the economics of a blend mandate for biofuels a biofuel blend mandate may increase or decrease consumer fuel prices with endogenous oil prices depending on relative supply elasticities biofuel tax credits always reduce fuel prices tax credits result in lower fuel prices than under a mandate for the same level of biofuel production if tax credits are implemented alongside mandates then tax credits subsidize fuel consumption instead of biofuels this contradicts energy policy goals by increasing oil dependency co 2 emissions and traffic congestion while providing little benefit to either corn or ethanol producers these social costs will be substantial with tax credits costing taxpayers 28 7 billion annually by 2022 copyright 2008 oxford university press

frictionless commerce a comparison of internet and conventional retailers there have been many claims that the internet represents a new nearly frictionless market our research empirically analyzes the characteristics of the internet as a channel for two categories of homogeneous products books and cds using a data set of over 8 500 price observations collected over a period of 15 months we compare pricing behavior at 41 internet and conventional retail outlets we find that prices on the internet are 9 16 lower than prices in conventional outlets depending on whether taxes shipping and shopping costs are included in the price additionally we find that internet retailers price adjustments over time are up to 100 times smaller than conventional retailers price adjustments presumably reflecting lower menu costs in internet channels we also find that levels of price dispersion depend importantly on the measures employed when we compare the prices posted by different internet retailers we find substantial dispersion internet retailer prices differ by an average of 33 for books and 25 for cds however when we weight these prices by proxies for market share we find dispersion is lower in internet channels than in conventional channels reflecting the dominance of certain heavily branded retailers we conclude that while there is lower friction in many dimensions of internet competition branding awareness and trust remain important sources of heterogeneity among internet retailers

oil price volatility and the asymmetric response of gasoline prices to oil price increases and decreases this paper analyzes the effect of volatility in oil prices on the degree of asymmetry in the response of gasoline prices to oil price increases and decreases several time series measures of the asymmetry between the responses of gasoline prices to oil price increases and decreases and several measures of the oil price volatility are constructed in all models the degree of asymmetry in gasoline prices declines with an increase in oil price volatility the results support the oligopolistic coordination theory as a likely explanation of the observed asymmetry and are not consistent with the standard search theory and the search theory with bayesian updating

bayesian estimation and selection of nonlinear vector error correction models the case of the sugar ethanol oil nexus in brazil nonlinear adjustment toward long run price equilibrium relationships in the sugar ethanol oil nexus in brazil is examined we develop generalized bivariate error correction models that allow for cointegration between sugar ethanol and oil prices where dynamic adjustments are potentially nonlinear functions of the disequilibrium errors a range of models are estimated using bayesian monte carlo markov chain algorithms and compared using bayesian model selection methods the results suggest that the long run drivers of brazilian sugar prices are oil prices and that there are nonlinearities in the adjustment processes of sugar and ethanol prices to oil price but linear adjustment between ethanol and sugar prices

endogenous market segmentation for lemons information asymmetry between sellers and buyers often prevents socially desirable trade this article presents a new mechanism that mitigates the inefficiencies caused by information asymmetry i consider decentralized markets under adverse selection and show that such markets can be endogenously segmented in a way that improves social welfare endogenous segmentation is driven by low quality sellers incentive to attract more buyers by separating from high quality sellers the mechanism helps us understand the roles of several real world institutions such as multiple marketplaces costless advertisements and nonbinding list prices

income generating effects of biofuel policies a meta analysis of the cge literature abstract while the production of biofuels has expanded in recent years findings in the literature on its impact on economic growth and development remain contradictory this paper presents a meta analysis of computable general equilibrium cge studies published between 2006 and 2017 on the effect of biofuel production on economic development worldwide using 30 cge studies we found that biofuel supportive policies generated significant impacts on gdp and household incomes cge studies included in our database reported an average 0 25 percentage point increase in gdp and a 0 49 percentage point increase in household incomes we also found that results were driven by several key features of the cge studies included in our database we investigated features such as biofuel type geographic area and characteristics of the cge models employed we found that biofuel expansion has heterogeneous effects in developed versus emerging countries simulations on longer time periods and in multi country studies led to results that indicate higher impacts of biofuel expansion on gdp growth and household incomes moreover simulations with an increase in agricultural productivity indicate positive welfare impact gains unlike simulations with land expansion lastly we found that biodiesel development leads to higher welfare impact gains than that of bioethanol

fiscal windfall curse abstract we study the impact of a one off exogenous fiscal windfall on local public finances in the canton of zurich in switzerland in contrast to much of the literature of resource windfalls the windfall occurred in a stable democracy with strong fiscal institutions it was due to the ipo of glencore on the london stock exchange in 2011 as a result its ceo paid an extraordinary tax bill of approximately chf 360 million about chf 238 million of that extra tax revenue entered the municipal resource equalization scheme and rained down on the municipalities of the canton of zurich this quasi experimental setup and our unusually rich dataset allow us to estimate the causal effect of this one off windfall on all municipal accounting positions we show that it triggered large permanent expenditure increases targeting specific groups mostly public employees at the same time as general tax cuts and user charge hikes the resulting imbalances caused a 7 5 fold increase in gross debt relative to the windfall this massive overreaction hints at a substantial fiscal windfall curse even with strong fiscal institutions 178 words

value at risk estimation with the optimal dynamic biofuel portfolio abstract in the past petroleum companies only paid attention to hedging the variation in the crude oil price and volatility however they have now expanded their analysis to encompass renewable sources such as corn and soybeans under the current low carbon biofuel obligations this paper employs garch 1 1 and arji models to estimate the one day ahead value at risk var of the optimal dynamic biofuel portfolio which consists of crude oil corn and soybeans the optimal blended standard is subject to the dual limitations of minimum production costs and the lowest biofuel using requirements our empirical findings confirm that the arji model is more suitable than the garch 1 1 model and further captures the discontinuous jump behavior from the in the sample data the results of out of sample forecasts also are represented that our models play important roles in var estimation and risk management for biofuel portfolio we therefore suggest that the petroleum companies should simultaneously pay attention to jump risk in hedging material costs in the prices of energy related crops

how does increased corn ethanol production affect us natural gas prices abstract in recent years there has been a push to increase biofuel production in the united states the biofuel of choice so far has been ethanol produced from corn the effects of increased corn ethanol production on the consumer prices of food and energy continue to be studied and debated this study examines in particular the effects of increased corn ethanol production on us natural gas prices a structural model of the natural gas market is developed and estimated using two stage least squares a baseline projection for the period 2007 2018 is determined and two scenarios are simulated in the first scenario current biofuel policies including eisa mandates tariffs and tax credits are removed in the second scenario we hold ethanol production to the level required only for largely obligatory additive use the results indicate that the increased level of corn ethanol production occurring as a result of the current us biofuel policies may lead to natural gas prices that are as much as 0 25 higher on average than if no biofuel policies were in place a similar comparison between the baseline and second scenario indicates natural gas prices could be as much as 0 5 higher on average for the same period

