the international transmission of real business cycles the authors present a stochastic model of two barter economies with production linked by free trade in goods and securities which generates pareto efficient international transmissions of business cycle disturbances each country is inhabi ted by an infinitely lived representative firm and consumer worker and is subject to country specific production shocks the internation al capital market effects perfect pooling of country specific risk c onsumption and output volatility may be higher in trade than under au tarchy as agents can be induced to undertake additional risk in exchange for a higher expected utility copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

limited participation and exchange rate dynamics does theory meet the data the paper explores the empirical dimensions of a new open economy macronomy model characterized by credit market frictions we find that these frictions are essential for the model to match a large set of moments of german data moreover the simulated impulse response functions to supply and nominal shocks are consistent with var findings since the model is estimated on moments rather than on conditional irfs this underlines the ability of the model to match the data finally monetary shocks do not seem to be the primary driving force behind the aggregate dynamics which is consistent with the var literature

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

a survey of frequency and voltage control ancillary services part i technical features this two part paper surveys the frequency and voltage control ancillary services in power systems from various parts of the world in this second part essential economic features that must be taken into account when designing markets for ancillary services are first discussed the methods adopted in eight different systems australia france germany great britain new zealand pjm spain and sweden for trading frequency and voltage control ancillary services are then compared lastly new indicators for comparing volumes and costs of ancillary services across systems are proposed and calculated for the systems included in this survey the companion paper surveys the technical features of these ancillary services

coordinated fuzzy constrained optimal power dispatch for bilateral contract balancing electricity and ancillary services markets this paper proposes a coordinated fuzzy constrained optimal power dispatch cfcopd algorithm for bilateral contract balancing electricity and ancillary services markets the cfcopd problem is decomposed into social welfare fuzzy maximization subproblem which is solved by mixed integer fuzzy linear programming miflp and combined reactive power cost and cost of real power loss fuzzy minimization subproblem which is solved by fuzzy linear programming flp the proposed cfcopd algorithm is tested on the modified ieee 30 bus system and the thai power 424 bus system the dispatch results show that the social welfare of the fuzzy constrained competitive electricity and ancillary services price ceasp scheme with bilateral contract curtailment bids is higher than those of competitive electricity price cep scheme and ceasp scheme with and without bilateral contract curtailment bids leading to a lower average electricity price

liquidity effects and the monetary transmission mechanism several recent papers provide strong empirical support for the view that an expansionary monetary policy disturbance generates a persistent decrease in interest rates and a persistent increase in output and employment existing quantitative general equilibrium models which allow for capital accumulation are inconsistent with this view there does exist a recently developed class of general equilibrium models which can rationalize the contemporaneous response of interest rates output and employment to a money supply shock however a key shortcoming of these models is that they cannot rationalize persistent liquidity effects this paper discusses the basic frictions and mechanisms underlying this new class of models and investigates one avenue for generating persistence we argue that once a simplified version of the model in christiano and eichenbaum 1991 is modified to allow for extremely small costs of adjusting sectoral flow of funds positive money shocks generate long lasting quantitatively significant liquidity effects as well as persistent increases in aggregate economic activity

a median voter model of social security this paper presents a theoretical median voter analysis of the determination of the level of social security the framework for the analysis is a continuous time overlapping generations model with nonaltruistic households facing borrowing constraints in the capital market a majority voting equilibrium is shown to exist in which the median voter is liquidity constrained the desired level of social security for each voter is a declining function of the preexisting level of social security as a consequence in a sequence of votes on social security beginning with a zero level the program initially overshoots its steady state value copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

liquidity and exchange rates abstract we present a two country extension of lucas s 1988a work on cash in advance constraints in asset markets in the model there is temporary separation between the goods and asset markets and money is used for transactions in both we first find that the exchange rate level depends on the share of money used for asset transactions a greater share appreciates the currency second stochastic open market operations increasing the domestic bonds supply appreciate the domestic currency third the liquidity effects of bond supply shocks cause an excess volatility of nominal exchange rates even when their fundamental value is constant

an equilibrium theory of nominal and real exchange rate comovement abstract this study develops a quantitative equilibrium theory to offer an explanation of one of the most puzzling aspects of empirical exchange rate behavior the high degree of nominal and real exchange rate comovement technology shocks coupled with the accomodative response of monetary policy to output fluctuations are primarily responsible for the covariation between nominal and real exchange rates shocks to the marginal efficiency of investment also play an important role

