an engineering economic approach to estimating the price elasticity of residential electricity demand abstract this paper develops separate methods for projecting short and long run electricity demand the short run econometric analysis accounts explicitly for weather sensitive appliances and distinguishes these from non weather sensitive appliances the long run analysis combines the econometric approach with an engineering accounting approach unlike pure econometric approaches it is able to identify the effect of sharp price increases on electricity demand it treats total price elasticity as the sum of a utilization elasticity and a long run stock adjustment using utility specific data we obtain elasticity estimates at the low end of the range of previous estimates

environmental protection rare disasters and discount rates the stern review s evaluation of environmental protection stresses low discount rates and uncertainty about environmental effects an appropriate model for analysing this uncertainty and the associated discount rates requires sufficient risk aversion and fat tailed uncertainty to account for the observed equity premium calibrations based on epstein zin preferences and existing analyses of rare macroeconomic disasters suggest that optimal environmental investment can be a significant share of gdp even with reasonable rates of time preference optimal environmental investment increases with risk aversion and the probability and typical size of environmental disasters but decreases with uncertainty about policy effectiveness

using asset prices to measure the cost of business cycles we measure the cost of consumption fluctuations using an approach that does not require the specification of preferences and instead uses asset prices we measure the marginal cost of consumption fluctuations the per unit benefit of a marginal reduction in consumption fluctuations expressed as a percentage of lifetime consumption we find that the gains from eliminating all consumption uncertainty are very large however for consumption fluctuations corresponding to business cycle frequencies we estimate the marginal cost to be between 0 08 percent and 0 49 percent of lifetime consumption

optimal liberalization of financial markets abstract as financial markets become completely liberalized countries gain from improved risk sharing but less wealthy countries can no longer profit from borrowing abroad at the lower rate and reinvesting at home at the higher rate with decreasing rather than constant returns to capital the gain from risk sharing is more likely to dominate the loss of the difference between the borrowing rate abroad and the decreasing reinvestment rate at home complete liberalization is likely to be optimal for less wealthy countries unless their labor endowment is large their productivity is large or holdings by foreigners are small as in china

trying to explain home bias in equities and consumption investors hold a substantially larger proportion of their wealth portfolios in domestic assets than standard portfolio theory would suggest a phenomenon called equity home bias in the absence of this bias investors would optimally diversify domestic output risk using foreign equities therefore consumption growth rates would tend to co move across countries even when output growth rates do not empirically however consumption growth rates tend to have a lower correlation across countries than do output growth rates a phenomenon i call consumption home bias in this paper i discuss these two biases and their potential relationship as suggested by the literature

a model of residential demand for electricity using a national household sample abstract using a three equation model demand price appliance stock index and a current national household data set this study develops partial and total elasticity estimates for the usa partial elasticities are 0 102 for income and 0 193 for price while total elasticities are 0 410 for income and 1 403 for price

costs of business cycles for unskilled workers abstract unskilled workers are subject to a much larger risk of unemployment during recessions than are skilled workers moreover unskilled workers earn less income which limits their ability to self insure we examine how this heterogeneity in unemployment risk and income across different skill groups translates into heterogeneity in the cost of business cycles we find that the welfare cost of business cycles for unskilled workers is substantially higher than the welfare cost for skilled workers

incentive problems and the pattern of international risk sharing abstract this paper analyzes the implications of moral hazard and a lack of contract enforcement for risk sharing across countries and regions we demonstrate that both incentive problems can considerably restrict efficient risk sharing however we show that the cross sectional risk sharing component is much more affected than the intertemporal component we argue that this may help to explain several stylized facts of international risk sharing such as the low degree of insurance against permanent shocks

volatility risk and economic welfare this paper examines the effects of time varying volatility on welfare i construct a tractable endogenous growth model with recursive preferences stochastic volatility and capital adjustment costs the model shows that a rise in volatility can decelerate growth in the absence of any level shocks in contrast to level risk which is always welfare reducing for a risk averse household volatility risk can increase or decrease welfare depending on model parameters when calibrated to u s data the model finds that the welfare cost of volatility risk is largely negligible under plausible model parameterizations

