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Abbink, Klaus (University of Nottingham), Bernd Irlenbusch, Elke Renner
Group Size and Social Ties in Microfinance Institutions
Microfinance programmes provide poor people with small loans given to
jointly liable self-selected groups. Follow-up loans provide incentives to
repay. In an experiment we investigate the influence of those features on
strategic default. Each group member invests in an individual risky
project, whose outcome is known only to the individual investor. Subjects
decide, whether to contribute to group repayment or not. Only those with
successful projects can contribute. The experiment ends if too few repay.
We investigate group size and social ties effects. We observe high
repayments rates, which are robust across treatment. Group lending
outperforms individual lending. Self-selected groups show a high but less
stable willingness to contribute.
JEL: C90, H41, I38, O16, Z13
Keywords: microcredits, group lending, public goods, laboratory
experiments, development economics Aikman, David Llewelyn (Bank of England)
Money, Wealth and Overlapping Generations
In this paper, we use Weil's (1989) overlapping dynasties framework to
analyse a microfounded version of the real balance effect envisaged by
Pigou (1944). The effect is absent from representative agent models as then
net monetary wealth is always zero. With population growth, however, net
monetary wealth is positive and a real balance effect emerges much as Pigou
predicted. Our main conclusion, however, is a Keynesian one: rather than
eliminating the possibility of a trap, the framework generating the real
balance effect if anything makes a trap more likely due to the heightened
constraints it imposes on the monetary authority.
JEL: E0, E3, E4, E5
Keywords: liquidity trap, real balance effect, Pigou effect, monetary
policy, Japan Alho, Kari E O (ETLA Finland)
The Impact of Regionalism on Trade in Europe
Using the classical gravity model we try to reach a more systematic view
than previously in the literature of the impact of regionalism on the
intensity of mutual integration through trade in Europe. We find that
European trade is significantly influenced by various regional agreements
and intensities of trade are strongly asymmetric between the regions. EMU
has a positive impact on bilateral trade intensity, and its effect on total
European trade of its member countries is also significantly positive. Both
between the EU and CEE countries there are, respectively, significant
differences with respect to the intensity in this trade.
JEL: F10, F15
Keywords: trade, EU, EMU, CEE, gravity model Amegashie, J Atsu (University of Guelph), Joe Amoako-Tuffour
Price bargaining and quantity bonus in developing economies
Consider a seller and a buyer bargaining over the price of an agricultural
product in a developing economy. Think of the following common bargaining
deal: the seller tries to persuade the buyer to accept a higher price and,
in return, give the buyer a deal (i.e., extra units of the product for
free). Why doesn't the seller just give the buyer a lower price instead of
the deal? This paper provides an answer to this question. Although price
can apparently replicate the use of quantity bonus (i.e., the free extra
units), we argue that price bargaining per se limits the extent to which
price can be used. Such bargaining deals are used because the seller can
post them but cannot post prices. We explain why these sellers can post
quantity bonuses. We give a condition under which the quantity bonus can
replicate the equilibrium that would have obtained if the seller could
directly post the price. We offer here a theory of bargaining deals.
JEL: D43, L13, O12
Keywords: price bargaining, non-price competition, posted prices, quantity
bonus Anderton, Robert (European Central Bank), Richard E Baldwin, Daria Taglioni
The Impact of Monetary Union on Trade Prices
Two seemingly unconnected empirical results suggest an intriguing
mechanism. First, economic integration helps harmonize prices
internationally, with trade being the primary channel (Rogoff 1996,
Goldberg and Knetter 1997). Second, monetary union may greatly increase the
amount of trade among members (Rose 2001). Putting these together, we see
that formation of a monetary union may induce changes that help harmonise
inflation rates. The effect might be large if the elimination of exchange
rate volatility simultaneously leads to a large increase in intra-union
trade and a big increase in the speed at which price shocks are transmitted
across members' goods markets. The problem is that standard estimates of
price transmission speed suggest that trade's price-homogenising effect
operates too slowly to matter much. Some new empirical evidence, however,
suggests that a reduction in exchange rate variability reduces the
variability of international price differences. Moreover, the effect seems
to be highly nonlinear, and monetary union seems to have an effect even
controlling for exchange rate volatility.