money interest rates and exchange rates with endogenously segmented markets we analyze the effects of money injections on interest rates and exchange rates when agents must pay a baumol tobin style fixed cost to exchange bonds and money asset markets are endogenously segmented because this fixed cost leads agents to trade bonds and money infrequently when the government injects money through an open market operation only those agents that are currently trading absorb these injections through their impact on these agents consumption these money injections affect real interest rates and real exchange rates the model generates the observed negative relation between expected inflation and real interest rates as well as persistent liquidity effects in interest rates and volatile and persistent exchange rates

the liquidity effect and money demand abstract i suggest a liquidity effect model in which financial intermediation costs are determined by aggregate economic activity an expansionary monetary shock leads to a persistent contraction in the loan deposit rate spread a persistent liquidity effect and a persistent real expansion a feature of this expansion is that nominal prices respond sluggishly to monetary shocks as an equilibrium outcome

cost benefit reflective distribution charging methodology this paper describes the principle and implementation of a new mw mvar miles charging methodology which was developed to reflect three key cost drivers in distribution network development the distance used to support nodal real and reactive power injection withdrawal the degree of support offered by the network assets and the operating condition of the supporting assets in terms of their power factors the inclusion of the latter driver allows the developed charging methodology to reward network users who are contributing to better power factors and better network utilization while penalizing customers who worsen power factors and network utilization as a consequence the charging model is able to provide forward looking incentives for network customers to behave in a manner to better the network condition which will in turn help to reduce the cost of future network development in addition the separation of real and reactive power pricing would give network users clear indications of the cost of their reactive power draw from the network which in turn could help them to evaluate the economics in investing in reactive power compensation devices the proposed charging methodology is demonstrated on a practical eight busbar distribution system with a mixed demand and embedded generation eg this paper results from work undertaken in a project on distribution charging methodologies for western power distribution the views in this paper expressed are not those of western power distribution

social security and retirement decision a positive and normative approach social insurance for the elderly is judged responsible for the widely observed trend towards early retirement in a world of laissez faire or in a first best setting there would be no such trend however when first best instruments are not available because health and productivity are not observable the optimal social insurance policy may imply a distortion on the retirement decision the main point we make is that while there is no doubt that retirement systems induce an excessive bias towards early in many countries a complete elimination of this bias i e a switch to an actuarially fair system is not the right answer this is so and for two reasons first some distortions are secondbest optimal this is the normative argument second and on the positive side the elimination of the bias might be problematic from a political perspective depending on the political process it may either not be feasible or alternatively it may tend to undermine the political support for the pension system itself

strategic responses a survey experiment on opposition to pension reforms the responses given in opinion polls on future policy reforms reflect both subjective expectations and preferences we disentangle these factors using data from a controlled survey experiment conducted in germany at the time of the experiment an increased retirement age had been proposed as part of a pension reform thus the survey respondents faced an incentive to give biased responses by understating their expected work ability at the age of retirement they could make the increase of the retirement age a less attractive policy option we find evidence for such strategic response behavior and this strategic bias appears to be stronger in former communist east germany

the liquidity effects of foreign exchange intervention abstract this paper examines the effectiveness of foreign exchange intervention in a two country two currency general equilibrium model that allows for liquidity effects both sterilized and non sterilized intervention operations have significant impacts on the allocation of liquidity in international financial markets whether intervention is successful in moving the exchange rate in the desirable direction depends upon the degree of sterilization of intervention and the intratemporal elasticity of substitution of the consumption goods the model shows that there exist circumstances in which the response of exchange rate to intervention is perverse as documented in the empirical literature

international business cycles in theory and in practice this paper investigates whether multi country international business models can account for international comovements in the oecd there are substantial positive comovements between many output components between levels of employment and between total factor productivities the standard international business cycle model is not consistent with these comovements except for consumption levels the model implies either negative or very low comovements this is a robust feature of the theoretical models independently of specific parameter values one interesting finding is that a more general specification of the technology shock processes lead to substantial comovements but at the cost of another deficiency

towards a competitive market for reactive power this paper presents the design of a competitive market for reactive power ancillary services generator reactive power capability characteristics are used to analyze the reactive power costs and subsequently to construct a bidding framework the reactive power market is settled on uniform price auction using a compromise programming approach based on a modified optimal power flow model the paper examines market power issues in these markets and identifies locations where strategic market power advantages are present that need to be removed through investments in reactive power devices