pooling risk among countries suppose that international sharing risk worldwide or with large numbers of countries were costly how much risk sharing could be gained in small sets or pools of countries to answer this question we compute the means and variances of poolwide gross domestic product growth for all possible pools of any size drawn from a sample of 74 countries and compare them with the means and variances of consumption growth in each country individually from the difference we infer potential diversification and welfare gains as much as two thirds of the first best full worldwide welfare gains can be obtained in groupings of as few as seven countries the largest potential gains arise from pools consisting of countries in different regions and including countries with weak institutions we argue that international risk sharing fails to emerge because the largest potential gains are among countries that do not trust each other s willingness and ability to abide by international contractual obligations

why do stocks and consumption imply such different gains from international risk sharing abstract estimates of the gains to international risk sharing based upon stock returns tend to find dramatically higher gains than do estimates from consumption based models in this paper i examine the reasons for these differences using a common theoretical framework for both approaches i find that the differences are largely due to the much higher variability of stock returns and its implied intertemporal substitution in marginal utility also contrary to conventional wisdom the differences in gains from the two approaches do not arise from treating stock returns as exogenous rather than endogenous

commodity trade and international risk sharing how much do financial markets matter abstract this paper evaluates the social gains from international risk sharing in some simple general equilibrium models with output uncertainty a simulation model calibrated to selected moments of u s and japanese data estimates the incremental loss from a ban on international portfolio diversification to be on the order of 0 20 percent of output per year even the theoretical gains from asset trade may disappear under alternative sets of assumptions on preferences and technology the paper argues that the small magnitude of potential trade gains may help explain the apparently inconsistent findings of empirical studies on the degree of international capital mobility

doubts or variability reinterpreting most of the market price of risk as a price of model uncertainty eradicates a link between asset prices and measures of the welfare costs of aggregate fluctuations that was proposed by hansen et al 1999 tallarini 2000 and alvarez and jermann 2004 prices of model uncertainty contain information about the benefits of removing model uncertainty not the consumption fluctuations that lucas 1987 2003 studied a max min expected utility theory lets us reinterpret tallarini s riskaversion parameter as measuring a representative consumer s doubts about the model specification we use model detection instead of risk aversion experiments to calibrate that parameter plausible values of detection error probabilities give prices of model uncertainty that approach the hansen and jagannathan 1991 bounds fixed detection error probabilities give rise to virtually identical asset prices as well as virtually identical costs of model uncertainty for tallarini s two models of consumption growth

stabilization with liberalization an evaluation of ten years of chile s experience with free market policies 1973 1983 the recent post 1973 economic experience of chile has attracted considerable attention both from professional economists and from the media most observers have been particularly impressed by the sharp contrasts observed in chile in such a short period of time for example in 1973 chile had one of the highest rates of inflation in the world over 600 whereas in 1981 it experienced one of the lowest rates of inflation 9 5 also in 1975 real gnp declined by 12 9 but during 1977 80 real gnp grew at an average rate of 8 5 per annum in 1982 however the country faced a new recession with real gnp dropping by 14 5 in 1983 the gnp was reduced further by 2 3 the fact that these episodes developed while the military government was actively pursuing free market oriented policies that greatly liberalized the economy adds considerable interest to the chilean case 2 the year 1973 marked an important turning point in chile s economic and political history in september of that year the military took over the government from president salvador allende and a period of dramatic economic changes began chile was transformed from an economy isolated from the rest of the world with strong government intervention into a liberalized world integrated economy where market forces were left free to guide most of the economy s decisions the period 1973 81 was characterized by important achievements inflation was greatly reduced the government deficit was virtually eliminated the economy went through a dramatic liberalization of its foreign sector tariffs were reduced to a uniform 10 level and prices including interest rates were full liberalized probably one of the most interesting aspects of the chilean economy during this period is that major

the welfare cost of macroeconomic uncertainty in the post war period abstract with standard assumptions on preferences and a fully fledged econometric model we computed the welfare costs of macroeconomic uncertainty for post war u s using the beveridge nelson decomposition welfare costs are about 0 9 per capita consumption 175 77 a year and marginal welfare costs are about twice as large

structural changes in residential energy demand abstract residential energy consumers in the usa faced several demand shocks in the 1970s and 1980s these included price rises engineered by the organization of petroleum exporting countries natural gas curtailments shortages of petroleum products and deregulation of energy markets one result of these events has been structural change in the demand for electricity and petroleum by residential consumers demand functions are now more responsive to price changes and consumers react more quickly in adjusting their capital stocks to new levels

the role of expectations in stabilization policy abstract this paper develops and tests a theory of the process by which private agents in an economy form expectations about government policy agents form and update their beliefs about the true state of government policy in a bayesian fashion the credibility of a policy is defined to be the subjective probability that the government is pursuing a reform policy rule the credibility of a reform of monetary or exchange rate policies is a function of the parameters of both monetary and fiscal policies the theory is applied to the chilean and argentine exchange reforms of the late 1970 s

