated with a lower expected output loss and unemployment in the short run and it tends to be expansionary in the medium run a defense if successful entails insignificant costs in the short run but unlike an immediate depreciation a successful defense is not expansionary in the medium run if a defense fails large output losses and an increase in unemployment ensue at least in the short run

sequential equilibria in a ramsey tax model this paper presents a full characterization of the equilibrium value set of a ramsey tax model more generally it develops a dynamic programming method for a class of policy games between the government and a continuum of households by selectively incorporating euler conditions into a strategic dynamic programming framework we wed two technologies that are usually considered competing alternatives resulting in a substantial simplification of the problem

fiscal imbalances and the dynamics of currency crises abstract this paper analyzes links between the fiscal theory of the price level ftpl and the first generation models after krugman journal of money credit and banking 11 1979 311 325 exploring the idea that a synthesis between the two can become a new framework to analyze the fiscal dimension of currency crises working in a simple synthetic framework we show how external nominal shocks can cause a fiscal imbalance and undermine currency stability resolve two well known paradoxes of the first generation model discuss the role of seigniorage revenues and illustrate how fiscal and interest rate policies interact to determine the magnitude and the timing of speculative attacks and devaluations

approximate portfolio analysis abstract this paper presents a portfolio selection model based on the idea of approximation the model describes a portfolio by its decumulative distribution curve and a preference structure by a family of convex indifference curves it prescribes the optimal portfolio as the one whose decumulative curve has the highest tangent indifference curve the model extends the mean variance model in the sense that it does not restrict the return distributions of assets to be normal while under the assumption of normality the model simplifies to the mean variance model the model has a measure of risk attitudes that resembles the arrow pratt measure while combining both wealth and probability attitudes using this measure we show that the smaller the curvature of a value function and the larger the curvature of a weighting function the more risk averse an agent

international lending with moral hazard and risk of repudiation in this paper i examine the constrained optimal pattern of capital flows between a lender and a borrower in an environment in which there are two impediments to forming contracts the first impediment to contracting arises from the assumption that lenders cannot observe whether borrowers invest or consume borrowed funds this assumption leads to a moral hazard problem in investment the second impediment arises from the assumption that the borrower as a sovereign nation may choose to repudiate his debts the optimal contract is shown to specify that the borrowing country experience a capital outflow when the worst realizations of national output occur this seemingly perverse capital outflow forms a necessary part of the optimal solution to the moral hazard problem in investment

debts and deficits with fragmented fiscal policymaking abstract this paper develops a political economic model of fiscal policy one in which government resources are a common property out of which interest groups can finance expenditures on their preferred items this setup has striking macroeconomic implications transfers are higher than a benevolent planner would choose them to be fiscal deficits emerge even when there are no reasons for intertemporal smoothing and in the long run government debt tends to be excessively high peculiar time profiles for transfers can emerge with high net transfers early on giving rise to high taxes later on

inflation and reputation in many macroeconomic models with rational expectations optimal policy is time inconsistent and therefore announced policy may not be credible this paper models the government s credibility explicitly using kreps and wilson s analysis time consistent optimal government policy emerges as a sequential equilibrium in a repeated game this policy is at least as good as the inconsistent optimal policy and dominates the consistent policy when reputational effects are ignored thus the analysis resolves the problem of specifying a credible optimal policy in such models the results show why attempts to disinflate may lead to recession even with perfectly flexible prices this abstract was borrowed from another version of this item

fighting inflation with high interest rates the small open economy case under flexible prices in high inflation countries policymakers often end up paying interest on part of the money supply higher interest rates on money have been used both to reduce inflation and to defend the domestic currency this paper analyzes the effectiveness of such a policy in the context of an open economy with flexible prices and exchange rates a temporary increase in the interest rate on money reduces the price level on impact but inflation follows an explosive path afterwards the domestic currency appreciates on impact but begins to depreciate immediately thereafter hence the analysis does not support the use of high interest rates in disinflationary programs copyright 1995 by ohio state university press

sovereign debt and consumption smoothing abstract this paper shows that whether or not a sovereign can borrow to smooth consumption depends both on how consumption smoothing is achieved whether by contingent debt issuance or by contingent debt servicing and on the penalty for debt repudiation if a sovereign that repudiated its debt could not borrow again but could continue to save and to dissave then contingent debt issuance without contingent debt servicing cannot support a positive amount of uncollateralized sovereign debt but with this same penalty for repudiation contingent debt servicing supports a positive amount of uncollateralized sovereign debt