the cyclical and secular behaviour of the labour input comparing efficiency units and hours worked summary a monthly labour input series designed to correct for the fact that all hours worked are not of the same quality is constructed and its properties compared with unadjusted hours worked this efficiency units series is constructed from bls data on hours worked and earnings by age and sex the cyclical fluctuations displayed by the efficiency units series are smaller on average than those displayed by hours worked although the difference is not large however the secular behaviour of the series is quite different hours worked per capita displays a significant positive trend while efficiency units per capita does not

a real model of the world business cycle abstract in this paper a stochastic two country log linear infinite horizon model is used to analyze the generation and transmission of economic fluctuations across countries it is argued that following a country specific supply disturbance production interdependence and unitary elasticities in consumption and production are sufficient to generate comovements in aggregate economic activity investment and trade that are persistent over time and positively correlated across countries however the empirical analysis carried out for the usa japan germany and uk for the 1960 82 period suggests that common shocks rather than trade links are responsible for this pattern of comovements

a little fairness may induce a lot of redistribution in democracy we use a model of self centered inequality aversion suggested by fehr and schmidt 1999 to study voting on redistribution we theoretically identify two classes of conditions when an empirically plausible amount of fairness preferences induces redistribution through referenda we test the predictions of the adapted inequality aversion model in a simple redistribution experiment and flnd that it predicts voting outcomes far better than the standard model of voting assuming rationality and strict self interest

shrinking money the demand for money and the nonneutrality of money abstract we evaluate the macroeconomic implications of post world war ii money demand changes in two business cycle models the limited participation model and the sticky price model the sticky price model is invariant to changes in money demands however the limited participation model predicts the effect of a money shock on output rose by 100 percent between 1952 and 1980 and subsequently fell 65 percent this prediction is hard to reconcile with evidence that suggests the effects of monetary shocks are stable over time and suggests that goods market imperfections rather than asset market imperfections may be the driving force behind postwar u s monetary nonneutrality

time varying risk interest rates and exchange rates in general equilibrium under mild assumptions the data indicate that time varying risk is the primary force driving nominal interest rate differentials on currency denominated bonds this finding is an immediate implication of the fact that exchange rates are roughly random walks a general equilibrium monetary model with an endogenous source of risk variation a variable degree of asset market segmentation can produce key features of actual interest rates and exchange rates in this model the endogenous segmentation arises from a fixed cost for agents to exchange money for assets as inflation varies so does the benefit of asset market participation and that changes the fraction of agents participating these effects lead the risk premium to vary systematically with the level of inflation this model produces variation in the risk premium even though the fundamental shocks have constant conditional variances

money and exchange rates in the grossman weiss rotemberg model abstract we analyze the impact of monetary policy on inflation interest rates and exchange rates in a model with segmented asset markets developed by grossman and weiss 1983 and rotemberg 1984 1985 we find parameters for which real and nominal exchange rates in this model are 1 much more volatile than interest rates inflation rates and money growth rates 2 highly correlated with each other and 3 highly persistent while this model fails to match the data in other important respects it illustrates a potentially useful approach to modelling exchange rate behavior

liquidity loanable funds and real activity abstract this paper develops a general equilibrium model of two traditional explanations of the monetary black box linking money and real activity the liquidity effect and the loanable funds effect these effects are modeled with a monetary production economy in which central bank injections of cash are funnelled into the economy through the credit market since only borrowers have direct access to the newly injected cash monetary injections cause nominal interest rates to fall if firms are borrowers then monetary injections also increase current and future real activity

the optimal inflation path in a sidrauski type model with uncertainty abstract in this paper it is shown that in a sidrauski type model with uncertainty the chicago rule remains valid as a prescription for the average rate of inflation although there is a systematic difference between the perfect foresight and the uncertainty case quantitatively however the difference turns out to be very small the paper shows how to calculate the optimal monetary policy as a function of the state variables using the method of parameterized expectations in terms of expected utility the optimal policy is as good as the simple policy that reduces the money supply at the rate of time preference

