On the (non-)equivalence of capital adequacy and monetary policy: A response to Cechetti and Kohler

The instrument problem in monetary policy is back on the agenda. Until recently interest rate policy was widely thought to be sufficient for the attainment of appropriate monetary policy goals. No longer. In the wake of the international financial crisis there is much pressure on monetary authorities to incorporate the goal of financial stability more explicitly in policy. This requires an expansion of the instruments typically used by central banks. Cechetti and Kohler (2010) recently considered this new version of the instrument problem in monetary policy by analysing the distinct role and potential for co-ordinating (i) interest rates and (ii) capital adequacy requirements. In this paper we connect this modern debate with an earlier version of the instrument problem, famously discussed by Poole (1970). Then, as now (we claim), the main message of the analysis is the non-equivalence of these instruments and the structural features of the economy on the basis of which one would prefer a particular combination of these instruments. These results are demonstrated with a set of simulations. We also offer a theoretical criticism of the modelling approach used by Cechetti and Kohler (2010).Monetary policy, Instrument problem, Interest rates, Alternative monetary policy instruments, Balance sheet operations, Policy co-ordination

Numeric competence, confidence and school quality in the South African wage function: towards understanding pre-labour market discrimination

Highly convex estimates of average returns to education commonly found in South Africa are usually rationalised as being the result of a surplus of unskilled workers and a shortage of skilled workers in the economy (Keswell & Poswell, 2004). However, due to the absence of appropriate micro level data in the past, unbiased estimation of these returns has been difficult. This paper investigates potential sources of estimation bias using the NIDS 2008 survey, one of the first to contain concurrent information on individual labour market outcomes, numeric proficiency and quality of education received (which is highly diverse and unequal across the population). We compare naïve estimates in all relevant sub-samples with estimates that attempt to correct for the sample selection on numeracy (as the test was voluntary), as well as selection into employment. We also correct for (and exploit information on) the choice of test difficulty given to respondents, an option which was not intended in the design stage of the survey. This feature allows rough estimates of the influence of respondents’ confidence in their abilities on wages. More importantly, the sample selection adjustments allow us to control for numeracy and school quality, which influence the classic problem of ability bias in returns to education. We estimate the bias in returns to education as well as the extent of racial labour market discrimination that can be accounted for by schooling outputs rather than other features of the labour market. We assess whether convex returns to education can be explained by an unequal distribution of school quality, or whether conventional explanations (such as labour demand) remain the main explanation. Suggested remedies for selection on the endogenous numeracy measure include instrumental variables and a “Double Heckman” approach. Typical instrumental variables used in labour market analysis are poorly captured and restrict sample sizes to the extent that estimates often become nonsensical. The latter (non-standard) adjustments for sample selection issues show some promise but further evaluation and tests are required to fully rely on these results. Convex returns to education remain strongly present in the African population (after accounting for inequalities in schooling outputs), while they are concave for the white population. Bias in these returns is unreliably estimated for whites and Asians, but is highest for the more educated at a peak of 4.55 and 5.84 percentage points for the African and coloured populations respectively. Returns to numeracy, when more reliably identified, are convex. School outputs (measured in numeracy test scores and historical school performance) constitute a sizable part of discrimination estimates, accounting for between 18% and 36% of unexplained racial wage premia.School quality, Labour Market Discrimination, Returns to Education, South Africa, Affirmative Action, Cognitive Skills

Trends in Poverty and Inequality in Seven African Countries

This paper aims to analyse trends in poverty and inequality in seven African countries using an asset index constructed from comparable, nationally representative surveys using multiple correspondence analysis. Improvements in the asset index are largely driven by progress in the accumulation of private assets, while access to public services has deteriorated. Continued efforts at the expansion of access to public services such as waterborne sanitation and piped water, particularly in rural areas, are thus required. Overall poverty has declined in five of the seven countries. The trends in urban and rural poverty for the most part mirror these trends in overall poverty. Five of the seven countries experienced an improvement in overall inequality. Only in Zambia has overall inequality increased. Experiences in regards to trends in urban and rural inequality are mixed. These results, however, should be interpreted with caution, given the various conceptual and methodological limitations of the asset index approach to poverty analysis.Poverty, inequality, asset index, multiple correspondence analysis, Africa

Finishing the euchromatic sequence of the human genome

The sequence of the human genome encodes the genetic instructions for human physiology, as well as rich information about human evolution. In 2001, the International Human Genome Sequencing Consortium reported a draft sequence of the euchromatic portion of the human genome. Since then, the international collaboration has worked to convert this draft into a genome sequence with high accuracy and nearly complete coverage. Here, we report the result of this finishing process. The current genome sequence (Build 35) contains 2.85 billion nucleotides interrupted by only 341 gaps. It covers ∼99% of the euchromatic genome and is accurate to an error rate of ∼1 event per 100,000 bases. Many of the remaining euchromatic gaps are associated with segmental duplications and will require focused work with new methods. The near-complete sequence, the first for a vertebrate, greatly improves the precision of biological analyses of the human genome including studies of gene number, birth and death. Notably, the human enome seems to encode only 20,000-25,000 protein-coding genes. The genome sequence reported here should serve as a firm foundation for biomedical research in the decades ahead

A microeconomic model of banking with a strategically determined interbank market