price sensitivity of residential energy consumption in norway abstract the main aim of this paper is to test the stability of the results of a model which focus on the relationship between the choice of heating equipment and the residential energy consumption the results for the income and energy price variables are of special interest stability in the time dimension is tested by applying the model on micro data for each of the years 1993 1995 the parameter estimates are stable within a 95 confidence interval however the estimated impact of the energy price variable on energy consumption was considerably weaker in 1994 than in 1993 and 1995 the results for two different income groups in the pooled data set are also subject to stability testing the energy price sensitivity in residential energy consumption is found to be higher for high income households than for low income households

volatility growth and welfare this paper constructs an endogenous growth model driven by self ful lling expectation shocks to explain the stylized fact that the average growth rate of gdp is related negatively to volatility and positively to capacity utilization the implied welfare gain from further stabilizing the u s economy is about a quarter of annual consumption which is consistent in order of magnitude with estimates based on the empirical studies of ramey and ramey 1995 and alvarez and jermann 2004 hence policies designed to reduce uctuations can generate large welfare gains because smaller uctuations are associated with permanently higher rates of growth

lifeline electricity rates as an income transfer device the lifeline electricity rates are presumed to be inefficient because they violate optimal pricing principles but they may also be an ineffective and inequitable way to transfer assistance to low income households evidence is presented to challenge the assumption that simple demand changes will permit high consuming households to subsidize low income users social security food stamps and other social programs are better alternatives to a general income transfer 7 references 2 tables dck

socioeconomic development and electricity consumption a cross country analysis using the random coefficient method this paper analyses the relationship between electricity consumption and socioeconomic variables by estimating the electricity consumption function on the basis of single year cross country data and using ols and random coefficient rc methods the latter method yields both mean response as well as country specific coefficients while electricity consumption is found to rise with socioeconomic development it is found to be inelastic with respect to changes in all the variables the estimated country specific coefficients with respect to per capita gnp and share of industry in gdp are found not to vary across countries indicating that the impact of these variables on electricity consumption is similar across countries on the other hand the impact of other variables years of schooling gdp growth urbanization and population density is found to vary substantially across countries

the consequences of rigid wages in search models the standard theory of equilibrium unemployment the mortensen pissarides search and matching model cannot explain the magnitude of the business cycle fluctuations in two of its central elements unemployment and vacancies modifying the model to make the present value of wages unresponsive to current labor market conditions amplifies fluctuations in unemployment and vacancies by an order of magnitude significantly improving the performance of the model despite this the welfare consequences of such rigid wages is negligible jel e24 e32 j30 j41 j63 j64

equilibrium consumption and precautionary savings in a stochastically growing economy abstract the derivation of a closed form solution for consumption based on the constant elasticity utility function in the presence of stochastic labor income has proved to be intractable this paper derives a closed form equilibrium relationship between consumption and wealth one that holds along a balanced growth path in a stochastic romer endogenous growth model by employing more general recursive preferences we can disentangle the coefficient of relative risk aversion from the intertemporal elasticity of substitution the effects of key structural parameters on equilibrium consumption and its tradeoff with leisure are analyzed a significant aspect of our analysis concerns the extent to which current risk in the economy is shared between labor and capital this plays an important role in determining the impact of risk on the economy in general and on consumption in particular formal analysis is supplemented with extensive numerical simulations

microeconomic adjustments in chile during 1977 1981 the importance of being a grupo abstract this paper uses the financial statements of industrial firms to provide an integrated firm level view of the changes in the chilean economy during 1977 1981 both real side and financial shocks had major effects on the performance of some types of firms exportable goods producers did relatively poorly in real activities for reasons probably tied to chile s real prolonged exchange rate appreciation import competing firms that began the period with high protection did even worse apparently reflecting the larger change in their output prices as protection was dismantled the reforms thus shifted demand away from industries least in line with the country s comparative advantage but they also hurt exportables the very sector authorities intended to promote on the financial side the highly positive real cost of peso borrowing reduced industrial profits considerably a handful of powerful conglomerates grupos generated large but presumably unrealized capital gains by investing in the securities of related enterprises such activities allowed them to offset relatively poor returns on real operations and their ownership of the country s major banks allowed them to consolidate control of a large volume of assets with debt finance these two results explain why the grupos were suddenly in considerable financial difficulty when the chilean boom ended in 1982