reactive market power analysis using must run indices this paper investigates the issues of reactive power must run capacity in power system operations hence in electricity markets a must run index based method is proposed in the paper to measure the market power held by reactive power suppliers the nordic 32 bus system and the ieee 118 bus system are used to test the proposed method the market power holders of reactive power found using the proposed method are in accord with that found in the realistic nordic system operation and in the existing analysis of ieee 118 bus system the paper identifies through must run indices possible conditions that could lead to market power in the case of applying a bid structure within a market framework furthermore market structure drawbacks can cause the appearance of market power even in a topologically ideal system

a novel cost reducing reactive power market structure for modifying mandatory generation regions of producers abstract in this paper a new reactive power market structure is studied and presented active power flow by itself causes active and reactive losses considering such losses in the reactive power market is the main purpose of this paper therefore this study attempts to improve the reactive power market and create fair competition between producers to that end first a new allocation method for reactive power losses is presented and the contribution of each producer in reactive losses is calculated in the next step this share of losses is used to modify the mandatory generation region of units then a new structure is proposed for the reactive power market this novel structure leads to reduction of system costs in the deregulated power system which is one of the main policy implications of this paper finally simulations show that the total payment by independent system operator will be reduced via application of the proposed methods leading to reduction in system costs this cost reduction will be significant enough to encourage independent system operators to utilize such a structure in addition by implementing the new proposed methods assignment of costs related to reactive power loss will be more justifiable for each generator

liquidity capital controls and exchange rates abstract we present a two country extension of lucas 1990 work on how cash in advance constraints in asset markets affect the pricing of financial assets in the model there is some degree of separation between the goods markets and the asset markets and money is used for transactions in both markets the main results of the paper are the following first the equilibrium level of the exchange rate depends on the share of money used for asset transactions a greater share corresponds to a more appreciated currency second capital controls in the form of taxes on foreign asset acquisitions tend to appreciate the exchange rate third the maturity structure of the public debt affects the equilibrium exchange rate in particular a move towards a longer maturity structure will tend to depreciate the exchange rate jel 31

the exchange rate in a dynamic optimizing business cycle model with nominal rigidities a quantitative investigation this paper studies a quantitative dynamic optimizing business cycle model of a small open economy with staggered price and wage setting the model exhibits exchange rate overshooting in response to money supply shocks the predicted variability of the nominal and especially of the real exchange rate is noticeably higher than in standard real business cycle models with flexible prices and wages a positive domestic money supply shock is predicted to lower the domestic interest rate raise gdp and trigger a depreciation of both the nominal and real exchange rate increases in domestic productivity and in the world interest rate are also predicted to induce a nominal and real exchange rate depreciation 2001 elsevier science b v all rights reserved

central bank liquidity management and unconventional monetary policies central banks that work under an inflation targeting regime generally use an interest rate as the main instrument to implement monetary policy the latter can be denominated conventional monetary policy central banks often deviate from this practice however and engage in other policies to deal with particular situations as these alternatives depart from the usual practice they are generally labeled unconventional policies during the recent global financial crisis and recession of 2008 09 central banks around the world and in latin america in particular responded to exter nal shocks in a variety of ways canales kriljenko and others provide a precise description of how different latin american central banks reacted to the u s financial crisis shock in 2008 with an emphasis on the heterogeneity in the use of unconventional monetary policy instruments 1 for example while colombia and peru lowered reserve requirements in their banking systems the central bank of chile relaxed the collateral requirements for repurchase repo transac tions 2 also chile and peru extended the repayment period in repo transactions these examples illustrate not only the heterogeneity in responses but also the prevalent use of unconventional instruments ishi stone and yehoue note that the central bank interest rate increased rather than decreased in many emerging countries in the months immediately following the fall of lehman brothers 3deviations from conventional policies were observed in latin america even before the recent global financial crisis and before the central banks implemented inflation targeting frameworks most notably central banks have often engaged in sterilized exchange rate interventions to smooth the effects of capital inflows due in part to commodity price booms and the resulting nominal exchange rate appreciation some countries like peru have used these inter ventions quite frequently whereas others have implemented these policies only after extreme movements in the nominal exchange rate for instance in chile even after the inflation targeting policies were already in place in this regard one important policy discussion is the relationship between inflation targeting regimes and liquidity management responses 4 in particular it is not obvious whether the application of such liquidity management policies implied some type of threat to the good implementation of the inflation targeting framework ishi stone and yehoue highlight the difficulties of using econometric time series techniques to evaluate the impact of liquidity man agement policies implemented in an inflation targeting framework because it requires disentangling the impact of each type of policy as well as the impact of the external shocks that presumably triggered the implementation of such policies 5 the fact that such policies were usually in place for just a few quarters further complicates the application of the time series based impact evaluation this paper contributes to the evaluation of such policies by constructing solving and simulating a dynamic stochastic general equilibrium dsge model that explicitly includes the central bank s balance sheet as a key modeling input the model can explicitly predict the impact of selected unconventional monetary policies on the major macroeconomic variables including gross domestic product gdp consumer price index cpi inflation and the real exchange rate and it pays special attention to the role played by the specific facilities used by the central bank to manage market liquidity this paper uses chile as the main case for the application of the model providing a detailed account of its experience with these alternative tools since the introduction of the flexible inflation targeting framework in 1999 and calibrating the model to then analyze the effects of some of the policies implemented the theoretical framework is an extension of a new keynesian model of a small open economy with banks that take deposits from households which is the only way for the latter to finance consumption extending the more traditional cash in advance assumption borrow abroad lend to productive firms and hold bonds issued by the central bank