time consistent collection of optimal seigniorage a unifying framework this paper reviews the existing literature on the time consistency problem of seigniorage collection when monetary policy is determined by optimal taxation considerations it develops a unifying accounting framework and suggests a general measure for seigniorage which encompasses the standard measures employed in the literature in addition the ex ante optimal solution to the optimal taxation problem is derived and interpreted in relation to the ramsey principle we show that the different recommendations of the public finance literature i e the friedman rule of optimal deflation moderately positive inflation and seigniorage maximizing inflation are specific solutions to the optimal taxation problem the paper continues with a formal illustration of the time consistency problem of the ex ante optimal policy and the characterization of the time consistent solution under discretion as possible solutions to the time consistency problem we consider reputational forces institutional reforms that establish central bank independence and specific ways of asset and debt management in particular it is formally shown that a modified version of the asset and debt management scheme suggested by persson persson and svensson is not only necessary but also sufficient for optimality although this did not hold in their model

can food for work encourage agricultural production abstract food for work ffw is the most widely used type of public works program in ethiopia through which a high share of the food aid is distributed this paper assesses the impacts of ffw in tigray a chronically food insecure region in ethiopia in terms of relieving liquidity constraints and thereby improving input use in agriculture a heckman selection model on the adoption and intensity of fertilizer use demonstrated that ffw positively influenced the decision to adopt fertilizer and there was no evidence of disincentive effect

discrete devaluations and multiple equilibria in a first generation model of currency crises the flrst generation models of currency crises have often been criticized because they predict that in the absence of very large triggering shocks currency attacks should be predictable and lead to small devaluations this paper shows that these features of flrst generation models are not robust to the inclusion of private information in particular this paper analyzes a generalization of the krugman flood garber kfg model which relaxes the assumption that all consumers are perfectly informed about the level of fundamentals in this environment the kfg equilibrium of zero devaluation is only one of many possible equilibria in all the other equilibria the lack of perfect information delays the attack on the currency past the point at which the shadow exchange rate equals the peg giving rise to unpredictable and discrete devaluations

do high interest rates deter speculative attacks evidence and some theory abstract this paper presents the first empirical evidence on the efficacy of raising interest rates ex ante as a deterrent to speculative attacks using a dataset that covers 54 countries from march 1964 through december 2005 we find strong evidence that raising interest rates in advance has significantly different impacts in different country groups it significantly reduces the probability of attacks in countries that have a de facto hard peg but increases it in de facto soft pegging countries this finding is robust to alternative measure of monetary policy and to different specifications and samples we then present a simple two stage signaling model to offer a theoretical explanation for our empirical findings

optimal capital taxation revisited abstract we revisit the question of how capital should be taxed we allow for a rich set of tax instruments that consists of taxes widely used in practice including consumption dividend capital and labor income taxes we restrict policies to those that respect pre existing promises regarding the current value of wealth we show that capital should not be taxed i e there should be no intertemporal distortions if households have preferences that are standard in the macroeconomics literature we show that ramsey outcomes that must respect such promises are time consistent we show that the presumption in the literature that capital should be taxed for some length of time arises because the tax system is restricted

reputation and time consistency recent work has shown that reputational arguments based on trigger strategies can sometimes be used to deal with the problem of time inconsistency in government policy this idea was exploited by robert barro and david gordon 1983 in a model of inflation and by v v chari and patrick kehoe 1988 in a model of capital taxation here it is shown that reputational arguments of this sort are widely applicable 2 a general policy model is developed based on an economy that is stationary over time contains identical households and has no endogenous state variables it is shown in general that the infinite horizon version of this model has equilibria in trigger strategies that yield outcomes strictly better than those attainable as equilibria in the one period model

credit constraints their existence determinants and implications for u s farm and nonfarm sole proprietorships the objective of this study is to determine the effect of credit constraints on production for farm and nonfarm sole proprietorships a propensity score matching estimator is employed to provide unbiased estimates of the production impacts of being denied credit the empirical results demonstrate that the value of production is significantly lower for credit constrained sole proprietorships if this drop in the value of production is aggregated to a national level it constitutes only 3 and 13 of total value of production for farm and nonfarm sole proprietorships respectively copyright 2009 oxford university press

impacts of ffw on nutrition in rural kenya abstract assessing the impacts of food for work ffw on human capital formation depends on understanding the specific nutritional contributions of ffw to the overall diet of ffw participant households however empirical studies in this area are very scant this paper is an attempt to fill such gap the primary objectives are to measure the magnitude of the ffw contribution to participants nutritional status primary data collected from a random sample of 300 farm households in the rift valley province of kenya are used a linear programming model is used to estimate the shadow prices of nutrients these prices are then entered into an econometric model of consumer demand for nutrients in order to estimate own and cross price elasticities for each nutrient component the results indicate that ffw significantly improves the nutritional status of ffw participant households more specifically participants experienced an implicit income gain which resulted in a significant nutritional improvement the poorest ffw participant households exhibited even higher nutritional gains 32 46 than those participants from relatively higher income groups ffw participant households showed a 90 higher propensity to spend on nutrients than the non ffw participants the findings of this study are expected to assist in the design of future targeted food aid projects

