D80 - Information, Knowledge, and Uncertainty: GeneralReturn

Reducing income inequality is one of the goals under the Sustainable Development Goals. This study examines the intricate relationship between financial development, policy uncertainty, inflation, and income inequality. Panel data for African countries covering the period 2000-2022 were used in the analysis. The study used the economic policy uncertainty (EPU) index to examine its effects on income distribution. Previous studies indicated the possibility of asymmetric effects of inflation and EPU on income inequality. Hence, a dynamic non-linear Panel ARDL was employed to examine the asymmetric nature of the relationship between these variables. The study found that in the long run a symmetric EPU reduces income inequality for the countries in the study and this is confirmed by the asymmetric negative EPU that had a negative and significant impact on inequality. Income equality was found to deteriorate with an increase in inflation. Moreover, inequality was found to be more sensitive to negative changes in inflation relative to a positive change as inequality's elasticity to positive change was much lower as compared to negative changes. Under certain conditions and economic context, redistributive policies can alleviate inequality during a period of heightened EPU. By examining the theoretical frameworks and empirical evidence, the study highlights that for the countries in this study, policy uncertainty reduces inequality. Also, countries should continue with inflation targeting policies and if possible, aim for a lower rate relative to the previous period.

Motivated by the persistent fall in oil prices due to incessant uncertainty-inducing events in recent years, this study empirically examined if economic growth in Africa's top five oil exporters (Algeria, Angola, Egypt, Libya, and Nigeria) is responding asymmetrically to changes in global economic uncertainty as well as uncertainties from U.S., Europe and China using nonlinear ARDL framework from 1997Q1 to 2021Q4. We find that rising global uncertainty hampers economic growth in these economies, while declining global uncertainty significantly enhances growth in Nigeria, Angola and Libya in the short run, but becomes growth-retarding in the long run. Thus, economic growth responds asymmetrically to global uncertainty, especially in the short run. The findings are robust to U.S., Europe, and China uncertainties, except that economic growth in Libya and Algeria remained unresponsive to U.S. and China uncertainties respectively. We concluded that Africa's oil exporters should embrace policies that can strengthen their resilience to global economic uncertainty as well as uncertainties from U.S., Europe, and China.

We investigate whether the positive relation between accounting accruals and information asymmetry documented for U.S. stock markets also holds for European markets, considered as a whole and at the country level. This research is relevant because this relation is likely to be affected by differences in accounting standards used by companies for financial reporting, in the traditional use of the banking system or capital markets for firm financing, in legal systems and cultural environment. We find that in European stock markets discretionary accruals are positively related with the Corwin and Schultz high-low spread estimator used as a proxy for information asymmetry. Our results suggest that the earnings management component of accruals outweighs the informational component, but the significance of the relation varies across countries. Further, such association tends to be stronger for firms with the highest levels of positive discretionary accruals. Consistent with the evidence provided by the authors, our results also suggest that the high-low spread estimator is more efficient than the closing bid-ask spread when analysing the impact of information quality on information asymmetry.

In this paper I explain individual propensity to herding behaviour and its relationship to time-pressure by conducting a laboratory experiment. I let subjects perform a simple cognitive task with the possibility to herd under different levels of time pressure. In the main treatments, subjects had a chance to revise their decision after seeing decisions of others, which I take as an indicator of herding behaviour. The main findings are that the propensity to herd was not significantly influenced by different levels of time pressure, although there could be an indirect effect through other variables, such as the time subjects spent revising the decision. Heart-rate significantly increased over the baseline during the performance of a task and its correlation to the subjectively stated level of stress was positive but very weak, which suggests that time pressure may not automatically induce stress but increase effort instead.

The paper is concerned with the impact of market research prior to integration with European Union (EU) on the structures of noncompetitive industries in integrated economy. The analysis focuses on monopolistic markets with stochastic demand. Firms are considered in dynamic multiperiod model, where intertemporal links are determined by expenditures on market research in a present period and benefits from this activity (i.e., smaller variance of the prediction error) in the future. We show that the optimal market research strategy is stationary and depends on market size. Consequently, after accession firms operating prior to integration in small markets are expected to have much less information about the total market than their competitors from the EU. This informational asymmetry may affect the structure of the industry in integrated economy. In the extreme case, the firm operating before integration in the small market can be ruled out from the integrated market.