the long run link between money growth and inflation is inflation always a monetary phenomenon many economists believe that the link between money growth and inflation in the u s has weakened over the last two decades due in part to the federal reserve s policy experiment in 1979 1982 and innovations in the financial sector of the economy i find that the long run relationship between money growth and inflation is strong in a statistical sense and important economically the key result is that the trend or growth component in cpi inflation is entirely due to the trend component of monetary base growth jel c32 e31 e51

open economy macroeconomics developments in theory and policy this paper views developments in open economy macroeconomics through the lens of the debate over european monetary unification the empirical tendency for nominal exchange rate regimes to affect the variability of nominal and real exchange rates alike can be rationalized by sticky price theories or models of asset market liquidity effects but plausible liquidity models have difficulty generating enough persistence to match the data thus the macroeconomic stabilization costs of forgoing the exchange rate realignment option seem pertinent it is argued that our theories of efficiencies due to a common currency remain unsatisfactory despite recent advances the paper concludes by reviewing theories of currency crisis

overshooting and the exchange rate disconnect puzzle a reappraisal transitions to floating exchange rate regimes have led to sharp increases in exchange rate volatilities with no corresponding changes in the distribution of macroeconomic fundamentals in the spirit of dornbusch 1976 we assess whether nominal exchange rate overshooting is responsible for this phenomenon as long as uncovered interest rate parity holds nominal exchange rate overshooting is linked to a persistent fall in the spread between domestic and foreign nominal interest rates we thus develop a limited participation model in a small open economy setting with small adjustment costs on money holdings overshooting substantially contributes to the nominal exchange rate volatility

exchange rate systems and macroeconomic stability abstract we examine macroeconomic stability and the properties of the international transmission of business cycles under three exchange rate systems a flexible a unilateral peg ems and a single currency emu the subjects of study are germany and france in france macroeconomic volatility under emu is comparable to that under a flexible exchange rate system but considerably lower than that under ems in germany output volatility is significantly higher under ems relative to the flexible regime and increases even further under emu inflation though becomes more stable emu also induces a strong negative international transmission of country specific supply shocks and amplifies their role this fact may complicate ecb policymaking

oligopolistic competition of gencos in reactive power ancillary service provisions the need for a market based approach for reactive power procurement has been recognized by ferc due to the localized characteristic of reactive power regulatory mechanisms are necessary to mitigate the possibility of holding market power by generators the regulator is responsible for devising the regulatory mechanisms that provide incentives to generators to supply reactive power while preventing the abuse of market power this paper proposes a mathematical model to simulate the strategic behavior of generators supplying reactive power while considering the system operator s schedule the proposed method can be used by the regulator to simulate the market behavior in the reactive power supply we further study how regulatory policies affect the strategic behavior an alternative price cap method has been proposed and tested in the numerical example to mitigate the effect of strategic behavior of generators in reactive power procurement by the system operator the numerical examples are tested on the nordic 32 bus system

reactive power as an ancillary service this paper addresses the problem of reactive power procurement by an independent system operator iso in deregulated electricity markets a reactive bid structure is proposed in the context of a reactive power market based on the reactive power price offers and technical constraints involved in reactive power planning a two tier approach is developed to determine the most beneficial reactive power contracts for the iso the reactive capability of a generator and therefore the opportunity costs in providing reactive power is also included in the model uncertainty in reactive demand and in reactive bids of participating parties is incorporated through monte carlo simulations and the expected reactive power procurement plan for the iso is hence determined the cigre 32 bus network approximately representing the swedish system is used for the studies