optimal sequencing of credible reforms with uncertain outcomes abstract we study a two period representative agent economy in which economic liberalization is modeled as adding a positive random variable to the marginal product of capital we show liberalization always raises the expected utility of agents agents may respond to this by increasing consumption in the first period consequently consumption in the second period is sometimes smaller than the in the first depending on the realization of the random variable this tail may cause the government to reject liberalization of declining gdp enters negatively in the government s objectives we apply these results to the chilean experience of the 1980s

long dark shadows or innovative spirits the effects of smoothing business cycles on economic growth a survey of the literature abstract it is argued that fiscal policy can play a part in preventing a possible downward spiral or be instrumental in achieving a higher long term path of growth never before has this argument been advanced as frequently as in the current economic crisis however the economic literature an overview of which is given here does not provide an unambiguous answer either theoretically or empirically to the question of the relationship between the smoothing of cyclical fluctuations and long term growth in this context two main contrasting explanatory paradigms can be identified schumpeter s concept of creative destruction and the learning by doing hypothesis even if it were possible to identify the relationship more clearly on this basis it is important not to lose sight of the problems associated with the real time assessment of the current economic situation time lags and political economic incentives even in difficult times

financial liberalization and adjustment the cases of chile and new zealand abstract this paper analyzes macrodynamic adjustments during financial liberalization in chile and new zealand during the adjustment to more open capital accounts in the late 1970s or mid 1980s both countries experienced a real exchange rate appreciation and a collapse of net exports while domestic interest rates slowly converged to international levels this paper develops and estimates a two sector dynamic model with current and time varying parameter techniques the domestic interest rate is relatively more responsive to shocks under imperfect capital mobility while the real exchange rate becomes more responsive under perfect mobility therefore capital account liberalization does not eliminate but rather shifts volatility from the domestic interest rate to the real exchange rate jel e65 f33

how big are potential welfare gains from international risksharing abstract there is extensive evidence that risksharing across countries is far from perfect some have attributed this to small benefits from risksharing gains from riskpooling that have been reported range from negligible to enormous this paper documents to what extent the results are sensitive to the parameterization of preferences the stochastic process of the endowment and its measurement we find that gains from risksharing are quite sizable for realistic assumptions about the underlying factors for oecd countries they are equivalent to a permanent increase in tradables consumption in the range of 1 1 to 3 5 for a 50 year horizon and 2 5 to 7 4 for a 100 year horizon

asset bubbles and the cost of economic fluctuations lucas 1987 2003 estimates that the cost of economic fluctuations is low a social planner would pay no more than 0 1 of permanent consumption to eliminate all future business cycle fluctuations the current paper extends lucas calculations by studying the costs of fluctuations arising from asset bubbles we estimate two classes of costs consumption volatility due to asset bubbles in a representative agent economy and consumption volatility that arises because households have heterogeneous exposure to the bubble assets we show that the magnitude of welfare costs is primarily driven by the existence of heterogeneity our benchmark calibration implies that the asset bubbles of the last decade generated a social welfare cost equal to a permanent 3 reduction in the level of national consumption if assets are held proportionately across the population these welfare costs fall by an order of magnitude our calculations are sensitive to the details of the calibration including the degree of balance sheet and trading heterogeneity the coefficient of relative risk aversion and the magnitude of the asset bubble our preferred specifications generate welfare costs ranging from 1 to 10 of permanent national consumption

international risk sharing and european monetary unification abstract we explore income and consumption smoothing patterns among european community ec countries and among oecd countries during the period 1966 90 we find that for oecd as well as for ec countries about 40 percent of shocks to gdp are smoothed at the one year frequency with about half the smoothing achieved through national government budget deficits and half by corporate saving at the three year differencing frequency only 25 percent of shocks to gdp are smoothed mainly via government lending and borrowing in the absence of alternative income and consumption smoothing mechanisms the restrictions on budget deficits imposed by the maastricht treaty should be relaxed to allow governments to run large temporary deficits in response to output shocks

capital mobility in developing countries some empirical tests abstract the degree of capital mobility in developing economies is seldom estimated even though it is widely recognized to be an important element in determining the effects of stabilization policies instead an economy is assumed to be open or closed mainly on considerations of analytical convenience this paper develops an approach to modeling and measuring the degree of financial openness which is applicable to developing economies and has intuitive appeal empirical estimation using data from a large number of developing countries suggests that the effective degree of capital mobility in such economies may be higher than commonly assumed