time consistency of fiscal and monetary policy the problem of time inconsistency arises from two different sources first as shown by guillermo a calvo 1978 the re is an incentive for each government to engage in an initial unanti cipated inflation second as discussed by robert e lucas and nancy l stokey 1983 there is an incentive for each government to deviat e from the path of taxes announced by the preceding government in th is paper it is shown that these two sources of time inconsistency ca n be removed by a particular method of debt management involving bot h nominal and indexed government bonds of various maturities copyright 1987 by the econometric society

currency crises with the threat of an interest rate defence while virtually all currency crisis models recognise that the decision to abandon a peg depends on how tenaciously policy makers defend it this is seldom modelled explicitly we add the threat of an interest rate defence to the global game model of morris and shin american economic review 88 1998 with an endogenous defence actions of speculators may become strategic substitutes instead of the usual complements nevertheless our generalised model remains tractable and has a unique threshold equilibrium it provides additional insights for instance the threat of an interest rate defence makes speculation riskier and this may be sufficient to keep speculators out when fundamentals are still relatively strong

a theory of political and economic cycles abstract we develop a theoretical framework in which political and economic cycles are jointly determined these cycles are driven by three political economy frictions policymakers are non benevolent they cannot commit to policies and they have private information about the tightness of the government budget and rents our first main result is that in the most favorable equilibrium to the households distortions to production emerge and never disappear even in the long run this result is driven by the interaction of limited commitment and private information on the side of the policymaker since in the absence of either friction there are no long run distortions to production our second result is that if the variance of private information is sufficiently large there is equilibrium turnover in the long run so that political cycles never disappear finally our model produces a long run distribution of taxes distortions and turnover where these all respond persistently to temporary economic shocks

debt nonneutrality policy interactions and macroeconomic stability we study the consequences of non neutrality of government debt for macroeconomic stabilization policy in an environment where prices are sticky assuming transaction services of government bonds ricardian equivalence fails because public debt has a negative impact on its marginal rate of return and thus on private savings stability of equilibrium sequences requires a stationary evolution of real public debt which steers inflation expectations and rules out endogenous fluctuations under anti inflationary monetary policy regimes macroeconomic fluctuations tend to decrease with the share of tax financing which justifies tight debt constraints in particular a balanced budget policy stabilizes the economy under cost push shocks such that output and inflation variances can be lower than in a corresponding case where debt is neutral

borrowing to defend the exchange rate and the timing and magnitude of speculative attacks abstract the paper analyses the implications for the timing and magnitude of a speculative attack on a fixed exchange rate of government borrowing to increase the stock of international reserves it is shown that such borrowing reduces the likelihood of an early collapse and increases the likelihood of an eventual collapse the magnitude of the speculative attack also increases

limits of markets and limits of governments an introduction to a symposium on political economy abstract this introduces the journal of economic theory symposium on political economy journal of economic literature classification number p16

sustainable plans and debt abstract this paper presents a simple general equilibrium model of optimal fiscal policy similar to that of lucas and stokey j monet econ 12 1983 55 93 except that we let the government default on its debt we consider sustainable equilibria in which both government and private agent decision rules are required to be sequentially rational we concentrate on trigger mechanisms which specify reversion to the markov equilibrium after deviations by the government and show that such mechanisms cannot support equilibria with positive debt we go on to show by way of examples that there can be more complicated trigger mechanisms which support positive debt journal of economic literature classification numbers e61 e62

multi objective stochastic programming for portfolio selection abstract generally in the portfolio selection problem the decision maker dm considers simultaneously conflicting objectives such as rate of return liquidity and risk multi objective programming techniques such as goal programming gp and compromise programming cp are used to choose the portfolio best satisfying the dm s aspirations and preferences in this article we assume that the parameters associated with the objectives are random and normally distributed we propose a chance constrained compromise programming model cccp as a deterministic transformation to multi objective stochastic programming portfolio model cccp is based on cp and chance constrained programming ccp models the proposed program is illustrated by means of a portfolio selection problem from the tunisian stock exchange market