biodiesel as a motor fuel price stabilization mechanism abstract this article studies the capacity of biofuels to reduce motor fuel price fluctuations for this purpose we study dependence between crude oil and biodiesel blend prices in spain copula models are used for this purpose results suggest that the practice of blending biodiesel with diesel can protect consumers against extreme crude oil price increases

macroeconomic volatility and external imbalances abstract does macroeconomic volatility uncertainty affects accumulation of net foreign assets in oecd economies over the period 1970 2012 changes in country specific aggregate volatility are after controlling for a wide array of factors significantly positively associated with net foreign asset position a standard open economy model with time varying macroeconomic uncertainty can quantitatively account for this relationship the key mechanism is precautionary motive more uncertainty induces residents to save more and higher savings are in part channeled into foreign assets data and theory suggest that volatility is an important determinant of the medium long run evolution of external imbalances in developed countries

assessment and optimization of forest biomass supply chains from economic social and environmental perspectives a review of literature abstract forest biomass is a renewable source that has the potential to substitute fossil fuels in many applications from the generation of bioenergy heat electricity or transportation fuels to the production of bioproducts chemicals and other materials the increased use of forest biomass could support the reduction of anthropogenic carbon emissions to the environment and could help forest dependent communities achieve energy independence while generating jobs the viability and feasibility of generating valuable products from forest biomass depend on ensuring the long term availability of biomass supply with the required quality at a competitive cost this calls for a cost efficient design of the forest biomass supply chain social and environmental aspects have to be considered in the design as well to guarantee sustainable use of this renewable resource in this paper we present a review of studies that assessed or optimized economic social and environmental aspects of forest biomass supply chains for the production of bioenergy and bioproducts the majority of studies so far considered either economic techno economic and optimization studies or environmental life cycle assessment studies aspects of bioenergy projects nevertheless there is a recent trend to integrate economic environmental and social aspects in the assessment and optimization of forest biomass supply chains combined approaches integrating multi objective optimization and life cycle assessment have started to flourish in these studies ghg emissions are the most frequently used environmental indicator production and capital costs are the preferred economic measures and the number of created jobs is the most considered social criterion further research has to be done to study and assess the potential social impacts of using forest biomass there is a need for further development of decision support tools that consider economic environmental and social criteria to aid the design and planning of forest biomass supply chains

testing for common features in north american energy markets abstract using recent advances in the field of applied econometrics we explore the strength of shared trends and shared cycles between north american natural gas and crude oil markets in doing so we use daily data from january 1991 to april 2001 on spot u s henry hub natural gas and wti crude oil prices the results show that there has been decoupling of the prices of these two sources of energy as a result of oil and gas deregulation in the united states we also investigate the interconnectedness of north american natural gas markets and find that north american natural gas prices are largely defined by the u s henry hub price trends

considering macroeconomic indicators in the food before fuel nexus abstract a structural vector autoregression svar model along with a direct acyclic graph is employed to decompose how supply demand structural shocks affect food and fuel markets the results support the hypothesis that fundamental market forces of demand and supply are the main drivers of food price volatility increased biofuel production may cause short run food price increases but not long run price shifts decentralized freely operating markets will mitigate the persistence of any price shocks and restore prices to their long run trends the main policy implications are that oil gasoline and ethanol market shocks do not spillover into grain prices which indicates no long run food before fuel issue in the short run grain prices can spike due to market shocks so programs designed to blunt these price spikes may be warranted

on the prevalence of trends in primary commodity prices abstract this paper applies new time series procedures to examine the prebisch singer hypothesis of a secular deterioration in relative primary commodity prices specifically we allow for up to two structural breaks in 24 price series covering the 1900 98 period for the majority of commodities it is shown that the trend is not well represented by a single downward slope but instead by a shifting trend that often changes sign over the sample period unlike some recent work that has also allowed for structural breaks these results provide much less support for the prebisch singer hypothesis

global land use implications of first and second generation biofuel targets recently an active debate has emerged around greenhouse gas emissions due to indirect land use change iluc of expanding agricultural areas dedicated to biofuel production in this paper we provide a detailed analysis of the iluc effect and further address the issues of deforestation irrigation water use and crop price increases due to expanding biofuel acreage we use globiom an economic partial equilibrium model of the global forest agriculture and biomass sectors with a bottom up representation of agricultural and forestry management practices the results indicate that second generation biofuel production fed by wood from sustainably managed existing forests would lead to a negative iluc factor meaning that overall emissions are 27 lower compared to the no biofuel scenario by 2030 the iluc factor of first generation biofuels global expansion is generally positive requiring some 25 years to be paid back by the ghg savings from the substitution of biofuels for conventional fuels second generation biofuels perform better also with respect to the other investigated criteria on the condition that they are not sourced from dedicated plantations directly competing for agricultural land if so then efficient first generation systems are preferable since no clear technology champion for all situations exists we would recommend targeting policy instruments directly at the positive and negative effects of biofuel production rather than at the production itself

assessing alternative investment policies in a resource rich capital scarce country results from a dsge analysis for iran abstract this study mainly aims to assess the impact of an oil revenue shock on iran s macroeconomic variables using a new keynesian dsge model as well as considering some main resource rich developing countries characteristics such as capital scarcity government s dominance in the economy and public investment inefficiencies features here the macroeconomic outcomes of implementing an alternative fiscal rule namely modified bird in hand mbih in which both the development of infrastructures and future generations needs are taken into account are investigated and compared with the fiscal rule of the base scenario the results are considered in four directions first an oil revenue increase shock causes the macroeconomic variables to rise in both scenarios but the variables private sector production consumption total investment and non oil gdp have a more increase under the mbih scenario second oil revenue accumulation in the oil fund under the mbih scenario is significantly more than that in the base scenario third government budget deficit experiences a higher increase and public sector production experiences a less rise under the mbih scenario fourth the sensitivity analysis of public investment inefficiency shows that this factor acts as a serious barrier to the realization of the government s investment goals therefore performing the first best mbih fiscal rule entails the reduction of the government s budget dependency on oil revenues through expanding the tax base improving the public investment efficiency and shrinking the public sector

