HOW LONG CAN INFLATION TAX COMPENSATE FOR THE LOSS OF GOVERNMENT REVENUE IN WAR ECONOMIES? EVIDENCE FROM BURUNDI

The paper shows that civil war in Burundi in the 1990s has provoked an unprecedented decline in government revenue. Both foreign aid transfers and revenue from domestic sources dried up, inducing the government to rely more on inflation tax. Using quarterly data covering the period from 1980:1 to 2002:4 to measure the sensitivity of money demand to inflation we find that the long-run semi-elasticity of inflation to real money in circulation trebled between the pre-war to the war period. The remarkable increase of the semi-elasticity translates what is known in the literature as economic agents 'flight from domestic currency', a strategy that limits the government's capacity to use inflation tax to compensate for the loss in more traditional revenue sources. Shedding light on the behaviour of the demand for real money amidst persistent political and economic instability, illustrates the limits of using inflation and money creation as a dependable source of government revenue.

Reputation and Credit without Collateral in Africa’s Formal Banking

The analysis of reputation as a contract enforcement instrument where legal institutions, especially commercial courts, fail to enforce commercial contracts has focused on informal credit markets. The literature centres on the argument that lenders or co-borrowers in group lending can easily monitor each borrower, given the small size of an individual lender.s market. Verifiability allows the detection of opportunistic default and hence allows its punishment. This paper argues that in Africa, even formal credit markets rely on reputation. However, the modelling strategy is not based on monitoring and verifiability, given the potential for residual information asymmetry between a bank and a borrower after screening. Instead, the paper conceptualises the relationship between a bank and a borrower as an infinitely repeated game. The bank learns the type of the borrower through repeated interaction, a process by which a borrower builds his reputation as an honest partner. A defaulting dishonest borrower forfeits his access to future loans. The main result of the model is that the higher the reputation of a borrower, the lower his equilibrium payoff that is incentive compatible with debt repayment. Conversely, in the absence of any reputation, the payoff that is incentive compatible with repayment is equal to infinity meaning that credit trade is impossible without either a credible formal contract enforcement mechanism or some level of reputation.

How long can inflation tax compensate for the loss of government revenue in war economies? Evidence From Burundi

We explore the role of reciprocity in wage determination by combining experimental and survey data. The experiment is similar to Berg, Dickhaut and McCabe.s (1995) and is conducted with Ghanaian manufacturing workers. The survey relates to the same sample workers and the firms within which they are employed. We find a strong positive association between individual reciprocity and individual wages. However, the direction of causality is unclear. Various aspects of the distribution of the tendency to reciprocate within an employee.s workforce are also associated with that employee.s wage and, in this case, there are strong arguments for a causal link is from former to latter. In particular, the mean, median, and minimum levels of reciprocity have a positive effect on wages, while the spread in the distribution (standard deviation) has a strong significant negative effect. This suggests that homogenous behaviour, or convergence to a norm, is rewarded. The results underline the importance of behavioural characteristics and firm culture for the operation of the labour market.wages, reciprocity, field experiment

Credit Can Precipitate Firm Failure: Evidence from Kenyan Manufacturing in the 1990s

This paper models firm survival in Kenyan manufacturing with a particular emphasis on the effect of credit on firm resilience. The paper explores how firms coped with the challenging economic environment that prevailed in the 1990s particularly the effect of the dramatic increase in interest rates. The key finding is that the burden of past loans precipitated firm failure in the 1990s but overdrafts did not seem to have had a significant impact on firm failure. Furthermore, older firms appear to have resisted better than younger ones, but there is no evidence that large firms had higher survival rates. These results are robust to different specifications, namely probit models, Cox proportional hazard models and exponential, Gompertz and Weibull parametric hazard models. The main contribution of the paper is to highlight the role of credit in explaining firm failure in a shockprone developing economy. The study shows that the key factors explaining firm survival in developed economies, namely size and age, are not necessarily the most relevant determinants of firm survival in developing economies. Methodologically, this paper is one of the few that have applied hazard analysis to firms in developing economies.

Does the spacecraft trajectory strongly affect the detection of magnetic clouds?

Magnetic clouds (MCs) are a subset of interplanetary coronal mass ejections (ICMEs) where a magnetic flux rope is detected. Is the difference between MCs and ICMEs without detected flux rope intrinsic or rather due to an observational bias? As the spacecraft has no relationship with the MC trajectory, the frequency distribution of MCs versus the spacecraft distance to the MCs axis is expected to be approximately flat. However, Lepping and Wu (2010) confirmed that it is a strongly decreasing function of the estimated impact parameter. Is a flux rope more frequently undetected for larger impact parameter? In order to answer the questions above, we explore the parameter space of flux rope models, especially the aspect ratio, boundary shape, and current distribution. The proposed models are analyzed as MCs by fitting a circular linear force-free field to the magnetic field computed along simulated crossings. We find that the distribution of the twist within the flux rope, the non-detection due to too low field rotation angle or magnitude are only weakly affecting the expected frequency distribution of MCs versus impact parameter. However, the estimated impact parameter is increasingly biased to lower values as the flux-rope cross section is more elongated orthogonally to the crossing trajectory. The observed distribution of MCs is a natural consequence of a flux-rope cross section flattened in average by a factor 2 to 3 depending on the magnetic twist profile. However, the faster MCs at 1 AU, with V>550 km/s, present an almost uniform distribution of MCs vs. impact parameter, which is consistent with round shaped flux ropes, in contrast with the slower ones. We conclude that either most of the non-MC ICMEs are encountered outside their flux rope or near the leg region, or they do not contain any

Are There Different Populations of Flux Ropes in the Solar Wind?

Flux ropes are twisted magnetic structures, which can be detected by in situ measurements in the solar wind. However, different properties of detected flux ropes suggest different types of flux-rope population. As such, are there different populations of flux ropes? The answer is positive, and is the result of the analysis of four lists of flux ropes, including magnetic clouds (MCs), observed at 1 AU. The in situ data for the four lists have been fitted with the same cylindrical force-free field model, which provides an estimation of the local flux-rope parameters such as its radius and orientation. Since the flux-rope distributions have a large dynamic range, we go beyond a simple histogram analysis by developing a partition technique that uniformly distributes the statistical fluctuations over the radius range. By doing so, we find that small flux ropes with radius R<0.1 AU have a steep power-law distribution in contrast to the larger flux ropes (identified as MCs), which have a Gaussian-like distribution. Next, from four CME catalogs, we estimate the expected flux-rope frequency per year at 1 AU. We find that the predicted numbers are similar to the frequencies of MCs observed in situ. However, we also find that small flux ropes are at least ten times too abundant to correspond to CMEs, even to narrow ones. Investigating the different possible scenarios for the origin of those small flux ropes, we conclude that these twisted structures can be formed by blowout jets in the low corona or in coronal streamers.Comment: 24 pages, 6 figure