twin dollarization and exchange rate policy abstract this paper develops a small open economy general equilibrium model with nominal rigidities to study twin dollarization in east asian economies a phenomenon where firms borrow in us dollars and also set export prices in us dollars in this model we endogenize both the currency of liability denomination and the currency of export pricing we show that a key factor that affects firms dollarization decisions is exchange rate policy twin dollarization is an optimal strategy for all firms when exchange rate flexibility is limited which implies that a fixed exchange rate regime may lead to an equilibrium with twin dollarization furthermore we find that twin dollarization can reduce the welfare loss caused by the fixed exchange rate regime as it helps to cushion the economy against domestic nominal risk

debt restructuring with a public good endogenous government expenditure is introduced into lucas and stokey s 1983 model of optimal wage taxation so long as the government can precommit to taxes or to expenditures a debt maturity structure that keeps the value of the debt invariant to interest rate changes will make the optimal policies time consistent in the absence of partial precommitment debt restructuring cannot enforce time consistency but it can still limit the costs of time inconsistency numerical examples show 1 average debt is smaller than under the precommitment solution 2 the debt structure is much longer than under partial precommitment and 3 restricting the government to one period debt overstates the welfare losses from time inconsistency

the theory of sovering debt and spain under philip ii this paper examines lending by a genoese led cartel to philip ii of spain 1556 98 from the perspective of theory on sovereign debt models in this literature suggest that the genoese linked specie deliveries from spain to the low countries to lending in order to create a penalty to enforce their loans the king tried to renege the genoese applied the penalty and the king ultimately repaid when the episode is used to examine theory the crown s observed debt ceiling and estimates of its cost of enduring the penalty and its ability to repay are in line with predctions of bulow and rogoff the nature of the penalty has the flavor of gole and kehoe s model its observation on the path of play is suggestive of atkeson s model

collapsing exchange rate regimes another linear example abstract in the literature on speculative attacks on a fixed exchange rate it is usually assumed that the monetary authority responsible for fixing the rate reacts passively to the monetary disruption caused by the attack this assumption is grossly at odds with actual experience where the monetary base implications of the attacks are usually sterilized such sterilization means that the attack is no longer exclusively a monetary event and requires that the standard attack model be broadened to include the effects of sterilization on other markets these issues are motivated by reference to the december 1994 collapse of the mexican peso

food aid and adult nutrition in rural ethiopia insight into the role of safety nets that contribute to adult nutrition is an important component to understanding the dynamics of poverty in developing countries this article uses panel data from rural ethiopia on individual nutritional status to test for an effect of public transfers on adult body mass index bmi results show that among adult household members male members are the primary beneficiaries of food aid as male and female aid recipients tend to invest aid receipts in male household members these results are consistent with a theory in which additional resources are allocated to members of the household whose market returns are higher or those who engage in activities that expend higher levels of energy for high asset households female household members benefit if the aid recipient is a female women in low asset households appear to be adversely affected by aid receipts and evidence suggests that women with little bargaining power suffer the most the results suggest that aid receipts are useful in mitigating fluctuations in adult bmi over a short time period

does food aid really have disincentive effects new evidence from sub saharan africa summary limited empirical evidence exists either to refute or confirm the pervasive belief that food aid has significant disincentive effects on recipient food production using household level data from rural ethiopia we demonstrate that while simple descriptive statistics appear consistent with the disincentive effects hypothesis once one controls properly for the endogeneity of food aid receipt no empirical support remains for the hypothesis that food aid creates disincentive effects among recipient households the macro economic evidence yields similar findings applying vector autoregression methods to national level data controlling for possible confounding variables we find that food aid has no disincentive effect on food production

banking currency stock market and debt crises in spain 1850 1995 abstractwhat type of crisis is generated when debt increases we extend the literature by framework by introducing currency and stock market crises in the analysis we apply our proposal to the case of spain since this is a country that has experienced a very important amount of financial crises from the nineteenth century onwards we find the same results as the previous literature for the determinants of banking and debt crises but substituting external and public debt with perpetual debt and where perpetual debt has a less important role than crises in the private sector moreover we find evidence in favour of the hypothesis that currency crises depend strongly and positively on financial centre crises and negatively and mildly on perpetual debt we justify the negative relalionship due to an inflation tax we also find evidence in favour of the hypothesis that stock market crises depend only positively and strongly on financial centre crises

sovereign default and the sustainability risk premium effect abstract we analyze the joint determination of interest rate risk and debt sustainability for governments with fiscal imbalances because higher interest rates imply increased debt services they worsen the government s financial situation and increase the probability of sovereign default thus higher interest rates eventually lead to a decrease in the real demand for government bonds which imposes an additional constraint on government debt sustainability