price cycles and asymmetric price transmission in the u s pork market economists have proposed several plausible explanations for observed price transmission asymmetries in commodity markets unfortunately the econometric methods commonly used in such studies cannot empirically distinguish pricing behavior under the competing theories we argue that the theories may be classified by firm responses to high and low frequency price cycles and use engle s band spectrum regression to test the symmetry of high and low frequency cycles in weekly pork prices the findings indicate that changes in wholesale prices are asymmetrically transmitted to retail prices in relatively low frequency cycles which does not support search costs and other high frequency explanations conversely wholesale pork prices asymmetrically adjust to changes in farm prices at all frequencies copyright 2001 oxford university press

equity and time to sale in the real estate market evidence from the boston condominium market of the early 1990s reveals that an owner s equity position determines his experience as a seller an owner of a property with a high loan to value ratio sets a higher asking price has a higher expected time on the market and if he sells receives a higher price than an owner with proportionately less debt the down payment requirement for purchasers but not incumbent owners provides a simple explanation for this phenomenon among owner occupants the results provide supporting evidence for equity based aggregate theories of price volume movements in the housing market copyright 1997 by american economic association

the effect of ethanol listing on corn prices evidence from spot and futures markets abstract the use of corn for ethanol has been the topic of heated discussions in the media and among policy makers as part of this debate some observers have argued that the use of corn in the production of ethanol has had adverse effects on corn prices this paper contributes to this reviving debate by examining the impact of the listing of ethanol futures in the chicago board of trade on the spot and futures prices for corn we find a significant listing effect indicating that the listing of ethanol has had a positive contribution to both price and volatility in the corn market especially in the spot and the shorter maturity futures contracts and mostly through its interaction with trading volume in the corn market we discuss the policy implications of the findings for investors and its relevance for the ongoing debate on us energy policy we conclude with some suggestions for future research

ask prices offers and time to sale in an online exchange i introduction in this article we consider the role served by the ask price posted by sellers in an online exchange for used computers the functional role served by the ask price in this exchange is similar to that in other bilateral exchange settings the ask price is not binding and essentially serves as a starting point for negotiations furthermore every offer that we observe by buyers lies well below the ask price this type of bargaining institution is common in online marketplaces and also in markets for used cars housing and goods sold through want ads placed in newspapers the general finding of empirical literature examining these other markets is that ask prices convey information a high ask price may indicate a desire by the seller to hold out for a higher offer in such a setting ask price dispersion may arise if sellers trade off higher prices against the likelihood of making a sale high ask prices will then lead to higher sale prices on average but longer time on the market the standard justification for the inverse relationship between ask prices and time on the market is that a seller asking a high price will receive fewer offers if search by buyers is costly most of the existing findings in support of this view have focused on real estate markets as an empirical matter it is not clear that ask prices should play a similar role in the online setting that we examine although the notion that sellers have differing reservation prices seems plausible if the market is characterized by perfect information and costless search then ask prices will serve no functional role this is important because there is a general anecdotal view that online markets serve as sufficiently effective mechanisms for information transmission that search is costless in such a setting an initial ask price posted by the seller would be irrelevant one caveat to this view is that although information is readily available online it may be costly to process the used computers sold on this exchange are complex products that differ on a number of dimensions viewing the large amount of information available and forming an estimate of willingness to pay in such a situation is a nontrivial task though the cost in terms of time and effort required to process this information does not fall as neatly within the imperfect information paradigm as does the housing market it is clearly analogous the search costs involved in visiting and walking through a house for sale are substantial but relative to the value of the house they may be no larger than the costs of viewing and assessing the characteristics of a used computer it is possible then that the immediate access to information online may not eliminate search costs one contribution of our research therefore is an assessment of the extent to which online markets can be thought of as search markets our approach is to see whether the relationship between ask prices offers and time to sale on the exchange is similar to that in other markets characterized by costly search our data differ in some key ways from that available in more traditional settings for example data regarding the number of offers a given property receives are rarely available in housing markets nor in many cases is the sequence of offers for a given property observable in our case we observe the number of offers made and the level of each offer a disadvantage of our data is that we do not observe final transaction prices because once computers are sold they are removed from the publicly available listings on the exchange thus we cannot directly estimate the relationship between ask prices and sale prices we can however estimate the relationship between the ask price and the level of the highest outstanding i e rejected offer that the computer received this allows us to test the implication that sellers with high ask prices are more likely to reject offers of a given level

a review of the ecological and socioeconomic effects of biofuel and energy policy recommendations abstract many countries have attached great emphasis on biofuel because it is universally acknowledged renewable and sustainable however there remain doubts regarding biofuel s renewability cleanliness and ecological friendliness in addition its impacts on income employment and food security have been widely discussed therefore the effect of developing biofuel as an important method of resolving the energy crisis and climate change is questioned based on the rocketing concern on the multiple effects of biofuel this paper provides a comprehensive and updated review of the literature on biofuel s ecological effects and socioeconomic effects the literature included in this paper is selected english language papers being published since 2004 we find that existing studies have not arrived at a consensus regarding the ecological or the socioeconomic effects of biofuel there remain uncertainty and doubts toward biofuel s renewability and cleanliness biofuel s impacts on water and biodiversity are also questioned although biofuel is widely regarded to have positive impacts on income and employment many studies prove that biofuel influences food security negatively besides biofuel s economic cost is likely to be the barrier to its promotion because of the uncertainty of biofuel s impacts this study recommends cautious attitude toward biofuel development especially for those countries where biofuel development would be inappropriate and suggests that policy makers engage in demand side management instead of unsustainable supply side management

output value risk for commodity producers the uncertain benefits of diversification summary commodity price volatility has long been recognized as a main risk for commodity producers welfare and has led to diversification efforts less noticed has been the importance of commodity correlations and their increase after 2006 in the risk faced by producers to assess their impact we perform an empirical analysis of the market value of commodity producers output in a sample of 56 countries producing 26 commodities we find that diversification and correlations strongly explain output value volatility during 1987 2006 producers effectively specialized in a single commodity had an average output value volatility of 27 0 while producers of three or more commodities had a 12 7 volatility in this period average correlation was 8 and diversification was very effective in the 2007 12 period correlations averaged 26 and output volatilities for specialized and diversified commodities were 30 4 and 19 5 respectively thus reducing the benefit of diversification at a time of macroeconomic distress in 2013 16 output volatilities reverted to levels close to those in 1987 2006 as commodities decorrelated again our findings should be relevant to policy makers embarking in diversification efforts and in the analysis of macroeconomic risk of commodity producers

a lagrange multiplier test for causality in variance we adapt the lagrange multiplier lm principle to test for noncausality in variance of financial returns the new test is compared with a portmanteau statistic cheung y w ng l k 1996 a causality in variance test and its application to financial market prices journal of econometrics 72 33 48 a monte carlo study reveals superior power of the lm test