financial integration and growth in a risky world abstract we revisit the debate on the benefits of financial integration in a two country neoclassical growth model with aggregate uncertainty the framework accounts simultaneously for gains from a more efficient capital allocation and gains from risk sharing together with their interaction global numerical methods allow for meaningful welfare comparisons gains from integration are quantitatively small even for riskier and capital scarce emerging economies these countries import capital for efficiency reasons before exporting it for self insurance leading to capital flows and growth reversals along the transition this opens the door to richer empirical implications than previously considered in the literature

welfare gains from international risksharing abstract this paper uses consumption data to compute yet unexploited welfare gains that can be achieved through risksharing among twenty oecd countries there is both aggregate national consumption risk and nondiversifiable individual specific risk countries engage in an optimal risksharing arrangement to pool risk associated with the aggregate consumption endowment streams welfare gains are associated with reduced consumption variability and with the international pricing of the consumption streams of individual countries the paper considers the standard vnm time additive preferences as well as nonexpected utility and habit formation preferences large unexploited gains are found under all sets of preferences leading to an international risksharing puzzle

the spirit of capitalism asset pricing and growth in a small open economy abstract conventional models of economic behavior have failed to account for a number of observed empirical regularities in macroeconomics and international economics this may be due to preference specifications in conventional models in this paper we consider preferences with the spirit of capitalism the desire to accumulate wealth as a way of acquiring status we analyze a number of potential effects of international catching up and the spirit of capitalism on savings growth portfolio allocation and asset pricing moreover we obtain a multi factor capital asset pricing model capm our results show that status concerns have non trivial effects on savings growth portfolio allocation asset prices and the foreign exchange risk premium

monetarism in chile 1973 1983 some economic puzzles the most recent of these experiments began in 1973 after the military overthrew president salvador allende in the 10 years following the coup the military implemented deep reforms directed toward transforming chile from an economy semi isolated from the rest of the world with strong governmental intervention into a liberalized worldintegrated economy where market forces were freely left to guide most of the economy s decisions these liberalization reforms were carried out at the same time that a major stabilization program aimed at reducing a 600 rate of inflation was being implemented many of the policies undertaken roughly correspond to what a vast number of economists have been advocating for developing countries trade was liberalized the capital account was partially opened interest rates were freed and an active domestic capital market was developed the fiscal system was reformed with a value added tax replacing a cascading sales tax the social security system was reformed and the private sector began to play a more active role in the growth and development

evaluating risky consumption paths the role of intertemporal substitutability abstract in dynamic stochastic welfare comparisons a failure clearly to distinguish between risk aversion and intertemporal substitutability can result in misleading assessments of the impact of risk aversion on the welfare costs of consumption risk changes the problem arises in any setting in which uncertainty is propagated over time notably but not exclusively in economies with stochastic consumption trends regardless of the preference setup adopted an increase in risk aversion amplifies the per period costs of risks the weights consumers use to cumulate the per period costs of risks with persistent effects should however depend on intertemporal substitutability as well as on risk aversion under time separable expected utility preferences an increase in the period utility function s curvature therefore alters the welfare effect of risk for reasons that are in part unrelated to risk aversion to illustrate these points i reconsider lucas s estimate of the cost of consumption instability for the postwar united states

testing capital account liberalization without forward rates another look at chile 1979 1982 abstract the paper offers a way to test the impact of capital account liberalization on domestic interest rates when proxies for expectations of depreciation are unavailable the model is tested on the well understood japanese experience in 1979 1980 and then applied to the chilean liberalization from 1979 1982 the evidence points to chilean monetary authorities retaining significant control over interest rates across the period and offers support to an evolving interpretation of the period that stresses the excessive optimism about the reforms rather than their lack of credibility as the source of their ultimate collapse

appliance specific electricity consumption in slovene households abstract on the basis of a national household survey carried out in 1983 this study presents estimates of electricity use per appliance our estimates of electricity use for space heating water heating and cooking are considerably lower than the engineering estimates the estimates for other electricity using appliances broadly conform with engineering estimates our low estimate of the short run income elasticity is in close agreement with other studies

residential demand for fuelwood this is the first national microbased study of residential demand for wood as fuel the data are from the us department of energy residential energy consumption survey the model employs a somewhat unique interaction dummy for price that allows the simultaneity problem to be adjusted for in a 2sls format and then the interaction term to be calculated and entered in the second stage results are compared with elasticity estimates derived from the same data set for the four other main residential fuels wood has a price elasticity of 0 421 for main users

