This paper examines policies designed to alter the equilibrium distribution of education and their wider economic consequences. It also looks at the nature of education decisions and the role that such decisions play in shaping life cycle earnings and wealth profiles. Individual choices are analyzed in the context of a general equilibrium model with separate, education-specific spot markets for jobs. The unit price of (efficiency-weighted) labor differs by education group and equals marginal product.
We are interested in the equilibrium, long-term effects of policy interventions targeting the wider population rather than limited groups, with relative labor prices endogenously adjusting to changes in the aggregate supply of educated people. We examine traditional policies, such as tuition transfers and loan subsidies, but we also devise and evaluate alternative forms of policy intervention. The policy experiments are carried out through numerical simulations, with some of the model’s parameters directly estimated from PSID, NLSY and CPS data and others calibrated to match specific long-term features of the US economy. By simulating and comparing equilibrium outcomes we aim to explore the quantitative aspects of the relationship among schooling decisions, wages inequality and education policy. The impact of diverse education policies on equilibrium measures of productivity, consumption and welfare is also considered.
As most of the emerging-market economies, South Africa is facing turbulences in foreign exchange markets, which appear in the form of high volatility in prices of its domestic currency, the South African rand. The increased volatility of exchange rates in emerging markets is usually attributed to the smaller size of their economies and consequently the smaller size of the market for their currency. Under these conditions transactions have a greater impact on exchange rates than in larger and more mature economies.
Additionally, a generally higher risk of investment projects and macroeconomic, as well as political, stability are recognized as reasons for a higher variance in currency markets. Higher exchange rate volatility in emerging market countries is therefore an understandable expectation and reflects fundamental differences in the structure of economies.
The structure of sovereign debt of developing countries has evolved over time from illiquid bank loans to liquid bonds. Before 1990, sovereign countries borrow mainly from commercial banks in the form of syndicated bank loans, which are often customized to the government needs and rarely traded. After 1990, sovereign countries start to borrow mainly in the form of sovereign bonds, which are highly standardized and liquid on the secondary market. This change in the sovereign debt structure is accompanied with a reduction in the renegotiation length. Restructuring of bank loans is prolonged, taking on average 9 years. In early 1990s, even longer renegotiations were expected when governments start to borrow in terms of bonds from a large number of diffused creditors. In reality, however, it takes only 1 year on average to restructure bonds defaulted upon after 1990.
It is of policy relevance to understand why bond debt has shorter delays than bank debt. Delays are inefficient: the government suffers from losing access to international financial markets and the creditors cannot realize investment gains. It has been widely argued that faster debt restructuring would have helped major borrowing countries recover from crisis and restore the momentum of growth at an earlier stage. It is also theoretically relevant to understand ex-post renegotiation outcomes of bank debt and bond debt. Different renegotiation outcomes have direct implications on ex-ante borrowing and default incentives of the government for bank debt and bond debt.