oil exporters dilemma how much to save and how much to invest summary policymakers in oil exporting countries confront the question of how to allocate oil revenues among consumption saving and investment in the face of high income volatility we study this allocation problem in a precautionary saving and investment model under uncertainty consistent with data in the 2000s precautionary saving is sizable and the marginal propensity to consume out of permanent shocks is below one in stark contrast to the predictions of the perfect foresight model the optimal investment rate is high if productivity in the tradable sector is high enough

biofuels and food security micro evidence from ethiopia abstract there is considerable controversy about the impact of biofuels on food security in developing countries a major concern is that biofuels reduce food security by increasing food prices in this paper we use survey evidence to assess the impact of castor production on poor and food insecure rural households in ethiopia about 1 3 of poor farmers have allocated on average 15 of their land to the production of castor beans under contract in biofuel supply chains castor production significantly improves their food security they have fewer months without food and the amount of food they consume increases castor cultivation is beneficial for participating households food security in several ways by generating cash income from castor contracts they can store food for the lean season castor beans preserve well on the field which allows sales when farmers are in need of cash or food spillover effects of castor contracts increases the productivity of food crops increased food crop productivity offsets the amount of land used for castor so that the total local food supply is not affected

the current account and precautionary savings for exporters of exhaustible resources abstract exporters of exhaustible resources have historically exhibited higher income volatility than other economies suggesting a heightened role for precautionary savings this paper uses a parameterized small open economy model to quantify the role of precautionary savings for exporters of exhaustible resources when the only source of uncertainty is the price of the exhaustible resource the parameterized model fares moderately well at capturing current account balances in both cross section and time series data the results show that the precautionary motive can generate sizable external sector savings the more so the greater the weight of exhaustible resource revenues in future income

biofuel related price transmission literature a review abstract in this article an extensive review of the rapidly growing biofuel related time series literature is carried out the data used the modeling techniques and the main findings of this literature are discussed providing a review of this flourishing research area is relevant as a guidepost for future research this literature concludes that energy prices drive long run agricultural price levels and that instability in energy markets is transferred to food markets

the interaction between food prices and oil prices this paper provides a statistical methodology to estimate the impact of oil price uncertainty on food prices in doing so it examines the joint impact of oil price and food price uncertainties and their correlation on the food price also the theoretical model was applied to the oil based trinidad and tobago and the empirical results confirm the theoretical predictions the empirical results indicate that a higher oil price increases food price also a higher oil price volatility yields a higher food price moreover an increase in the oil supply reduces the food price

price formation in the german biodiesel supply chain a markov switching vector error correction modeling approach changing linkages between agricultural and energy markets have attracted considerable attention in research and policy discussions during recent years as one of the largest biofuel markets worldwide the german biodiesel market is of particular interest it has grown rapidly since the beginning of the new millennium with this growth being driven mainly by political interventions vertical price transmission channels along the biodiesel supply chain are analyzed in this study we examine the relationship between diesel and biodiesel prices and between rapeseed oil soy oil and biodiesel prices between 2002 and 2008 due to pronounced changes in market conditions and the policy framework a regime dependent markov switching vector error correction model is used the regimes are characterized by markedly different price adjustment behaviors before 2005 and from late 2007 onward a regime characterized by the strong orientation of biodiesel prices toward diesel prices dominates between 2005 and 2007 biodiesel and rapeseed oil prices are mutually interdependent frequent switches between the regimes of the price dynamics during this period indicate a high extent of uncertainty and instability in the market

supply of cellulosic biofuel feedstocks and regional production pattern interest in cellulosic biofuels has grown due to recent concerns about the impact of expanding production of corn ethanol on food prices and the greater potential of cellulosic biofuels to mitigate climate change the energy independence and security act eisa of 2007 limits the production of corn ethanol to 56 billion liters after 2015 and mandates the production of at least 80 of the 136 billion liters of ethanol from non corn starch based cellulosic feedstocks by 2022 the biomass research and development act of 2000 had established an even more ambitious goal of using biomass to replace the equivalent of 30 of current petroleum consumption by 2030 and estimated that this would require 1 billion dry short tons of biomass annually u s department of energy usdoe 2003 biomass can be obtained from several different sources including forest resources crop residues woody biomass and perennial grasses a usda usdoe report perlack et al 2005 examined the technical feasibility of sustaining this supply of biomass and the land resources that would be required under alternative scenarios with yield enhancing and other technological changes in conventional crops and perennial bioenergy crops the study estimated that 0 54 to 1 billion dry tons of agricultural crop based biomass could be obtained annually from cropland idle cropland and cropland pasture with moderate to high productivity gains in crop productivity residue collection and tillage practices

biofuels and the poor global impact pathways of biofuels on agricultural markets this study seeks to assess the future impacts of biofuel production on regional agricultural and related sectors over the next decade with a specific focus on the vulnerable regions of developing nations using a modification of the gtap modeling platform to account for the global interactions of regional biofuel and food markets the analysis shows that biofuel production levels depend on the assumption about the future price of energy and the nature of the substitutability between biofuels and petroleum based transport fuels low energy prices reduce the demand for biofuels and thus require greater government support to meet the desired production targets at the other extreme when prices are high and there is scope for substituting biofuels for petroleum based fuels the volume of biofuels produced will exceed the mandates even when biofuels are being mainly produced in developed countries our results indicate that there are impact pathways that extend far beyond the borders of the us brazil and the eu prices of feedstock and non feedstock commodities rise in developing countries there is also a rise in value added from the agricultural sector a gain that is enjoyed by the owners of land and labor including unskilled hence to the extent that agriculture is a key sector in getting growth started and addressing poverty needs the emergence of biofuels can in this way at least be a positive force

the dutch disease and the technological gap abstract i present a theory explaining why less technologically advanced countries could be more vulnerable to the dutch disease in a bilateral trade model with monopolistic competition and increasing returns to scale the extent of the crowding out in the tradable sector depends positively on an interaction between the amount of revenues from natural resources exports and the productivity gap vis a vis the trade partners with learning by doing the mechanism is self reinforcing leading to a productivity divergence pattern the predictions of the model are consistent with cross country empirical evidence

