Edward Kutsoati

Crop Price Indemnified Loans for Farmers: A Pilot Experiment in Rural Ghana

Farmers face a particular set of risks that complicate the decision to borrow. We use a randomized experiment to investigate (1) the role of crop-price risk in reducing demand for credit among farmers and (2) how risk mitigation changes farmers investment decisions. In Ghana, we offer farmers loans with an indemnity component that forgives 50 percent of the loan if crop prices drop below a threshold price. A control group is offered a standard loan product at the same interest rate. Loan uptake is high among all farmers and the indemnity component has little impact on uptake or other outcomes of interest.

Rematches in Boxing and Other Sporting Events

The authors study the incentive effects of rematches in sports with an emphasis on professional boxing. If the difference between the boxers’ abilities is sufficiently small, the authors find that a clause that stipulates that the winner of the fight is obliged to give the loser a rematch (i.e., a mandatory rematch clause) results in a higher aggregate effort compared to aggregate effort when the probability of a rematch depends on effort. This result sheds some light on the practice of offering mandatory rematch clauses to elite boxers. The authors also argue that their results apply to rivalries and rematches in other sporting events and contests.

Debt-contingent inflation contracts and targets

This paper analyzes fiscal and monetary policy interaction in a simple policy game with debt and output shocks. Seigniorage provides revenue for the government but results in inflation-bias. We analyze three mechanism designed to eliminate some or all of the biases in monetary policy: an inflation performance contract, inflation target (both contingent on the stock of debt), and a zero-inflation rule. The performance contract and inflation target result in higher interest rate, removes all biases in monetary policy and achieves the pre-commitment policy, hence they are equivalent. The first two solutions also yield a higher expected welfare than the zero-inflation rule.

Expectations and the Central Banker: Making Decisions the Market Expects to See?

Reflecting on his experience as a central banker, Alan Blinder (1998) observed that “while I never saw a single case of a central banker succumbing to the temptation that so worried Kydland and Prescott, I often witnessed central bankers sorely tempted to deliver the policy that the markets expected or demanded.” In this paper we develop a framework that examines conditions under which a central banker is tempted to “follow the markets.” In doing so, we explore the implications of increased market ‘consensus’ on the practice of monetary policy and show that ineciency in policymaking is most likely precisely when there is a very high consensus that economic fundamentals are weak or strong. In addition, our results also shed light on (i) why interest rates may not be high enough even when the central bank’s information suggests a rise in asset prices may be due to ‘bubble’ shock; (ii) why a central banker may be reluctant to adopt a loose monetary policy even when investors seem to be very pessimistic about the path of future output; and (iii) why, contrary to conventional models, we sometimes observe an upward revision of private sector’s forecasts of inflation when the central bank tightens its monetary policy. The results have implications for transparency of monetary policy.