Unsecured Debt, Consumer Bankruptcy, and Small Business

In this paper we develop a quantitative model of entrepreneurial activity (risk-taking) and consumer bankruptcy choices and use the model to study the effects of bankruptcy regulations on entrepreneurial activity, bankruptcy rate and welfare. We show that eliminating bankruptcy exemptions leads to a modest increase in the fraction of entrepreneurs, a large decrease in the overall bankruptcy rate and a significant welfare gain. In contrast, eliminating the whole consumer bankruptcy system leads to a large fall in the fraction of entrepreneurs and a substantial welfare loss. These two findings suggest that the consumer bankruptcy system is desirable but it must be well-designed with regard to bankruptcy asset exemptions. In particular, excessive bankruptcy exemptions can be counter-productive. Finally, we argue that entrepreneurial activity is important when studying different bankruptcy rules or regulations.Economic models; Financial stability; Financial system regulation and policies

Uninsurable Investment Risks and Capital Income Taxation

This paper studies the capital accumulation and welfare implications of reducing capital income taxation in a general equilibrium economy with uninsurable investment risks. It has been shown that, with uninsurable investment risks, under-accumulation of capital may result compared to the complete markets economy. We show that reducing somewhat the capital income tax rate increases the capital stock and leads to a welfare gain. The complete elimination of the capital income tax, however, is not necessarily welfare improving.Economics models

Uninsurable Investment Risks

The authors study a general-equilibrium economy in which agents have the ability to invest in a risky technology. The investment risk cannot be fully insured with optimal contracts, because shocks are private information. The authors show that the presence of these risks may lead to an underaccumulation of capital relative to an economy where idiosyncratic shocks can be fully insured. They also show that, although the availability of state-contingent (optimal) contracts cannot provide full insurance, it brings the aggregate stock of capital close to the complete markets level. Institutional reforms that make the use of these contracts possible have important welfare consequences.Economic models; Financial institutions; Financial markets

Price-Level Uncertainty, Price-Level Targeting, and Nominal Debt Contracts

Many central banks around the world have embraced inflation targeting as a monetary policy framework. Interest is growing, however, in price-level targeting as an alternative. The choice of frameworks has important consequences for financial contracts, most of which are not fully indexed to the price level. Changes in the price level therefore lead to changes in the real value of contracts. Price-level targeting would reduce the size of these changes in real wealth and decrease uncertainty about the future price level. This article assesses the merits of price-level targeting vis-à-vis inflation targeting from a debt-revaluation perspective, with a focus on channels affecting risk premiums, the maturities of nominal debt contracts, and redistribution of wealth. A general conclusion flowing from the analysis is that accounting for the revaluation of nominal debts and assets strengthens the relative merits of price-level targeting compared with inflation-targeting.

Leverage, Balance Sheet Size and Wholesale Funding

Some evidence points to the procyclicality of leverage among financial institutions leading to aggregate volatility. This procyclicality occurs when financial institutions finance their assets with non-equity funding (i.e., debt financed asset expansions). Wholesale funding is an important source of market-based funding that allows some institutions to quickly adjust their leverage. As such, financial institutions that rely on wholesale funding are expected to have higher degrees of leverage procyclicality. Using high frequency balance sheet data for the universe of banks, this study tries to identify (i) if such a positive link exists between the assets and leverage in Canada, (ii) how wholesale funding plays a role for this link, and (iii) market and macroeconomic factors associated with this link. The findings of the empirical analysis suggest that a strong positive link exists between asset growth and leverage growth, and the use to wholesale funding is an important determinant of this relationship. Furthermore, liquidity of several short-term funding markets matters for procyclicality of leverage.Financial stability; Financial system regulation and policies; Recent economic and financial developments

Aggregate and Welfare Effects of Redistribution of Wealth Under Inflation and Price-Level Targeting

Since the work of Doepke and Schneider (2006a) and Meh and Terajima (2008), we know that inflation causes major redistribution of wealth - between households and the government, between nationals and foreigners, and between households within the same country. Two types of monetary policy, inflation targeting (IT) and price level targeting (PT), have very different implications for the price level path subsequent to a price-level shock, and consequently, have different redistributional properties which is what we explore in this paper. For Canada, we show that the magnitude of redistributions of an unexpected 1% price-level increase under IT is about three times larger than under PT. Households' and foreigners' wealth losses from a price level increase is matched by the gains of the government. Even though this redistribution is zero-sum, we observe positive effects on GDP due to the wealth loss, the lower value of the debt and its associated fiscal adjustment, and the non-linear effects on work effort of the redistribution of wealth across households. Finally, the direction of the change in the weighted welfare of households depends on the fiscal policy.Economic models; Monetary policy framework; Sectoral balance sheet; Inflation: costs and benefits; Inflation targets; Inflation and prices