the impact of the rebound effect of the use of first generation biofuels in the eu on greenhouse gas emissions a critical review an important objective of the mandated blending of biofuel in conventional gasoline and diesel in the eu is reducing greenhouse gas ghg emissions an important assumption thereby is that biofuels replace the production and consumption of oil however recent literature challenges this assumption because an increased use of biofuels will lower oil prices and therefore result in increase crude oil consumption this so called rebound effect offsets the expected ghg emission saving effects of using biofuels a review of eight studies mainly on current and future us biofuel policies provides insights in the current state of research into this topic showing a wide range of values of the rebound effect of biofuel use depending among others on the biofuel policy the applied method and the model parameter assumptions generally estimated rebound effects are negative in the country where biofuel use is being promoted i e the use of 1 unit of biofuel reduces oil consumption by less than 1 unit units on energy basis the rebound effects in other countries are always positive biofuel use reduces oil consumption by less than 1 unit so the total fuel consumption is increasing the net global rebound effect is usually positive which means that ghg emissions savings are not achieved as much as usually is assumed or emissions may even increase own estimations with the global magnet computable general equilibrium model indicate a global rebound effect of the 10 biofuel blend mandate in the eu in the year 2020 of 22 30 i e the use of 1 unit of biofuel reduces global oil consumption by 0 78 0 70 units this means that ghg emissions will not be reduced as much as usually is assumed or may even increase these results show that rebound effects can significantly lower the effectiveness of biofuel policies in reducing ghg emissions

asymmetric adjustments in the ethanol and grains markets this paper examines the long and short run asymmetric adjustments and pairs trades for nine pairs of spot and futures prices itemized as three own pairs for three different bio fuel ethanol types three own pairs for three related agricultural products namely corn soybeans and sugar and three cross pairs that included hybrids of the spot price of each of the agricultural products and an ethanol futures price most of the spreads asymmetric adjustments generally occur during narrowing the three ethanol pairs that contain the ecbot futures with each of chicago spot new york harbor spot and western european rotterdam spot show different long run adjustments arbitrage profitable opportunities and price risk hedging capabilities the asymmetric spread adjustments for the three grains are also different with corn spread showing the strongest long run widening adjustment and sugar showing the weakest narrowing adjustment among others the empirical analysis indicates the importance of potentially hedging the spot prices of agricultural commodities with ethanol futures contracts which sends an important message that the ethanol futures market is capable of hedging price risk in agricultural commodity markets the short run asymmetric adjustments for individual prices in the nine pairs with the exception of the corn own pair underscore the importance of futures prices in the price discovery and hedging potential particularly for ethanol futures

the relationships among energy consumption economic output and energy intensity of countries at different stage of development based on 3gr model the relationships between energy consumption economic effect and technical effect of countries at different stage of development developed developing and the least developed countries was figured out comparing the equivalent value of grec greo and grei during the period from 1996 to 2013 the diverse development laws in different kinds of countries was found the following conclusions were obtained 1 based on 3gr model there is a liner relationship between grec and greo or grei and an inverse relationship between grei and greo when the equivalent value of 1 greoi or 1 greii or 1 greci is a constant 2 the equivalent value of greo are in the following orders developed countries developing countries the least developed countries while that of grei have the opposite orders the orders of the equivalent value of grec are developed countries the least developed countries and developing countries from small to large the least developed countries own the largest potential to realize further development whether in economic expansion technical innovation or in optimize industrial structure while these potential in developed countries are the smallest and in developing countries are at the middle level the development in developing countries shows the most growth going forward 3 the change in energy consumption is codetermined by eo effect ei effect and their interactive effect eo effect shows the leading position among the three effects especially in developing countries and the least developed countries in developed countries ec change eo effect and ei effect are both change in a tight range while in developing countries and the least developed countries these ranges are rather large

volatility spillovers between food and energy markets a semiparametric approach previous literature on volatility links between food and energy prices is scarce and mainly based on parametric approaches this article examines these links by using a semiparametric garch model recently proposed by long et al 2011 which is essentially a nonparametric correction of the parametric conditional covariance function the analysis focuses on price links between crude oil ethanol and sugar prices in brazil results suggest strong volatility links between the prices studied parametric approximations of the conditional covariance matrix may lead to misleading results that can be improved upon by using nonparametric techniques

autoregressive conditional heteroscedasticity in commodity spot prices muth s 1961 rational expectations model of commodity markets implies that inventory carryover creates arch processes in prices the model also indicates that the expected price variance is an explanatory variable in price regressions hypotheses were tested on price data of twenty commodities using a variation of engle et al 1987 arch m technique an arch process was found in storable and not in non storable commodity data as expected however changes in expected price variance have no significant impact on price copyright 2001 john wiley sons ltd

harnessing windfall revenues optimal policies for resource rich developing economies a windfall of natural resource revenue or foreign aid faces government with choices of how to manage public debt investment and the distribution of funds for consumption particularly if the windfall is both anticipated and temporary we show that the permanent income hypothesis prescription of an ever lasting increase in consumption financed by borrowing ahead of the windfall and then accumulating a sovereign wealth fund swf is not optimal for capital scarce developing economies such countries should accumulate public and private capital to accelerate their development and only if the windfall is large relative to initial foreign debt is it optimal to build a swf the optimal time profile of consumption is biased towards the near future as compared to the permanent income hypothesis outcomes depend on instruments available to government we study cases where the government can make lump sum transfers to consumers where such transfers are impossible so optimal policy involves cutting distortionary taxation in order to raise investment and wages and where ricardian consumers can borrow against future revenues in which case the policy response to possible over consumption is a high level of investment in infrastructure

food versus fuel what do prices tell us abstract sorting out the impacts of biofuels on global agricultural commodity prices is impossible without turning to data and distinguishing between the short run versus the long run impacts using time series prices on fuels and agricultural commodities the aim is to investigate the long run cointegration of these prices simultaneously with their multivariate short run interactions results indicate no direct long run price relations between fuel and agricultural commodity prices and limited if any direct short run relationships in terms of short run price movements sugar prices are influencing all the other agricultural commodity prices except rice with sugar the number one world input for ethanol results indicate increased ethanol production is potentially influencing short run agricultural commodity prices overall results support the effect of agricultural commodity prices as market signals which restore commodity markets to their equilibria after a demand or supply event shock

modelling production cost scenarios for biofuels and fossil fuels in europe competitive production costs compared to conventional fuels are imperative for biofuels to gain market shares as current tax advantages for biofuels are only temporary comparing production costs of different biofuels with fossil fuels is a challenge due to the complexity of influencing factors the objective of this research paper is threefold 1 to project future bio fuel feedstock prices based on the crude oil price development the price index for agricultural products growth in world population growth in wealth per capita income and change in energy consumption per capita 2 to simulate production costs under consideration of likely economies of scale from scaling up production size and technological learning and 3 to compare different biofuels and fossil fuels by scenario analysis a calculation model for biofuel production is used to analyse projected production costs for different types of biofuels in europe for 2015 and 2020 unlike engineering oriented bottom up approaches that are often used in other biofuel studies the macro economic top down approach applied in this study enables an economic comparison and discussion of various fuel types based on reference scenarios of crude oil prices of 50 100 150 and 200 per barrel depending on the specific raw material prices as well as the conversion costs the analysis delivered a differentiated view on the production costs and thus on the competitiveness of each individual type of fuel the results show that 2nd generation biofuels are most likely to achieve competitive production costs mid to long term when taking into account the effects from technological learning and production scale size as well as crude oil price scenarios between 50 and 200 per barrel for both reference years in all crude oil price scenarios bioethanol from lignocellulosic raw materials as well as biodiesel from waste oil are associated with high cost saving potentials which enable them to outperform fossil fuels and 1st generation biofuels