financing vs forgiving a debt overhang abstract this paper examines the tradeoffs facing creditors of a country whose debt is large enough that the country cannot attract voluntary new lending if the country is unable to meet its debt service requirements out of current income the creditors have two choices they can finance the country lending at an expected loss in the hope that the country will eventually be able to repay its debt after all or they can forgive reducing the debt level to one that the country can repay the post 1983 debt strategy of the imf and the us has relied on financing but many current calls for debt reform call for forgiveness instead the paper shows that the choice between financing and forgiveness represents a tradeoff financing gives the creditors an option value if the country turns out to do relatively well creditors will not have written down their claims unnecessarily however the burden of debt distorts the country s incentives since the benefits of good performance go largely to creditors rather than itself the paper also shows that the tradeoff itself can be improved if both financing and forgiveness are made contingent on states of nature that the country cannot affect such as oil prices world interest rates etc

an interest rate defense of a fixed exchange rate defending a government s exchange rate commitment with active interest rate policy is not an option in first generation models of speculative attacks in those models the interest rate is the passive reflection of currency depreciation expectations in this paper we show how to adapt the first generation framework to allow for an interest rate defense it is shown that increasing domestic currency interest rate before the attack makes domestic assets more attractive according to an asset substitution effect but weakens the domestic currency by increasing the government s fiscal liabilities as a result an interest rate defense can be successful only conditional on sound fiscal policy

dynamics of currency crises with asset market frictions abstract this paper presents a dynamic model of currency crises with frictions by construction a speculative attack is not an instantaneous event but takes a little time to deplete the country s reserves and in the event of an attack agents are uncertain about whether they will be able to act before the devaluation comes the currency will be overvalued ripe for attack for a long time before an attack takes place a discrete and sizable devaluation will occur small changes in fundamentals may trigger an attack the model brings insights about the dynamics of currency crises and the effects of some key policy variables

an error corrected almost ideal demand system for major cereals in kenya despite significant progress in theory and empirical methods the analysis of food consumption patterns in developing countries particularly those in sub saharan africa ssa has received very limited attention an attempt is made in this article to estimate an error corrected almost ideal demand system for four major cereals consumed in kenya employing annual data from 1963 to 2005 this demand system performs well on both theoretical and empirical grounds the symmetry and homogeneity conditions are supported by the data and the le chatelier principle holds empirically all own price elasticities are negative and significant at 5 level and irrespective of the time horizon maize wheat rice and sorghum may be considered as necessities in kenya while the expenditure elasticities of all four cereals are positive they are inelastic both in the short run and in the long run finally wheat and rice complement maize consumption in kenya while sorghum acts as a substitute since cereal consumers have price and income inelastic responses a combination of income and price oriented policies could improve cereal consumption in kenya

regulating exclusion from financial markets we study optimal enforcement in credit markets in which the only threat facing a defaulting borrower is restricted access to financial markets we solve for the optimal level of exclusion and link it to observed institutional arrangements regulation in this environment must accomplish two objectives first it must prevent borrowers from defaulting on one bank and transferring their resources to another bank second and less obviously it must give banks the incentive to make sizeable loans and to honor their promises of future credit we establish that the optimal regulation resembles observed laws governing default on debt moreover if debtors have the right to a fresh start after bankruptcy then this must be balanced by enforceable provisions against fraudulent conveyance our optimal regulation is robust in that it can be implemented in a way that does not require the regulator to have information about either the borrower or lender our results isolate the way in which specific institutions surrounding bankruptcy namely rules governing asset garnishment and fraudulent conveyances support loan markets in which borrowers have no collateral

a model of an agricultural household in a multi crop economy the case of korea it is the purpose of this paper to describe one method of extending the empirical applicability of the theory of the farm household to multi crop economies by integrating the econometric and linear programming models already available in the literature section i introduces the subject in section ii the theoretical model is presented in section iii korean data are used to assess the quantitative significance of the approach by calculating and comparing household response to changes in input and output prices for two different specifications of the models first the household is analyzed from the consumption side on the assumption that farm profits are exogenous this corresponds to the standard approach in consumer demand theory and second results are presented for a model in which consumption and production responses are integrated in a theoretically consistent fashion and farm profits are allowed to reflect production responses to price changes the results from this and other studies that use an integrated approach to production and consumption decisions highlight the need to change perceptions concerning agricultural household response to economic incentives in developing countries and to revise the design of economic projects and policies accordingly

sustainable monetary policies abstract this paper uses a model with utility maximizing households monopolistically competitive firms and sticky goods prices to derive a version of barro and gordon s time consistency problem for monetary policy where the government s objectives are consistent with a representative household s preferences the paper applies the methods of chari and kehoe to characterize the entire set of time consistent or sustainable outcomes it goes on to find conditions under which the friedman rule the optimal policy under commitment can be supported when the government lacks a commitment technology

