Monetary Policy, Determinacy, and Learnability in the Open Economy
Publication date: May 2005
We study how determinacy and learnability of global rational expectations equilibrium may be affected by monetary policy in a simple, two country, New Keynesian framework. The two blocks may be viewed as the U.S. and Europe, or as regions within the euro zone. We seek to understand how monetary policy choices may interact across borders to help or hinder the creation of a unique rational expectations equilibrium worldwide which can be learned by market participants. We study cases in which optimal policies are being pursued country by country as well as some forms of cooperation. We find that open economy considerations may alter conditions for determinacy and learnability relative to closed economy analyses, and that new concerns can arise in the analysis of classic topics such as the desirability of exchange rate targeting and monetary policy cooperation.
Total downloads: 425
Reconsidering the business cycle and stabilisation policies in South Africa
Publication date: September 2006
Classification-JEL: E32, E52, E62, E63
This paper applies an alternative dating algorithm - suggested by Harding and Pagan (for example, 2002a) - to identify the turning points of the South African business cycle. The characteristics of the resulting business cycle are analysed and compared with results obtained for the o¢cial cycle in recent papers on the South African business cycle (du Plessis and Smit, 2003; du Plessis, 2004). The alternative business cycle has plausible characteristics and provides supporting evidence for the thesis that monetary policy has been used more consistently to dampen the cycle of economic activity in South Africa since the early nineties.
Total downloads: 2 111
Demand for health care in HIV/AIDS – affected households in two communities in the Free State province of South Africa
Publication date: October 2005
This paper analyses differences in the choice of health care facility by ill individuals in HIV/AIDS-affected households in the Free State province of South Africa. Secondary education, access to medical aid, and household income are significant determinants of choice, as are severity and type of illness, and type of health care required. Ill persons with HIV/AIDS-related illnesses are significantly more likely to opt for public health care, although the strength of this preference declines as household income increases. Ill persons with severe and in particular severe HIV/AIDS-related illness in turn are significantly more likely to opt for private health care, especially at higher levels of income. Furthermore, health care costs associated with HIV/AIDS-related illness is likely to push HIV/AIDS-affected households deeper into poverty, especially where private care is preferred over public health care. The public health care sector therefore will remain the backbone of the health care system in providing health care to those infected with HIV/AIDS.
Total downloads: 399
Entering and exiting collaborative purchasing relationships
Publication date: September 2006
Many companies establish collaborative relationships (CRs) with suppliers either alongside or in preference to purchasing parts through a process of competitive bidding (CB). CRs over flexibilities and options arising mainly from the “looseness” of the contractual relationship. One significant decision element confronting a firm intending to engage in a CR is when to enter such a relationship and when to abandon it. This paper develops a model that focuses on such timing issues. It provides an optimal timing valuation approach to establishing/abandoning a CR that incorporates differential learning rate payouts. To achieve this, a real options’ frame of reference is adopted that enables a formal analysis of the contingencies embedded in a CR. A standard illustration of the application of the model is provided.
Total downloads: 417
‘Who replies in brackets and what are the implications for earnings estimates? An analysis of earnings data from South Africa’
Publication date: January 2006
In household surveys, earnings data typically can be reported as point values, in brackets or as ‘missing’. In this paper we consider South African household survey data that contain these three sets of responses. In particular, we examine whether there are systematic differences between the sample of the employed with earnings reported as point values and those with earnings responses in brackets; we compare five di¤erent methods of reconciling bracket and point responses so as to generate descriptive measures of earnings; and we investigate empirically how earnings measures differ by approach.
Total downloads: 419
Optimal timing of defections from price-setting cartels in volatile markets
Publication date: March 2005
Journal: 2006, Economic Modelling, 23(5), 792-804
We model cartel defection in markets with stochastic demand fluctuations as an investment timing problem. We show that (i) the optimal timing of cartel defection is pro-cyclical, suggesting higher probability of competitive pricing during booms; and (ii) the defection trigger is a positive function of demand variability, and larger than its deterministic demand counterpart, implying that market volatility facilitates collusion. The first result is consistent with the counter-cyclical pricing prediction originally due to Rotemberg and Saloner (1986), but not dependant on lack of persistence in demand fluctuations. The analysis reveals insights on implications of co-variation between volatility and demand shocks.