world oil and agricultural commodity prices evidence from nonlinear causality abstract the increasing co movements between the world oil and agricultural commodity prices have renewed interest in determining price transmission from oil prices to those of agricultural commodities this study extends the literature on the oil agricultural commodity prices nexus which particularly concentrates on nonlinear causal relationships between the world oil and three key agricultural commodity prices corn soybeans and wheat to this end the linear causality approach of toda yamamoto and the nonparametric causality method of diks panchenko are applied to the weekly data spanning from 1994 to 2010 the linear causality analysis indicates that the oil prices and the agricultural commodity prices do not influence each other which supports evidence on the neutrality hypothesis in contrast the nonlinear causality analysis shows that i there are nonlinear feedbacks between the oil and the agricultural prices and ii there is a persistent unidirectional nonlinear causality running from the oil prices to the corn and to the soybeans prices the findings from the nonlinear causality analysis therefore provide clues for better understanding the recent dynamics of the agricultural commodity prices and some policy implications for policy makers farmers and global investors this study also suggests the directions for future studies

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

nonlinearities in the u s corn ethanol oil gasoline price system we use a smooth transition vector error correction model to assess price relationships within the u s ethanol industry monthly ethanol corn oil and gasoline prices from 1990 to 2008 are used in the analysis results indicate the existence of long run relationships among the prices analyzed strong links between energy and food prices are identified

asymmetry in retail gasoline and crude oil price movements in the united states an application of hidden cointegration technique abstract there is a common belief that gasoline prices respond more quickly to crude oil price increases than decreases some economists and politicians believe that asymmetry in oil and gasoline price movements is the outcome of a non competitive gasoline market requiring that governments take policy action to address unfair pricing there is no consensus as to the existence or nature of the asymmetric relationship between prices of gasoline and crude oil much of this literature specifies asymmetry in the speed of adjustment and short run adjustment coefficients in contrast granger and yoon s granger c w and yoon g hidden cointegration university of california san diego department of economics working paper 2002 crouching error correction model cecm identifies asymmetry of the cointegrating vectors between components cumulative positive and negative changes of the series applying the cecm to retail gasoline and crude oil prices for the u s we find that there is only evidence of cointegration between positive components of crude oil prices and negative components of gasoline prices in contrast to the literature which attributes asymmetric price movements to market power of refiners these findings suggest that gasoline prices in the long run are more influenced by the technological changes on the demand side than crude oil price movements on the supply side

dynamic impacts of high oil prices on the bioethanol and feedstock markets this study investigates the impacts of high international oil prices on the bioethanol and corn markets in the us between 2007 and 2008 the prices of major grain crops had increased sharply reflecting the rise in international oil prices these dual price shocks had caused substantial harm to the global economy employing a structural vector auto regression model svar we analyze how increases in international oil prices could impact the prices of and demand for corn which is used as a major bioethanol feedstock in the us the results indicate that an increase in the oil price would increase bioethanol demand for corn and corn prices in the short run and that corn prices would stabilize in the long run as corn exports and feedstock demand for corn decline consequently policies supporting biofuels should encourage the use of bioethanol co products for feed and the development of marginal land to mitigate increases in the feedstock price

self reported food insecurity in africa during the food price crisis this article analyzes data on self reported food insecurity of more than 50 000 individuals in 18 sub saharan african countries over the period 2005 2008 when global food prices increased dramatically the average level of self reported food insecurity was high but remarkably stable over time at about 54 however this average hides large heterogeneity both within countries and across countries in eight of the sample countries self reported food security improved while it worsened in the ten other countries our results suggest that heterogeneous effects in self reported food security are consistent with economic predictions as they are correlated with economic growth and net food consumption both at the household and country level specifically in the face of rising food prices self reported food security improved on average in rural households while it worsened in urban households a finding that holds when using global prices or domestic food prices improvements in food security over time were also positively correlated with net food exports and gdp per capita growth while the self reported indicator used in this paper requires further study and one should carefully interpret the results our findings suggest the need for a critical evaluation of the currently used data and numbers in the public debate on food prices and food insecurity

how market efficiency and the theory of storage link corn and ethanol markets this article uses the theories of market efficiency and supply of storage to develop a conceptual link between the corn and ethanol markets and explores statistical evidence for the link we propose that a long run no profit condition is established in distant futures markets for ethanol corn and natural gas and then use the theory of storage to define an inter temporal equilibrium among these prices the relationship shows that under certain conditions future price expectations will influence nearby futures prices and that a short term relationship between input and output prices will exist we demonstrate validity of the theory using a structural price model and then by means of time series techniques

assessing the effect of oil price on world food prices application of principal component analysis the objective of this paper is to investigate the co movement of food prices and the macroeconomic index especially the oil price by principal component analysis to further understand the influence of the macroeconomic index on food prices we examined the food prices of seven major products eggs meat milk oilseeds rice sugar and wheat the macroeconomic variables studied were crude oil prices consumer price indexes food production indexes and gdp around the world between 1961 and 2005 we use the scree test and the proportion of variance method for determining the optimal number of common factors the correlation coefficient between the extracted principal component and the macroeconomic index varies between 0 87 for the world gdp and 0 36 for the consumer price index we find the food production index has the greatest influence on the macroeconomic index and that the oil price index has an influence on the food production index consequently crude oil prices have an indirect effect on food prices

effects of us biofuel policies on us and world petroleum product markets with consequences for greenhouse gas emissions abstract us biofuel policy includes greenhouse gas reduction targets regulators do not address the potential that biofuel policy can have indirect impacts on greenhouse gases through its impacts on petroleum product markets and scientific research only partially addresses this question we use economic models of us biofuel and agricultural markets and us and world petroleum and petroleum product markets to show that discontinuing biofuel tax credits and ethanol tariff lower biofuel use could lead to increased us petroleum product use and a reduction in petroleum product use in other parts of the world the net effect is lower greenhouse gas emissions under certain assumptions we show that biofuel use mandate elimination can have positive or negative impacts on greenhouse gas emissions the magnitude and the direction of effects depend on how us biofuel trade affects biofuel in other countries with different emissions context that determines how important use mandates are in the first place who pays mandate costs and the price responsiveness of global petroleum supplies and uses however our results show that counter intuitive effects are possible and discourage broad conclusions about the greenhouse gas impacts of removing these elements of us biofuel policy