anticipated inflation and the capital stock in a cash in advance economy abstract an economy is constructed in which the steady state capital stock is inversely related to the rate of inflation as a result that is directly opposite the usual conclusion

a method for simulation and analysis of reactive power market this paper presents a method for the simulation and analysis of alternative reactive power market arrangements based on combined reactive power capacity and energy payments the value of reactive power support in terms of both capability and utilisation of each particular generator is quantified using a developed security constrained reactive optimal power flow the relative competitiveness of participating generators is also assessed for a spectrum of arrangements between a reactive capacity and a reactive utilisation based market also the conflicting objectives of the system operator as a purchaser of reactive power service and generators as suppliers of the services are analysed

is schumpeterian creative destruction a plausible source of endogenous real business cycle shocks abstract this paper examines the link between growth and business cycles by incorporating schumpeterian growth into an otherwise standard real business cycle rbc model we ask whether schumpeter s creative destruction process can generate realistic business cycles we solve the model generate artificial time series and compare statistical properties of these series with their historical counterparts in our approach the trend component is included in our artificial series just as it is in the data hence we are not tied to any particular filtering method for our comparisons we find that schumpeterian fluctuations alone can generate time series that match key moments from u s data we also find however that a model with both schumpeterian and standard rbc shocks performs better

an investigation on the reactive power support service needs of power producers reactive power is an important system support service in the current power market power producers or generators have the opportunity to offer this service to make a profit given the fact that a generator needs reactive power to transmit its own active power however it is possible that certain generators cannot support a system even if they are generating reactive power this paper investigates such a phenomenon and proposes a method to determine the minimum amount of reactive power q sub min required for a given generator if a generator cannot supply this minimum amount it actually draws reactive power support from the system to facilitate its own active power selling activity compensation to a generator s reactive power output should be made only to the amount that is above the q sub min amount the proposed ideas are illustrated with simple systems in this paper and tested on a real life power system the test results verified the validity of the proposed concept and method

the cost of annuities implications for saving behavior and bequests the fact that most elderly u s individuals maintain a flat age wealth profile rather than buy individual life annuities contradicts the standard life cycle consumption model average expected yields on individual life annuities in the united states during 1968 1983 were lower by 4 21 6 13 percent or 2 43 4 35 percent after allowing for adverse selection than yields on plausible alternative investments simulations of a model of saving and portfolio allocation show that during the early retirement years such yield differentials can account for the absence of annuity purchases even without a bequest motive at older ages the combination of such yield differentials and a bequest motive can do so it is common experience that as we grow older and nearer to eternity we become more not less anxious about money derek brewer chaucer and his world p 213

common currencies vs monetary independence we study the optimal monetary policy in a two country open economy model under two monetary arrangements a multiple currencies controlled by independent policy makers b common currencies with a centralized policy maker our findings suggest that i monetary policy competition leads to higher long term inflation and interest rates with large welfare losses ii the inflation bias and the consequent losses are larger when countries are unable to commit to future policies iii the welfare losses from higher long term inflation dominates the welfare costs of losing the ability to react optimally to shocks

real exchange rates and macroeconomics evidence and theory since the early 1980s a large body of research has thrown doubt on the relevance of macroeconomic models for understanding exchange rates the authors argue that a balanced reading of recent literature in exchange rate economics gives a more optimistic assessment many studies have established the pertinence of long run purchasing power parity ppp and the explanatory power of macroeconomic fundamentals in real exchange rate fluctuations a reasonably strong case can be made for a traditional macroeocnomic interpretation of real exchange rates which emphasizes short run price stickiness but long run ppp but a central new ingredient in this interpretation is the presence of international commodity market segmentation and persistent deviations from the law of one price an example is given of a dynamic general equilibrium model that can reproduce some of the observed features of real exchange rate fluctuations

life cycle economies and aggregate fluctuations do the implications for business cycle issues change when we switch from studying infinitely lived representative agent models to more sophisticated demographic structures with finitely lived agents this article addresses that question by using a large overlapping generations model that is calibrated to u s demographic properties microeconomic evidence and national income and product accounts the finding is that the answers obtained are basically the same for the two kinds of models the article also explores the relative volatility of hours across age groups an issue that cannot be addressed by using the infinitely lived representative agent abstraction