rare disasters asset prices and welfare costs a representative consumer model with epstein zin weil preferences and i i d shocks including rare disasters accords with observed equity premia and risk free rates if the coefficient of relative risk aversion equals 3 4 if the intertemporal elasticity of substitution exceeds one an increase in uncertainty lowers the price dividend ratio for equity and a rise in the expected growth rate raises this ratio calibrations indicate that society would willingly reduce gdp by around 20 percent each year to eliminate rare disasters the welfare cost from usual economic fluctuations is much smaller though still important corresponding to lowering gdp by about 1 5 percent each year

lifeline electricity rates as an income transfer device comment the authors question the supporting evidence given in an earlier paper by burgess and paglin eapa 7 4039 they suggest using the national interim energy consumption survey niecs as an alternative base and present a new set of equations to validate the income elasticity of demand in the justification of lifeline rates burgess and paglin reply noting that garbacz s study raises questions about a national requirement for lifeline rates 4 references 5 tables dck

reforms and macroeconomic adjustments in chile during 1974 1984 abstract this paper provides a background on the main macroeconomic developments of the reform period after a review of the macroeconomic disequilibrium before the reforms the paper interprets the macroadjustments the interpretation covers two distinct periods 1973 1976 when policy was based on a closed economy view and 1977 1982 when macropolicy was increasingly guided by an open economy model the paper argues that the setback that chile suffered during 1982 1983 and the large external debt that was accumulated were the result of two major errors the first was the use of the exchange rate to stabilize prices without due regard for the incentives for large capital inflows that arose from this policy at a time when international capital markets were very liquid the second major error was in the second half of 1981 after a large drop in capital inflows the authorities relied on an automatic adjustment mechanism by which the monetary squeeze from the reduction in capital inflows would improve the real exchange rate because wages were indexed to prior inflation the adjustment mechanism was bound to create substantial unemployment as indeed was the case the paper concludes with the assessment that most of the micro reforms were in the right direction and had the expected result and the errors were mostly in the design of macroeconomic policies

the time series properties of aggregate consumption implications for the costs of fluctuations the properties of the stochastic process followed by aggregate consumption affect the estimates of the costs of fluctuations this paper pursues two approaches to modeling consumption dynamics and measuring how much society dislikes fluctuations one statistical and one economic the statistical approach estimates the properties of consumption and calculates the costs of having consumption fluctuating around its mean growth the paper finds that persistence is a crucial determinant of the costs and that the high persistence in the data severely distorts conventional measures it shows how to compute valid estimates and confidence intervals the economic approach uses a calibrated model of optimal consumption and measures the costs of eliminating income shocks this uncovers a further cost of uncertainty through its impact on precautionary savings and investment the two approaches lead to costs of fluctuations that are higher than the common wisdom between 0 5 and 5 of per capita consumption jel e32 e21 e60

residential energy demand additional empirical evidence by minority household type abstract in a number of recent studies household level data for specific urban areas or national household level micro data have been used to estimate price and income elasticities of energy demand none of this literature however provides us with elasticity estimates by minority majority household type the main focus of this paper is to measure the responsiveness of the quantity of electricity and total energy demanded for black hispanis and majority households to price and income price and income elasticities are compared among these groups over the short and long term a variable elasticity demand model is estimated the elasticities are allowed to vary with respect to non price and income variables the price elasticities of demand vary with heating and cooling degree days and the income elasticities with the number of household members mean estimates were calculated over the respective samples findings indicate that demand for electricity is relatively price inelastic irrespective of household group however blacks are more sensitive to variations in the short run to price than hispanic and majority households in the long run blacks are also more sensitive to price changes but the magnitude of the response to price changes in the long run relative to the short run is larger for hispanics and majority households respectively than for blacks

taxation risk taking and growth a continuous time stochastic general equilibrium analysis with labor leisure choice abstract this paper investigates the equilibrium relationship between taxation portfolio choice risk taking and capital accumulation specifically it examines how taxes affect risk taking and capital accumulation we extend the existing literature by relaxing two crucial assumptions in modelling risk taking behavior i that the investment opportunity set is fixed and ii that there is no distinction between attitudes towards risk and behavior towards intertemporal substitution we extend the investment opportunity set of individuals through optimally determined human capital and distinguish intertemporal substitution from attitudes towards risk via a recursive utility function in the presence of these extensions the paper successfully derives a closed form solution to the stochastic growth model with stochastic wage income

