A confrontation of economic and theological approaches to “ending poverty” in Africa

We seek to assess the adequacy of an “economic” as opposed to a “Christian” worldview in confronting one of the major challenges to the world, namely the chronic nature of absolute poverty in much of Africa. Our study comprises, first, an overview and contrast of the two approaches in general terms and, second, a critical examination of economist Jeffrey Sachs’ The End of Poverty (which undergoes a theological critique) and theologian Ronald Sider’s Rich Christians in an Age of Hunger (which is subjected to economic criticism). Overall, we find that economic analyses rely on an excessively narrow view of human motivation, which may vitiate secular attempts to aid development. A blend of Biblical understanding and economic insight is needed for a genuine transformation of the lives of the poor to take place

The lender of last resort and liquidity provision: How much of a departure is the sub-prime crisis?

The traditional role of the lender of last resort (LOLR) is to avoid unnecessary bank failures that could threaten systemic stability, while ensuring that there are suitable safeguards for central bank balance sheets and that moral hazard is minimised. The sub-prime crisis has shown that traditional models of bank liquidity risk and of LOLR require revision, as was already apparent to a lesser extent in the Russia/LTCM episode. Funding risk now interacts with market liquidity risk, to create difficult challenges for central banks. Even in the relatively non-systemic period up to September 2008, the LOLR had to adapt radically, for example, in terms of lending to investment banks, taking lower quality collateral and lending for longer maturities. Central banks have also been challenged by difficulties in maintaining confidentiality of support and by the interaction of these problems with low levels of deposit insurance. Since September 2008, although action has mostly been in line with traditional approaches for systemic crises, there have been some further adaptations in line with the systemic nature of the crisis, notably by the Federal Reserve acting as market maker or investor of last resort in illiquid securities markets

A review of the economic theories of poverty

ABSTRACT This paper critically analyses the views of poverty adopted by different economic schools of thought which are relevant to the UK, as well as eclectic theories focused on social exclusion and social capital. We contend that each of the economic approaches has an important contribution to make to the understanding of poverty but that no theory is sufficient in itself; a selective synthesis is needed. Furthermore, economics by its nature omits important aspects of the nature and causes of poverty. The key points that follow from this analysis are: The definitions of poverty adopted over time have reflected a shift in thinking from a focus on monetary aspects to wider issues such as political participation and social exclusion. Classical economic traditions contend that individuals are ultimately responsible for poverty and accordingly provide a foundation for laissez faire policies. By contrast, Neoclassical (mainstream) economics is more diverse and can provide explanations for poverty, notably market failures, that are beyond individuals’ control. Both schools centre on the role of incentives and individual productivity in generating poverty but perhaps overemphasise monetary aspects, the individual as opposed to the group, and a limited role for government. They tend to be averse to policies of redistribution. Keynesian/neo-liberal schools, in contrast, focus on macroeconomic forces and emphasise the key role of government in providing not only economic stabilisation but also public goods. Poverty is considered largely involuntary and mainly caused by unemployment. Marxian/radical views see the role of class and group discrimination, which are largely political issues, as central to poverty. These theories assign a central role to the state in its intervention/regulation of markets. Prominent examples of anti-poverty proposals in this vein include minimum wages and anti discriminatory laws. Social exclusion and social capital theories recognise the role of social as well as economic factors in explaining poverty, giving them a similar weight. They offer a helpful contribution in understanding not only what the precursors of poverty are but also what underlies its persistence over time A selective synthesis of approaches is needed to maximise the relevance of economic insights in poverty reduction; furthermore, there is a need for a broader and richer range of motivations for human behaviour beyond the key focus of economics on purely material and individualistic aspects, such as the maximisation of one’s own consumption less disutility of labour. This calls for an integrated approach that draws elements from other social disciplines such as political theory and sociology. The analysis implies a number of policy recommendations, notably the need to focus on provision of forms of capital (including education) to aid the poor; anti discriminatory laws; community development; and policies to offset adverse incentives and market failures that underlie poverty

Liquidity, financial crises and the lender of last resort – How much of a departure is the sub-prime crisis?