stochastic multiobjective market clearing of joint energy and reserves auctions ensuring power system security in this paper a stochastic multiobjective framework is proposed for day ahead joint market clearing the proposed multiobjective framework can concurrently optimize competing objective functions including augmented generation offer cost and security indices overload index voltage drop index and voltage stability margin besides system uncertainties including generating units and branches contingencies and load uncertainty are explicitly considered in the stochastic market clearing scheme the solution methodology consists of two stages which firstly employs roulette wheel mechanism and monte carlo simulation mcs for random adaptive 24 h scenario generation wherein the stochastic multiobjective market clearing procedure is converted into its respective deterministic equivalents scenarios in the second stage for each deterministic scenario a multiobjective mathematical programming mmp formulation based on the epsiv constrained approach is implemented for provision of spinning reserve sr and nonspinning reserve nsr as well as energy the mmp formulation of the market clearing process is optimized while meeting ac power flow constraints and expected interruption cost eic the ieee 24 bus reliability test system rts 24 bus is used to demonstrate the performance of the proposed method

liquidity and real activity in a simple open economy model abstract this paper analyzes the ability of an open economy version of lucas s 1990 liquidity model to account for properties of international data the focus is on the model s ability to account for exchange rate dynamics and measured effects of monetary policy shocks on exchange rates interest rates and real activities across countries the model generates a prediction that a positive domestic monetary innovation is associated with nominal and real currency depreciations however the model s predictions with respect to nominal and real exchange rate volatilities are low

the political feasibility of pension reform options the case of switzerland this paper investigates the political feasibility of different hypothetical reform options of an unsustainable pay as you go public pension system in calibrating the model to the swiss economy we find that low internal rates of return and high distortions can reduce political support for an increase in earmarked taxes up to a point where a reduction in the size of the social security program receives a majority of votes our simulations show that the consideration of non social security taxes is crucial in welfare analysis this is especially true for countries in which the public pension system is explicitly or implicitly subsidized

localized reactive power markets using the concept of voltage control areas in this paper we present the design of a localized competitive market for reactive power ancillary services at the level of individual voltage control areas the concept of electrical distance has been used to identify the different voltage control areas within a power system the proposed reactive power market is settled on uniform price auction using a modified optimal power flow model uniform prices for various components of reactive power service are obtained for each voltage control area in the study cases described in the paper we examine whether such a localized reactive power market is more desirable than a common system wide reactive power market

voting when money and morals conflict an experimental test of expressive voting abstract moral considerations may matter much in voting because the costs of expressing support for a morally worthy cause may be low in a referendum these costs depend on whether a voter expects to affect the outcome of the referendum to test the low cost theory of expressive voting we experimentally investigate a proposal to tax everyone and to donate tax revenues the analysis of expectations and voting decisions shows that the low cost theory fails to explain voting decisions instead we find that voters tend to approve of the proposal if they expect others to approve too

international real business cycles we ask whether a two country real business cycle model can account simultaneously for domestic and international aspects of business cycles with this question in mind we document a number of discrepancies between theory and data the most striking discrepancy concerns the correlations of consumption and output across countries in the data outputs are generally more highly correlated across countries than consumptions in the model we see the opposite

capital flows investment and exchange rates abstract this paper incorporates international capital flows into a two country monetary general equilibrium model of asset prices with investment and production we calculate theoretical covariances between investment the current account the exchange rate and the terms of trade these covariances depend upon the coefficient of relative risk aversion the magnitude and sign of a country s net international indebtedness other properties of tastes and technologies and the stochastic processes on disturbances to productivity and monetary growth rates international capital flows arise from changes in world wealth and its relative composition in foreign and domestic assets

the welfare implications of foreign exchange intervention abstract this paper examines the welfare implications of foreign exchange intervention in a two country two currency general equilibrium model with limited participation in financial markets and cash in advance constraints on transactions both sterilized and nonsterilized intervention operations have significant impacts on the allocation of liquidity in international financial markets and therefore affect real economic activities the welfare effects of shocks to monetary policy sterilized and nonsterilized foreign exchange interventions are examined and compared the design of welfare maximizing intervention policy rules is also discussed