electricity policies for low income households this paper discusses the implications of restructuring the u s electricity industry for low income energy policy and low income households the paper discusses the historical development of existing low income energy policies and programs federal policy has focused primarily on addressing the heating needs of low income customers state policy has traditionally vested the vertically integrated utility with much of the responsibility to provide energy programs to low income customers the paper considers how industry restructuring may affect the appropriateness of these policies and programs the paper describes new policies to provide low income electricity services that could be developed in parallel with broader industry restructuring efforts

electricity consumption and economic growth in jamaica abstract this study examines the relationship between electricity consumption and economic growth in jamaica during 1970 86 a period of rapid increase in energy prices the results show that the aggregate demand for electricity is slightly income elastic electricity has a significant impact on economic growth the electricity intensity has increased over time residential demand is fairly income elastic commercial demand is price inelastic and the rate of adjustment is slow these results suggest that conservation policies could be ineffective therefore indigenous sources of electricity are important for jamaica to be less dependent on imported energy

on the welfare costs of business cycle fluctuations and economic growth variation in the 20th century and beyond lucas 1987 has shown a surprising result in business cycle research the welfare cost of business cycles are very small our paper has several original contributions first in computing welfare costs we propose a novel setup that separates the eects of uncertainty stemming from business cycle uctuations and economic growth variation second we extend the sample from which to compute the moments of consumption the whole of the literature chose primarily to we gratefully acknowledge the comments of caio almeida carlos e da costa robert f engle pedro c ferreira antonio fiorencio rodolfo manuelli samuel pessoa and octavio tourinho on this or on earlier versions of this paper all errors are ours we thank cnpq brazil faperj and inct for nancial support y corresponding author

residential demand for electricity the case of greece this paper examines the determinants of residential electricity consumption in greece over the period 1961 86 the paper presents first a brief description of the evolution of residential electricity consumption then it proceeds in the estimation of elasticities of residential demand for electricity using a single equation model with the ridge regression method the paper concludes that i the residential demand for electricity is price inelastic and income elastic ii there is high substitutability between electricity and lpg iii during the examined period the number of consumers played a very important role in the expansion of electricity consumption in greece and iv there is no regional variation in residential electricity demand

short run residential demand for fuels a disaggregated approach a disaggregated model of residential energy demand is specified and then used to examine the data and econometric techniques available to estimate such a model inconsistencies in the currently popular random effects model and weighted least squares generate inconsistent parameter estimates for short run modeling some of the currently available pooled data is of poor quality the principal data series of concern are the appliance stock series but current research is attempting to improve aggregate data while the disaggregated elasticities reported can only be considered tentative the approach combined with better data and econometric techniques will produce an important policy tool the regression results are summarized in two tables in the appendix 42 references 5 tables

perturbation solution and welfare costs of business cycles in dsge models abstract lucas 1987 argues that the removal of cyclical fluctuations would barely improve economic welfare he considers a risk averse consumer valuing exogenously given streams of consumption c t c e g t e 2 2 t driven by an iid sequence of draws t from a standard normal distribution this allows him to change the size 2 of the fluctuations without changing the mean of the process in production economies too uncertainty is typically introduced in form of multiplicative log normally distributed shocks so that mean preserving spreads can be analyzed in an analogous way however only few stochastic dynamic general equilibrium dsge models admit an analytic solution the most prevalent method to solve these models perturbation methods obtain an approximation to the stochastic model by perturbing the solution of the model s deterministic counterpart with respect to the uncertainty parameter yet widely available formulae to compute perturbation solutions are based only on the perturbation of t and do not adequately capture the additional deviation 2 2 in the mean between the stochastic model and its deterministic version we show within a model admitting an analytical solution that a second order approximation of the welfare criterion also requires to perturb the mean thus welfare measures based on the standard procedures for second order solutions are seriously biased by a purely exogenous mean effect we develop a general procedure of computing second order accurate approximations of welfare gains or losses in the canonical dsge model by extending the computation of second order solutions pioneered by schmitt grohe and uribe 2004 to allow for mean preserving increases in the size of shocks we apply our method to the model considered by cho et al 2015 and show that different from the results reported by these authors removing the cycle is always welfare improving welfare measures computed from weighted residuals methods confirm the logic behind our perturbation approach and verify the accuracy of our estimates