This paper is a first attempt to piece together part of this mechanism,
namely the impact of monetary union (and exchange rate volatility more
generally) on the international transmission of price shocks via the
imported/exported inflation channel. In doing this we generate specific
testable hypotheses and confront these with a number of data sets on
European trade prices.
JEL: D40, F15, F31
Keywords: price arbitrage, exchange rate volatility, monetary union, market
segmentation, non-linearities, no-arbitrage bands, harmonisation of price
movements Andrietti, Vincenzo (Universidad Carlos III de Madrid)
Pension Choices and Job Mobility in the UK
Using data from the British Household Panel Survey we analyze the impact of
second tier pension scheme choices on job mobility within a discrete time
hazard rate framework. We find that workers either offered and
participating or offered and not participating to an occupational pension
plan have significantly lower quit rates. However, once the endogeneity of
pension scheme status is accounted for through an instrumental variable
procedure, these coefficients are no more significant. Alternatively, the
effect of pension portability losses on quits' hazards is never
significant. The additional finding that workers participating to
occupational pension plans are significantly less likely to quit for a non
pension job can be interpreted as indirect evidence that they are in "good"
jobs.
JEL: C41, J31, J32, J41, J63, J68
Keywords: labour mobility, occupational pension plans, duration analysis
instrumental variables Aoki, Kosuke (Universitat Pompeu Fabra), James Proudman, Gertjan Vlieghe
House prices, consumption, and monetary policy: a financial accelerator
approach
We consider a general equilibrium model where asymmetric information
problems create frictions in credit markets used by households. In our
economy, houses serve as collateral to lower the agency costs related to
borrowing. We show that this amplifies the effect of monetary policy shocks
on housing investment, house prices and consumption. We consider the effect
of a structural change in credit markets that lowers the transaction costs
of additional borrowing against housing equity. We show that such a change
would increase the effect of monetary policy shocks on consumption, but
would decrease the effect on house prices and housing investment.
JEL: E32, E50, R21
Keywords: house prices, credit frictions, monetary policy, financial
accelerator, consumption Arghyrou, Michael G (Brunel University), Kul B Luintel
Government Solvency: Revisiting some EMU Countries
Corsetti and Roubini (1991) reported that the government finances of
Greece, Ireland, Italy and the Netherlands (now all EMU countries) did not
satisfy the intertemporal budget constraint (IBC). We re-examine this issue
by utilizing a new empirical approach and extended data set. Structural
shifts, an issue which Corsetti and Roubini were unable to address due to
the lack of suitable econometric methods, are tackled. We find that: (i)
multiple structural shifts, most of which correspond to important policy
changes, did occur in the fiscal path of these countries; (ii) the effect
of the majority of structural shifts has been to strengthen the evidence
supporting IBC; and (iii) government finances of all four countries satisfy
the IBC and this finding is robust to different time horizons. We also find
a clear positive Maastricht effect on IBC for all countries.
JEL: E60, F41, N10
Keywords: intertemporal budget constraints, strong and weak form
sustainability, structural breaks Arulampalam, Wiji (University of Warwick), Alison L Booth, Mark L Bryan
Work-related Training and the New National Minimum Wage in Britain
In this paper we use important new training and wage data from the British
Household Panel Survey to estimate the impact of the national minimum wage
(introduced in April 1999) on the work-related training of low-wage
workers. We use two 'treatment groups' for estimating the impact of the new
minimum wage those workers who explicitly stated they were affected by the
new minimum and those workers whose derived 1998 wages were below the
minimum. Using difference-in-differences techniques for the period 1998 to
2000, we find no evidence that the introduction of the minimum wage reduced
the training of affected workers, and some evidence that it increased it.
In particular we find a significant positive effect of about 8 to 11% for
affected workers. Conseque