Total downloads: 412
Trade liberalisation and labour demand within South African manufacturing firms
Publication date: September 2005
Classification-JEL: J2, F13, F16, C67
Journal: 2006, Studies in Economics and Econometrics, 30(2), 127-46
Using new detailed tariff data, wages disaggregated by skill level and firm level information, this paper ascertains the relationships between trade, technology and labour demand and investigates the effects of tariff changes on factor prices in South African manufacturing. We find evidence that trade liberalization and technological change have affected the skill structure of employment. Export orientation, raw materials imports, training, investment in computers and firm age are positively associated with the skill intensity of production. We also find that tariff liberalisation raised the return to capital relative to labour, but that the negative impact on labour is concentrated on semi-skilled workers. Tariff liberalisation mandated a rise in real returns to unskilled workers.
Total downloads: 673
Inflation Targets as Focal Points
Publication date: September 2005
Journal: 2008, International Journal of Central Banking, 4(1), 55-87
In a world characterised by noisy information and conflicting signals, no Central Bank is always able to affect private sector expectations. Based on Morris and Shin’s model, monetary policy then becomes an information game, in which individuals form their expectations based on all the information that is available to them (public and private). However individual agents also know that ultimately inflation is affected by both the objectives of the Central Bank (and hence the policies it pursues) as well as the average expectation formed by the all agents. They thus need to evaluate both actions. Central to our argument is the way that individuals interpret these actions to form their expectations. We apply Bacharach’s methodology to provide a framework for assessing everyone’s interpretations. Our contribution is to merge these two models to show that a monetary policy regime that has explicit quantitative objectives may provide individuals with better anchors for expectations to coordinate at. However, that is only true first, if no great shocks are anticipated to hit the economy and second, when all other public information is very unclear thus rendering the inflation target the only clear piece of information. We derive in detail the conditions under which this is true.
Total downloads: 590
Mark-up Pricing in South African Industry
Publication date: April 2005
Journal: 2007, Journal of African Economies, 16(1), 28-69
This paper investigates the extent of the mark-up of the South African manufacturing sector, taking into account a number of characteristics of its component industries. We find significant mark-ups to be present in the South African manufacturing industry. In comparative terms, the mark-up is approximately twice that found for the US manufacturing sector. We find that industry concentration exerts a positive influence on the mark-up over marginal cost whilst an indicator of competitiveness suggests that an increase in an industry’s competitiveness relative to other industries allows it to raise its mark-up. However, within-industry increases in competitiveness reduces the mark-up. We also analyze the impact of import and export penetration. Both import and export penetration serve to lower the mark-up. The impact of the business cycle on mark-up indicates that the mark-up is countercyclical. Finally, accounting for intermediate inputs significantly lowers the absolute size of the mark-up, controlling for the industry’s concentration ratio. However, relative to findings on the US manufacturing sectors, SA manufacturing mark-ups remain approximately twice as large.
Total downloads: 1 014
Has transition improved well-being? An analysis based on income, inequality-adjusted income, nonincome, and subjective well-being measures
Publication date: May 2005
In this paper we examine trends in economic well-being in transition countries from 1988-2002. To do this, we examine economic performance, inequality-adjusted well-being measures, subjective well-being measures, and non-income dimensions of well-being. While for some of the transition countries in Central Europe, the level of well-being is now higher than prior to transition, it is far below those levels in most other transition countries. The only indicator which has shown consistent improvements are measures of political and civil liberties.
Total downloads: 378
Using Fractionalization Indexes: deriving methodological principles for growth studies from time series evidence
Publication date: January 2008
Journal: Social Indicators Research, 85, 257-78
Recent cross country growth studies have found that ethnolinguistic fractionalization is an important explanatory variable of long-run growth performance. This paper highlights some limitations of cross country studies by focusing on the time series evidence for South Africa. In presenting variation over time in a number of social, political and economic dimensions, this paper adds longitudinal evidence on a range of dimensions that have been linked to long run economic development. Given South Africa’s history of ethnic and racial politics, it constitutes a useful case study to explore the dynamics of the possible effects of ethnolinguistic fractionalization on growth. We introduce three new sets of fractionalization indicators for South Africa and one set of political indicators. The results of this study provide important nuance to the existing body of evidence, for the use of fractionalization indices in growth studies.
Total downloads: 438