sovereign debt and its restructuring framework in the eurozone debt is a particularly serious macroeconomic problem in the eurozone public debt ratios are high by international historical standards with no immediate prospect of a significant reduction private corporate and household debt ratios are either flat or rising banks remain fragile and impose a contingent liability on the public purse the most stressed economies have not had the option of renewing economic growth through exchange rate depreciation and a boost to exports thus fiscal austerity has been their principal instrument to achieve debt reduction but since austerity also hurts growth the debt to gdp ratios have barely budged persistent low growth has also created deflationary tendencies which further raise the challenge of debt reduction

a new foundation for the mean variance analysis abstract in this paper i re examine how the mean variance analysis is consistent with its traditional theoretical foundations namely stochastic dominance and the expected utility theory then i propose a simplified version of the coarse utility theory as a new foundation i prove that by assuming risk aversion and the normality of asset variables the simplified model is well behaved indifference curves are convex and the opportunity set is concave therefore there exist global optimal portfolios in the market finally i prove that decision making in accordance with the simplified model is consistent with the mean variance analysis

balance of payments crises in a cash in advance economy the author shows that a flexible prices sidrauski type model with a cash in advance constraint is capable of depicting some of the phenomena associated with a balance of payments crisis like the onesrecently observed in argentina and mexico current accounts deficits and appreciation of the real exchange rat e it is also shown that these phenomena become exacerbated as the rate of devaluation before the crisis occurs becomes smaller copyright 1987 by ohio state university press

discretionary monetary and fiscal policy with endogenous sovereign risk abstract how does the presence of sovereign risk affect the conduct of public policy to answer this question this paper studies optimal monetary and fiscal policy without commitment for a model economy with nominal public debt and strategic sovereign default compared to an economy without the possibility of default economies with sovereign risk experience more volatile interest rates which impedes the government s ability to smooth tax rates across states risk of default also limits public debt accumulation reducing the government s incentive to use surprise inflation on average when calibrated to the united states the model predicts that a counterfactual increase in the average annual default probability from 0 to 1 lowers average inflation by 33 raises the standard deviation of inflation by 18 and increases the standard deviation of the labor income tax by 73 the transmission of exogenous shocks to real aggregate quantities is however almost unaffected by the possibility of default for example the presence of sovereign risk would increase the standard deviation of log real gdp by less than 1 in the experiment above similarly the welfare consequences of sovereign risk are found to be of negligible size as well

do high interest rates defend currencies during speculative attacks new evidence kraay kraay a 2003 do high interest rates defend currencies during speculative attacks journal of international economics 59 297 321 documents the lack of any systematic association between monetary policy and the outcome of a speculative attack this paper revisits kraay s work and modifies it by introducing an improved measure of monetary policy and an additional country specific fundamental short term corporate debt to capture balance sheet vulnerabilities emphasized by the recent currency crises literature the results show that for low levels of short term corporate debt raising interest rates lowers the probability of a successful attack this effect decreases and eventually reverses for higher levels of debt these findings contrast earlier empirical evidence and imply a fundamental reconsideration of the role of monetary policy during currency crises

politico economic equilibrium and economic growth abstract we propose a notion of dynamic politico economic equilibrium which builds on two key assumptions policies are determined sequentially and agents are fully rational in their roles as both consumers and voters we examine a simple model of endogenous growth and infinitely lived agents where taxes on income are endogenous and where growth critically depends on the initial distribution of asset holdings we relate our equilibrium definition and results to existing literature on time consistency and on political economy and growth we show that our equilibria are time consistent and we argue that the choice of equilibrium concept might have important quantitative implications

repeated games with long run and short run players this paper studies the set of equilibrium payoffs in repeated games with long and short run players and little discounting because the short run players are unconcerned about the future each equilibrium outcome is constrained to lie on their static reaction best response curves the natural extension of the folk theorem to games of this sort would simply include this constraint in the definitions of the feasible payoffs and minmax values in fact this extension does obtain under the assumption that each player s choice of a mixed strategy for the stage game is publicly observable but in contrast to standard repeated games the set of equilibrium payoffs is different if players can observe only their opponents realized actions

does food aid disrupt local food market evidence from rural ethiopia the paper examines the impact of food aid on households marketing behavior based on a panel of households followed during 1994 2009 in 15 villages of ethiopia the impact of aid is examined at the intensive margin on quantities produced sold or bought by the households and at the extensive margin on the number of producers sellers and buyers food aid reduces the probability of being a producer it also increases the probability of being a seller after a reform of aid policy in 2004 from repeated emergency distributions toward a multi year program aiming at agricultural development