Liquidity risks are endemic to banks, given the maturity transformation they undertake. This gives rise to risk of bank runs, the first line of defence against which should be appropriate liquidity policy of banks. Nonetheless, solvent banks can face liquidity difficulties at times of stress, necessitating liquidity support. The traditional role of the lender of last resort (LOLR) is to avoid unnecessary failures that could threaten systemic stability, while ensuring that there are suitable safeguards for central bank balance sheets and that moral hazard is minimised. The sub-prime crisis has shown that traditional models of bank liquidity risk and of LOLR require revision, as was already apparent to a lesser extent in the Russia/LTCM episode. Funding risk now interacts with market liquidity risk, to create difficult challenges for central banks. The LOLR has had to adapt radically, for example, in terms of lending to investment banks, taking lower quality collateral and lending for longer maturities. Central banks have also been challenged by difficulties in maintaining confidentiality of support and by the interaction of these problems with low levels of deposit insurance

Pension funding, productivity, ageing and economic growth

A key issue in pension reform is whether such a shift from PAYG to funding is largely a matter of reallocation of the financial burden of ageing (with the risk of a generation paying twice), or whether funding improves economic performance sufficiently to generate the resources required to meet the needs of an ageing population. This paper surveys the literature on the three main aspects of this question, whether pension funding boosts saving, whether it improves the supply of long term funds and whether there are improvements in allocative efficiency in capital and labour markets. It also provides new evidence on the positive benefits of funding for productivity growth, which can offset the deleterious effects on productivity that ageing may hav

Portfolio regulation of life insurance companies and pension funds

This paper examines the rationale, nature and financial consequences of two alternative approaches to portfolio regulations for the long-term institutional investor sectors life insurance and pension funds. These approaches are, respectively, prudent person rules and quantitative portfolio restrictions. The argument draws on the financial-economics of investment, the differing characteristics of institutions’ liabilities, and the overall case for regulation of financial institutions. Among the conclusions are: · regulation of life insurance and pensions need not be identical; · prudent person rules are superior to quantitative restrictions for pension funds except in certain specific circumstances (which may arise notably in emerging market economies), and; · although in general restrictions may be less damaging for life insurance than for pension funds, prudent person rules may nevertheless be desirable in certain cases also for this sector, particularly in competitive life sectors in advanced countries, and for pension contracts offered by life insurance companies. These results have implications inter alia for an appropriate strategy of liberalisation. 1 The author is Professor of Economics and Finance, Brunel University, Uxbridge, Middlesex UB3 4PH, United Kingdom (e-mail ‘[email protected]’, website: ‘www.geocities.com/e_philip_davis’). He is also a Visiting Fellow at the National Institute of Economic and Social Research, an Associate Member of the Financial Markets Group at LSE, Associate Fellow of the Royal Institute of International Affairs and Research Fellow of the Pensions Institute at Birkbeck College, London. Work on this topic was commissioned by the OECD. Earlier versions of this paper were presented at the XI ASSAL Conference on Insurance Regulation and Supervision in Latin America, Oaxaca, Mexico, 4-8 September 2000, and at the OECD Insurance Committee on 30 November 2000. The author thanks participants at the conference and A Laboul for helpful comments. Views expressed are those of the author and not necessarily those of the institutions to which he is affiliated, nor those of the OECD. This paper draws on Davis and Steil (2000)

Equity prices and the real economy - A vector error-correction approach

We assess the impact of equity prices on the level of output in the Europe Union economies and the US using Vector Error Correction (VECM) time series techniques. The distinction between impacts in bank based and equity market based economies is shown to be important, with equity prices having a greater impact on output in market-based economies. Share prices are shown to be largely autonomous in variance decompositions, whilst equity price do have a strong impact on output in the UK and US in their variance decompositions. An analysis of impulse responses suggests that large market based economies have more effective fiscal and monetary policy instruments

Commercial property prices and bank performance

We seek to assess the effect of changes in commercial property prices on bank behaviour and performance in a range of industrialised economies, extending the existing micro literature on bank performance. The results suggest that, consistent with macro-level studies, commercial property prices have a marked impact on the behaviour and performance of individual banks. The signs found are consistent with a view that commercial property provides important forms of collateral that are perceived by banks to reduce risk and encourage lending. Such an impact exists even when conventional independent variables determining bank performance are included. Moreover, there is evidence that the magnitude of this impact is related to the size of the bank, the direction of commercial property price movements, and regional factors. The results have implications for risk managers, regulators and monetary policy makers. Notably, they underline the crucial relevance of commercial property prices as a macroprudential variable that warrants close scrutiny by the authorities. They also highlight the need to develop indicators of individual bank exposure to the property market that could help to calibrate the potential impact of changes in prices in stress tests

External financing of US corporations: Are loans and securities complements or substitutes?

“Multiple avenues of intermediation” (Greenspan 2000) suggest substitutability of corporate loan and bond finance which smooths external financing flows. Holmstrom and Tirole (1997) stress complementarity; for most firms bank finance and consequent monitoring is essential for bond finance. Econometric work based on their model is consistent with complementarity both on average over time and during financial crises, and for levels and volatilities. It implies that “multiple avenues” may not be effective as a buffer in a bank credit crunch, and hence supply-side blockages of bank credit may impact on real activity. There are important implications for regulation, not least Basel II