cost of business cycles with indivisibilities and liquidity constraints it is almost universally agreed that individuals face incomplete insurance markets and cannot perfectly insure against the idiosyncratic risk in this paper simple general equilibrium models with incomplete insurance markets are examined in order to assess the impact of imperfect insurance on the magnitude of the welfare costs of business cycles two versions of incomplete insurance markets are considered and certain statistical properties of the equilibrium stochastic processes in these environments are compared with those of a perfect insurance economy

on the welfare cost of economic fluctuations in developing countries macroeconomic fluctuations are much stronger in developing countries than in the united states yet while a large literature debates the welfare cost of economic fluctuations in the united states it remains an open question how large that cost is in developing countries using several models we provide such a measure we find that the welfare cost of consumption volatility per se is far from trivial and averages a substantial multiple of the corresponding u s estimate moreover in many poor countries the welfare gain from eliminating volatility may in fact exceed the welfare gain from an additional percentage point of growth forever

seigniorage as a tax a quantitative evaluation in this paper we construct a computable general equilibrium model calibrate it to selected data for the american economy and use it to explore the efficacy of the seigniorage tax associated with various monetary arrangements we find that the key feature of any monetary tax arrangement is its equilibrium after tax real return schedule on liquid assets held by the households we also find that considerable seigniorage which we define to be the diserence between government expenditures other than interest paid on government debt and taxes collected can be large we find that the seigniorage tax is a poor one relative to a tax on labor income ln particular we find that if the after tax real return on saving deposits is 5 percent as it was on average in the 1974 1978 period welfare is one half percent of consumption lower than it would be if the after tax real return were zero as it approximately was in both the 1964 1968 and 19841988 periods the work builds on that of a imrohoroglu 1990 who finds that for worlds in which non interest bearing nominal assets are the only liquid assets the cost of constant inflation is far greater than the area under the empirical demand for money relation with such arrangements the after tax real return is the negative of the inflation rate the key feature of her model is that agents hold money in order to smooth consumption in the face of idiosyncratic income variability for which there

home bias and international risk sharing twin puzzles separated at birth abstract we document that international home bias in debt and equity holdings declined during the period 1993 2003 at the same time as international risk sharing increased using panel data regressions for oecd countries we demonstrate that less home bias is associated with more international risk sharing more generally we show that more financial integration is associated with more risk sharing when we measure financial integration as the ratio of foreign assets to gross domestic product our results indicate that risk sharing and international financial integration are closely related empirical phenomena

the cost of business cycles under endogenous growth robert e lucas jr argued that the welfare gains from reducing aggregate consumption volatility are negligible subsequent work that revisited his calculation continued to find small welfare benefits further reinforcing the perception that business cycles do not matter this paper argues instead that fluctuations can affect welfare by affecting the growth rate of consumption i show that fluctuations can reduce growth starting from a given initial consumption which can imply substantial welfare effects as lucas himself observed empirical evidence suggests the welfare effects are likely to be substantial about two orders of magnitude greater than lucas original estimates

the demand for electricity and natural gas in the northeastern united states the demand for natural gas and electricity for the residential commercial and industrial sectors was estimated using a combination of the error components model and seemingly unrelated regressions the estimated demand models showed both natural gas and electricity to be price elastic in the long run and price inelastic in the short run in all sectors except the commercial sector in which electricity demand is unresponsive to its own price natural gas had negligible income elasticities in the residential and commercial sectors and a long run income elasticity of 2 86 in the industrial sector electricity had an insignificant income effect in all sectors but the industrial where its long run elasticity was unitary only in the residential demand for natural gas is the cross price elasticity substantial with the price of electricity having a long run cross elasticity of 1 70 fuel oil prices generally had a negative impact probably indicating a large income effect the elasticities of adjustment were higher for natural gas than electricity indicating a faster adjustment to change either in response to greater instability in energy availability or reflecting more alternative fuels or both 16 references 4 tables

intertemporal substitution risk aversion and economic performance in a stochastically growing open economy abstract the constant elasticity utility function implies that the intertemporal elasticity of substitution is the inverse of the coefficient of relative risk aversion with empirical evidence suggesting that this relationship may or may not hold studies of risk and growth should decouple these two parameters this paper provides an analytical characterization and numerical simulations of the equilibrium of a stochastically growing small open economy under general recursive preferences we show that errors committed by using the constant elasticity utility function even for small violations of the compatibility condition can be substantial our results suggest that the constant elasticity utility function should be employed with caution