ex ante agricultural research evaluation with site specific technology generation the case of sorghum in kenya abstract agricultural commodity research has very site specific productivity impacts crucial determinants of the magnitude and distribution of research benefits include agroecological conditions for technology generation and adoption as well as commodity market structure this paper presents a process for ex ante research evaluation which accounts for these factors with a dynamic spatial multi market model simulation results based on sorghum research in kenya demonstrate that potential research benefits can vary dramatically across program research target zones in kenya however population induced demand growth not technological development will have the greatest influence on future sorghum markets

politicians taxes and debt the standard analysis of the efficient management of income taxes and debt assumes a benevolent government and ignores potential distortions arising from rent seeking politicians this paper departs from this framework by assuming that a rent seeking politician chooses policies if the politician chooses extractive policies citizens throw him out of power we analyse the efficient sustainable equilibrium unlike in the standard economy temporary economic shocks generate volatile and persistent changes in taxes along the equilibrium path this serves to optimally limit rent seeking by the politician and to optimally generate support for the politician from the citizens taxes resembling those of the benevolent government are very costly since the government over saves and resources are wasted on rents political distortions thus cause the complete debt market to behave as if it were incomplete however in contrast to an incomplete market economy in the long run taxes do not converge to zero and under some conditions they resemble taxes under a benevolent government

nominal sovereign debt i show that reputation alone can sustain nominal sovereign debt which is subject to both the risks of default and opportunistic devaluations nominal debt combined with a countercyclical exchange rate policy allows more hedging against shocks than real savings if markets are incomplete thus the loss of either repayment or monetary reputation severely affects the government s ability to smooth consumption the model offers a simple explanation for the bulow and rogoff critique while simultaneously helping explain the issuance of nominal sovereign bonds by emerging economies the model also helps explain why many governments borrow and save at the same time

soil erosion and smallholders conservation decisions in the highlands of ethiopia abstract soil erosion is one of the most serious environmental problems in ethiopia coupled with growing populations falling per capita food production and worsening poverty loss of productive land due to land degradation undermines rural livelihoods and national food security despite their awareness of the erosion problem peasants investments in land have been limited we use an applied nonseparable model to simulate conservation decisions pervasive market imperfections poverty and high rates of time preference seem to undermine erosion control investments lack of technologies which provide quick returns to subsistence constrained peasants also seem to deter such investments lower private incentives to internalize the intertemporal land degradation externality may require public intervention

determinants of food consumption in rural sierra leone abstract this paper reports the application of a quadratic expenditure system with demographic variables to the household consumption leisure choice component of a household firm model a system of seven commodities is estimated including five foods non food and leisure appropriate for such a level of disaggregation a demand system is used the quadratic expenditure system which allows for a flexible relationship between full income and commodity expenditures without sacrificing parsimony in parameters demographic data on households are explicitly incorporated into the model allowing for a richer specification than can be achieved by using per capita variables the data are from a cross section survey of households in rural sierra leone price variation exists by region permitting estimation of a complete demand system engel curves are found to be significantly non linear with marginal expenditure on rice the major staple declining with higher income most foods are found to be reasonably price responsive with sizeable own price substitution effects declining with higher income aggregate labor supply is found to be price inelastic

public debt and optimal taxes without commitment abstract benhabib and rustichini optimal taxes without commitment j econ theory 77 1997 231 259 study the properties of optimal capital taxes in economies without commitment and no government debt they find that capital taxes may be different from zero at steady state this note shows that once governments have the possibility of issuing debt and smoothing taxes over time optimal steady state capital taxes turn out to be zero

output costs currency crises and interest rate defence of a peg central banks typically raise short term interest rates to defend currency pegs higher interest rates however often lead to a credit crunch and an output contraction we model this trade off in an optimising first generation model in which the crisis may be delayed but is ultimately inevitable we show that higher interest rates may delay the crisis but raising interest rates beyond a certain point may actually bring forward the crisis due to the large negative output effect the optimal interest rate defence involves setting high interest rates relative to the no defence case both before and at the moment of the crisis

currency crises are they all the same abstract the plethora of currency crises around the world has fueled many theories on the causes of speculative attacks the first generation models focus on fiscal problems while the second generation models emphasize countercyclical policies and self fulfilling crises in the 1990s models pinpoint to financial excesses with the crisis of argentina in 2001 models of sovereign default have become popular again while the theoretical literature has emphasized variety the empirical literature has supported the one size fits all models this paper contributes to the empirical literature by assessing whether the crises of the last 30 years are of different varieties