Thesis (PhD)--Stellenbosch University, 2020.ENGLISH ABSTRACT : This dissertation generalizes the seminal model of financial contagion by Allen and Gale (2000) to allow an aggregate liquidity demand shock to occur with positive probability. A shock with positive probability can affect the ex ante portfolio choices of banks as well as the welfare of consumers. I numerically characterize the symmetric Nash equilibrium of the non-cooperative game between two representative regional banks. The solution fully characterizes banks’ exante optimal choices. I obtain the following results: (i) when the probability of the shock approaches zero, the allocation of Allen andGale (2000) is obtained; (ii) in general, the equilibrium has three distinct characterizations, depending on the parameters: a no-default equilibrium, where no bank defaults; a single-default equilibrium where only the shocked bank defaults; and amutual-default equilibrium, where the shock leads to contagion. When banks are able to internalize the ex-ante threat of a shock, contagion is rare: it is possible in, at most, 4% of the parameter space, and only for small shock probabilities. Additionally, optimal risk-sharing is studied analytically in two novel aggregate benchmarks: a global bank with full information and a global bank with asymmetric information. A global bank with full information can observe consumer types. The allocation of a global bank with full information involves default after a large but sufficiently unlikely aggregate liquidity demand shock. Where default is not optimal, the allocation involves (i) holding excess liquidity when the shock is relatively likely, (ii) partial liquidation of the investment after a small and unlikely shock, and (iii) both excess liquidity and partial liquidation for shocks of intermediate size and probability. Under asymmetric information, a global bank cannot observe consumer types, and can offer less liquidity insurance than under full information. Finally, when the numerically approximated Nash equilibrium is characterized by either no default or contagion, the decentralized solution attains thewelfare of the benchmarks within numerical precision. However, when the Nash equilibrium is characterized by single default, the decentralized equilibrium is superior to the aggregate benchmarks. Thus, a global bank with regional branches can be inefficient for certain parameters in this model, relative to independent regional banks.AFRIKAANSE OPSOMMING: In hierdie proefskrif word die model van die oordraagbare verspreiding van finansiële probleme van Allen en Gale (2000) uitgebrei om ’n universele likiditeitskok met positiewe waarskynlikheid toe te laat. So ’n skok kan die ex ante keuse van bateportefeulje van banke asook die welsyn van verbruikers beïnvloed. Hierdie tesis los die simmetriese Nash ekwilibrium van die spel tussen twee verteenwoordigende plaaslike banke numeries op. Die belangrikste resultate is as volg: (i) die model lewer dieselfde verbruikerstoedeling as in Allen en Gale (2000) soos die waarskynlikheid van die algemene likiditeitskok na nul afneem; (ii) in die algemeen het die Nash ekwilibrium drie eienskappe, wat afhang van die parameters van die model: daar is ’n ekwilibrium waar geen bank bankrot gaan nie; ’n ekwilibrium waar slegs een bank bankrot gaan; en ’n algemene bankrotskap ekwilibrium, waar die bankrotskap van een bank oorgedra word en die bankrotskap van die ander bank veroorsaak. Selfs wanneer banke die ex ante risiko van ’n likiditeitskok kan antisipeer, is die ekwilibrium met oordraagbare bankrotskappe skaars: in slegs 4% of minder van die totale ruimte van modelparameters is oordraagbare bankrotskappe moontlik. Boonop gebeur oordraagbare bankrotskap slegs as die waarskynlikheid van ’n skok klein genoeg is. Die optimale verdeling van risiko word ook bestudeer, deur middel van suiwer analitiese metodes. Twee nuwe welsynsmaatstawwe word op die makrovlak aangebied: ’n globale bank met volledige inligting en ’n globale bank met asimmetriese inligting. ’n Globale bank met volledige inligting kan die verbruikerstipe identifeer. As die skok groot en onwaarskynlik genoeg is, behels dié oplossing die bankrotskap van die globale bank, en derhalwe die volledige likwidasie van alle bates. Andersins het die oplossing een van die volgende eienskappe: (i) oormatige likiditeit, as die skok relatief onwaarskynlik is; (ii) gedeeltelike likwidasie van investering, as die skok klein en onwaarskynlik genoeg is, of (iii) beide oormatige likiditeit en gedeeltelike likwidasie van investering, as die skok gemiddeld groot en waarskynlik is. ’n Globale bank met asimmetriese inligting kan nie die verbruikerstipe identifiseer nie. Die resultaat is dat ’n globale bank met asimmetriese inligting minder likiditeitsversekering aan ’n verbruiker kan bied. Laastens dui die resultate dat ’n enkele, globale bank in hierdie model sub-optimaal is wanneer die Nash ekwilibirium slegs een bankrotskap voorspel. Andersins lewer die Nash ekwilibriumdie optimale uitkoms.Doctora

Using an Asset Index to Assess Trends in Poverty in Seven Sub-Saharan African Countries

Summary Using comparable, nationally representative surveys and extending the work of [Sahn, D. E., & Stifel, D. C. (2000). Poverty comparisons over time and across countries in Africa. World Development, 28(12), 2123-2155], an asset index is used to investigate changes in poverty in seven African countries. Poverty declined in five of the seven countries. Improvements in the asset index are driven by progress in the accumulation of private assets, while access to public services has deteriorated. However, the method has some shortcomings. Assets are slow-changing and discrete. The index therefore may not capture changes in well-being accurately. The poor discrimination ability of the index at the lower end of the scale also makes it an inappropriate tool for studying ultra-poverty.