are biofuels the culprit opec food and fuel the food commodity price boom of 2003 2008 was the most notable in the past several decades having a substantial impact on global economic activity it affected developing nations by impacting real output the balance of payments government budgetary positions and most important the well being of the very poor high commodity prices also affected developed countries by transmitting business cycle disturbances and creating inflationary pressures several recent studies tried to identify and quantify the factors that caused the food commodity price boom of 2003 2008 see for instance isabel vansteenkiste 2009 these studies suggest that one key factor is growth in demand which since the 1980s has outpaced growth in supply other studies argued that biofuel is the culprit since it increases demand for staple crops see for instance donald mitchell 2008 all these studies however assumed competitive markets and did not consider the impact of biofuel on energy costs to farmers moreover they ignored the organization of petroleum exporting countries opec these studies leave us perplexed regarding the true impact of biofuel on food commodity prices was it or was it not an important contributor to the recent food commodity boom we believe that to answer this question the interactions between energy and food must be modeled and opec introduced and the impact of biofuels compared with other factors that are argued by the literature to be important this paper aims to analyze the multiple contributions of energy and biofuels to the increase are biofuels the culprit opec food and fuel

oil price agricultural commodity prices and the dollar a panel cointegration and causality analysis abstract this study examines the dynamic relationship between world oil prices and twenty four world agricultural commodity prices accounting for changes in the relative strength of us dollar in a panel setting we employ panel cointegration and granger causality methods for a panel of twenty four agricultural products based on monthly prices ranging from january 1980 to february 2010 the empirical results provide strong evidence on the impact of world oil price changes on agricultural commodity prices contrary to the findings of many studies in the literature that report neutrality of agricultural prices to oil price changes we find strong support for the role of world oil prices on prices of several agricultural commodities the positive impact of a weak dollar on agricultural prices is also confirmed

biofuel and food security in china and japan the chinese government is promoting the national biofuel program to deal with energy security and excessive grain stocks the japanese government is promoting a biofuel program to deal with climate change and energy security and to promote rural development this study is an economic analysis of the competition between biofuel and food and the relationship between biofuel and food security in china and japan the definition of competition between biofuel and food can be divided into food and food related demand and agricultural production this analysis shows that not only the feedstock of agricultural product based biofuel but also cellulose based biofuel competes with food and food related demand and agricultural production in china and japan it is assumed that non food based biofuel and cellulosic based biofuel do not have a serious impact on food security on a country and sub country level in china and japan because the amount of feedstock used for non food and cellulose based biofuels is small however such use could have a negative impact on undernourished households in china in its promotion of biofuel development the chinese government has to pay full attention to nutrition levels of households in 2010 the japanese government released draft sustainable criteria for biofuel but did not cover food security in partner countries such criteria should consider food security in partner countries

potential impacts of biofuel development on food security in botswana a contribution to energy policy abstract biofuel development continues to be a critical development strategy in africa because it promises to be an important part of the emerging bio economy however there is a growing concern that the pattern of biofuel development is not always consistent with the principles of sustainable development this paper assesses the potential of the impacts of biofuel development on food security in botswana drawing on informal and semi structured interviews the paper concludes that there is potential for the development of biofuels in botswana without adverse effects on food security due mainly to availability of idle land which accounted for 72 of agricultural land in the eastern part of the country in 2008 it is suggested that farmers could be incentivized to produce energy crops and more food from such land although it is hypothesized that the implementation of biofuel development programmes in other countries had an impact on local commodity prices during the period 2005 2008 in botswana it is argued that local biofuel production may not necessarily lead to a substantial increase in commodity food prices because land availability is not a major issue the paper makes policy recommendations for sustainable biofuel development in botswana

biofuel economics in a setting of multiple objectives unintended consequences this paper examines biofuels from an economic perspective and evaluates the merits of promoting biofuel production in the context of the policies multiple objectives life cycle implications pecuniary externalities and other unintended consequences the policy goals most often cited are to reduce fossil fuel use and to lower greenhouse gas emissions but the presence of multiple objectives and various indirect effects complicates normative evaluation to address some of these complicating factors we look at a several combinations of policy alternatives that achieve the same set of incremental gains along the two primary targeted policy dimensions making it possible to compare the costs and cost effectiveness of each combination of policies for example when this approach is applied to u s produced biofuels they are found to be 14 31 times as costly as alternatives like raising the gas tax or promoting energy efficiency improvements the analysis also finds the scale of the potential contributions of biofuels to be extremely small in both the u s and eu mandated u s corn ethanol production for 2025 reduces u s petroleum input use by 1 75 and would have negligible net effects on co2 emissions and although eu imports of brazilian ethanol may look better given the high costs of other alternatives this option is equivalent at most to a 1 20 reduction in eu gasoline consumption

assessing the impact of us ethanol on fossil fuel markets a structural var approach abstract despite the growing importance of biofuels the effect of biofuels on fossil fuel markets is not fully understood we develop a joint structural vector auto regression var model of the global crude oil us gasoline and us ethanol markets to examine whether the us ethanol market has had any impact on global oil markets the structural var approach provides a unique method for decomposing price and quantity data into demand and supply shocks allowing us to estimate the distinct dynamic effects of ethanol demand and supply shocks on the real prices of crude oil and us gasoline ethanol demand in the us is driven mainly by government support in the form of tax credits and blending mandates shocks to ethanol demand therefore reflect changes in policy more than any other factor in contrast ethanol supply shocks are driven by changes in feedstock prices a principle finding is that a policy driven ethanol demand expansion causes a statistically significant decline in real crude oil prices while an ethanol supply expansion does not have a statistically significant impact on real oil prices this suggests that even though us ethanol market is small the influence of us biofuels policy on the crude oil market is pervasive we also show that ethanol demand shocks are more important than ethanol supply shocks in explaining the fluctuation of real prices of crude oil and us gasoline

economic growth quality environmental sustainability and social welfare in china provincial assessment based on genuine progress indicator gpi abstract in order to devise scientific and sustainable development strategy it is vital to assess the quality of economic growth as a useful complement to traditional economic indicators gpi s most reputed virtue is its great improvement in evaluating environmental and social costs in this paper we estimate the gpi for all 31 provinces in mainland china from 1997 to 2016 gpi estimation is highly sensitive to income inequality climate change damage and depletion of non renewables we address contestable methodological assumptions associated with the three items which have been usually ignored in empirical studies we use the atkinson index in place of the gini index as a measure of income inequality we avoid the problematic duplicated counting of climate change damage and the unjustified cost escalation factor in depletion of non renewables our results show that first gpi per capita has recently declined in some provinces unveiling a threat to social welfare and sustainability second the relative threshold effect the progress of social welfare promotion is slower than the expansion of economic scale has been found in many provinces third resource consumption and environmental pollution especially water pollution and carbon emissions would generate substantial welfare losses