reputation and equilibrium selection in games with a patient player a single long run player plays a simultaneous move stage game against a sequence of opponents who play only once but observe all previous play let the stackelberg strategy be the pure strategy to which the long run player would most like to commit himself if there is positive prior probability that the long run player will always play the stackelberg strategy then his payoff in any nash equilibrium exceeds a bound that converges to the stackelberg payoff as his discount factor approaches one when the stage game is not simultaneous move this result must be modified to account for the possibility that distinct strategies of the long run player are observationally equivalent

collapsing exchange rate regimes some linear examples abstract we construct a pair of linear examples to study the collapse time of a fixed exchange rate regime the first example is a perfect foresight continuous time model which allows calculation of the exact collapse time and the tracking of reserves the second example is a discrete time stochastic model which yields an endogenous probability distribution over the collapse time and produces a forward discount of the exchange rate

liquidity premia and interest rate parity abstract due to the us dollar s dominant role for international trade and finance risk free assets denominated in us currency not only offer a pecuniary return but also provide transaction services both nationally and internationally accordingly the responses of bilateral us dollar exchange rates to interest rate shocks should differ substantially with respect to the us or foreign origin of the shock we demonstrate this empirically and apply a model of liquidity premia on us treasuries originating from monetary policy implementation the liquidity premium leads to a modification of uncovered interest rate parity uip which enables the model to explain an appreciation of the dollar subsequent to an increase in us interest rates if foreign interest rates follow the us monetary policy rate

venture theory a model of decision weights several theories suggest that people replace probabilities by decision weights when evaluating risky outcomes this paper proposes a model called venture theory of how people assess decision weights it is assumed that people first anchor on a stated probability and then adjust this by mentally simulating other possible values the amount of mental simulation is affected by the absolute size of payoffs the extent to which the anchor deviates from the extremes of 0 and 1 and the level of perceived ambiguity concerning the relevant probability the net effect of the adjustment i e up or down vis i vis the anchor reflects the relative weight given in imagination to values above as opposed to below the anchor this in turn is taken to be a function of both individual and situational variables and in particular the sign and size of payoffs cognitive and motivational factors therefore both play important roles in determining decision weights assuming that people evaluate outcomes by a prospect theory value function kahneman and tversky 1979 and are cautious in the face of risk fourteen predictions are derived concerning attitudes toward risk and ambiguity as functions of different levels of payoffs and probabilities the results of three experiments are reported whereas only a subset of the model s predictions can be tested in experiment 1 all fourteen are tested in experiments 2 and 3 using hypothetical and real payoffs respectively several of the model s predictions are not supported in experiment 2 but almost all are validated in experiments 1 and 3 the failures relate to the exact nature of probability payoff interactions in attitudes toward risk and ambiguity for losses the theory and results are discussed in relation to other experimental evidence future tests of the theory alternative models of risky choice and implications of venture theory for explaining further phenomena

fiscal and monetary policies and the cost of sudden stops abstract this article investigates the effects of monetary and fiscal policies on output growth during sudden stop balance of payments crisis in emerging markets and developing countries sudden stops in capital flows and subsequent deep recessions are a frequent occurrence in these countries but there is no professional consensus and little systematic empirical evidence shedding light on the macroeconomic policy mix most likely to limit output losses during these episodes to address this issue we investigate 83 sudden stop crisis in 66 countries using a baseline empirical model to control for the various determinants of output losses during sudden stops we measure the marginal effects of policy on output losses and find strong evidence that monetary tightening rise in the discount rate or unsterilized rise in international reserves and discretionary fiscal contraction are significantly correlated with larger output losses following a sudden stop fiscal expansion is associated with smaller output losses following a sudden stop but monetary expansion has no discernable effect the macroeconomic policy mix associated with the least output loss during a sudden stop financial crisis is a discretionary fiscal expansion combined with a neutral monetary policy

income diversification poverty traps and policy shocks in cote d ivoire and kenya abstract this paper presents evidence on the effects of two different sorts of policy shocks on observed income diversification patterns in rural africa in cote d ivoire households with poor endowments were less able to respond to attractive emerging on farm and non farm opportunities due to entry barriers to superior livelihood strategies the benefits of exchange rate reform accrued disproportionately to households that were richer prior to devaluation by contrast food for work transfers to households in kenya significantly reduced liquidity constraints enabling project participants to pursue more lucrative livelihood strategies in non farm activities and higher return agricultural production patterns jointly these two shocks underscore the importance of liquidity market access and skill constraints to skilled non farm income sources to dynamic poverty traps in rural africa