Uninsurable investment risks and capital income taxation

This paper studies the capital accumulation and welfare implications of reducing capital income taxation in a general equilibrium economy with uninsurable investment risks. It has been shown that, with uninsurable investment risks, under-accumulation of capital may result compared to the complete markets economy. We show that reducing somewhat the capital income tax rate increases the capital stock and leads to a welfare gain. The complete elimination of the capital income tax, however, is not necessarily welfare improving

Effects of Funding Portfolios on the Credit Supply of Canadian Banks

This paper studies how banks simultaneously manage the two sides of their balance sheet and its implications for bank risk taking and real economic activity. First, we analyze how changes in funding affect the supply of bank loans. We then examine how the supply of credit by banks that rely more on wholesale funding changed during periods of lowfor- long interest rates and during the recent financial crisis. The findings suggest that contemporaneous changes in wholesale funding are positively associated with large business loans. In addition, we find that banks that rely on wholesale funding tend to increase mortgage loans in a prolonged low rate environment. This is suggestive evidence that these banks may be taking on more liquidity risk by supplying long-term loans with short-term funding. We also find that mortgage lending by banks relying more on wholesale funding increased, a likely result of government policies to increase liquidity in the market during the crisis

Differing growth responses to nutritional supplements in neighboring health districts of Burkina Faso are likely due to benefits of small-quantity lipid-based nutrient supplements (LNS)

Background : Of two community-based trials among young children in neighboring health districts of Burkina Faso, one found that small-quantity lipid-based nutrient supplements (LNS) increased child growth compared with a non-intervention control group, but zinc supplementation did not in the second study. Objectives : We explored whether the disparate growth outcomes were associated with differences in intervention components, household demographic variables, and/or children's morbidity. Methods : Children in the LNS study received 20g LNS daily containing different amounts of zinc (LNS). Children in the zinc supplementation study received different zinc supplementation regimens (Z-Suppl). Children in both studies were visited weekly for morbidity surveillance. Free malaria and diarrhea treatment was provided by the field worker in the LNS study, and by a village-based community-health worker in the zinc study. Anthropometric assessments were repeated every 13-16 weeks. For the present analyses, study intervals of the two studies were matched by child age and month of enrollment. The changes in length-for-age z-score (LAZ) per interval were compared between LNS and Z-Suppl groups using mixed model ANOVA or ANCOVA. Covariates were added to the model in blocks, and adjusted differences between group means were estimated. Results : Mean ages at enrollment of LNS (n = 1716) and Z-Suppl (n = 1720) were 9.4 +/- 0.4 and 10.1 +/- 2.7 months, respectively. The age-adjusted change in mean LAZ per interval declined less with LNS (-0.07 +/- 0.44) versus Z-Suppl (-0.21 +/- 0.43; p<0.0001). There was a significant group by interval interaction with the greatest difference found in 9-12 month old children (p<0.0001). Adjusting for demographic characteristics and morbidity did not reduce the observed differences by type of intervention, even though the morbidity burden was greater in the LNS group. Conclusions : Greater average physical growth in children who received LNS could not be explained by known cross-trial differences in baseline characteristics or morbidity burden, implying that the observed difference in growth response was partly due to LNS

A Decolonial Critique of the Racialized “Localwashing” of Extraction in Central Africa

Responding to calls for increased attention to actions and reactions “from above” within the extractive industry, we offer a decolonial critique of the ways in which corporate entities and multinational institutions propagate racialized rhetoric of “local” suffering, “local” consultation, and “local” fault for failure in extractive zones. Such rhetoric functions to legitimize extractive intervention within a set of practices that we call localwashing. Drawing from a decade of research on and along the Chad-Cameroon Oil Pipeline, we show how multi-scalar actors converged to assert knowledge of, responsibility for, and collaborations with “local” people within a racialized politics of scale. These corporate representations of the racialized “local” are coded through long-standing colonial tropes. We identify three interrelated and overlapping flexian elite rhetoric(s) and practices of racialized localwashing: (a) anguishing, (b) arrogating, and (c) admonishing. These elite representations of a racialized “local” reveal diversionary efforts “from above” to manage public opinion, displace blame for project failures, and domesticate dissent in a context of persistent scrutiny and criticism from international and regional advocates and activists