is urbanization eco friendly an energy and land use cross country analysis abstract urbanization imposes complicated and heterogeneous impacts on ecosystems with the purpose of reflecting the comprehensive influence of urbanization on the ecosystem we choose the ecological footprint to represent the ecosystem s integrated change and distinguish low income middle income and high income countries to reflect the nonlinear impact this paper uses both static and dynamic stirpat stochastic impacts by regression on population affluence and technology models to analyze 72 countries at different income levels during the 1980 2008 period the results show that the overall ecological elasticity of urbanization at the global level is negative specifically results suggest urbanization associated to increased income to have eco friendly potential in terms of decreased ecological footprint to explain such results this paper answers two questions why does urbanization show ecological protection effects why does a more pronounced protection effect seem associated to increased income levels improved market mechanism increased resource use efficiency as well as increased environmental awareness in urban areas associated to increased income levels are likely to support an eco friendly urbanization process burden shift to low income countries also needs to be taken into account in order to avoid policies that increase wellbeing locally at the expenses of far away areas

volatility spillover between oil and agricultural commodity markets abstract this study examines volatility transmission between oil and selected agricultural commodity prices wheat corn soybeans and sugar we apply the newly developed causality in variance test and impulse response functions to daily data from 01 january 1986 to 21 march 2011 in order to identify the impact of the food price crisis the data are divided into two sub periods the pre crisis period 01 january 1986 to 31 december 2005 and the post crisis period 01 january 2006 21 march 2011 the variance causality test shows that while there is no risk transmission between oil and agricultural commodity markets in the pre crisis period oil market volatility spills on the agricultural markets with the exception of sugar in the post crisis period the impulse response analysis also indicates that a shock to oil price volatility is transmitted to agricultural markets only in the post crisis period this paper thereby shows that the dynamics of volatility transmission changes significantly following the food price crisis after the crisis risk transmission emerges as another dimension of the dynamic interrelationships between energy and agricultural markets

non parametric and parametric modeling of biodiesel sunflower oil and crude oil price relationships abstract multivariate local linear regression and parametric error correction models are applied to assess price linkages and price transmission patterns between food and energy prices in spain weekly biodiesel sunflower and crude oil prices observed from november 2006 to october 2010 are used in the empirical analysis results suggest the existence of a long run equilibrium relationship between the three prices studied biodiesel is the only variable that adjusts to deviations from this long run relationship local linear regression techniques show that the speed of adjustment of biodiesel prices is faster when biodiesel is relatively cheap than when it is expensive energy prices are also found to influence sunflower oil prices through short run price dynamics

world oil prices and agricultural commodity prices evidence from an emerging market abstract oil prices are thought to have direct effect on agricultural prices followed by an indirect effect through the exchange rate this paper examines the short and long run interdependence between world oil prices lira dollar exchange rate and individual agricultural commodity prices wheat maize cotton soybeans and sunflower in turkey to this end the toda yamamoto causality approach and generalized impulse response analysis for identification of the long and short run interrelationships are applied to the monthly data spanning from january 1994 to march 2010 the impulse response analysis suggests the turkish agricultural prices do not significantly react to oil price and exchange rate shocks in the short run the long run causality analysis reveals that the changes in oil prices and appreciation depreciation of the turkish lira are not transmitted to agricultural commodity prices in turkey hence our results support neutrality of agricultural commodity markets in turkey to both direct and indirect effects of oil price changes

commodity prices and growth in africa a frican economies export primary commodities and most export little else policymakers as well as economists and historians of african economic development have seen these exports as both a hope and a curse the following parable tells the story once upon a time a servant of the ruler discovered a miraculous plant which grew readily in that country and whose seeds could be woven into fine cloth so desirable was this fabric that it became prized all over the world and fetched a high price after two score years the plant accounted for most of the country s trade with the world the ruler ordered the peasants to grow the plant paid them only a fraction of its price and he and his nobles became fabulously wealthy because the ruler wished to be remembered as a great ruler and as the father of his country he used his wealth to build a great army and brought machines from foreign countries to make the fine goods that previously could only be obtained from foreign merchants but the machines often broke down and the goods that they made were of poor quality and after the ruler died they were left to rust under the ruler s successor there was a war in a foreign land where the plant also grew so that there was a great shortage and its price increased threefold in only three seasons the new ruler spent his newfound riches on fantastic extravagance while immense sums were expended on public works after the manner of the east and on productive works carried out in the wrong way or too soon not even the threefold increase in prices could support these expenditures and the country soon found itself deeply in debt when the war ended and the price fell the country could no longer pay the interest on its debt or borrow more money even after it had sold its only useful public work to a foreign power so that power sent a mission to the country the publication of whose report from which the above

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

aggressive oil extraction and precautionary saving coping with volatility the effects of stochastic oil demand on optimal oil extraction paths and tax spending and government debt policies are analyzed when the oil demand schedule is linear and preferences quadratic without prudence optimal oil extraction is governed by the hotelling rule and optimal budgetary policies by the tax and consumption smoothing principle volatile oil demand brings forward oil extraction and induces a bigger government surplus with prudence the government depletes oil reserves even more aggressively and engages in additional precautionary saving financed by postponing spending and bringing taxes forward especially if it has substantial monopoly power on the oil market gives high priority to the public spending target is very prudent and future oil demand has high variance uncertain economic prospects induce even higher precautionary saving and if non oil revenue shocks and oil revenue shocks are positively correlated even more aggressive oil extraction in contrast prudent governments deliberately underestimate oil reserves which induce less aggressive oil depletion and less government saving but less so if uncertainty about reserves and oil demand are positively correlated

modeling asymmetric comovements of asset returns existing time varying covariance models usually impose strong restrictions on how past shocks affect the forecasted covariance matrix in this article we compare the restrictions imposed by the four most popular multivariate garch models and introduce a set of robust conditional moment tests to detect misspecification we demonstrate that the choice of a multivariate volatility model can lead to substantially different conclusions in any application that involves forecasting dynamic covariance matrices like estimating the optimal hedge ratio or deriving the risk minimizing portfolio we therefore introduce a general model which nests these four models and their natural asymmetric extensions the new model is applied to study the dynamic relation between large and small firm returns article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies