exchange rate policy union wage index and credibility abstract optimal exchange rate regimes for small open economies with economy wide wage setting and privately optimal wage indexation schemes are analysed a fully discretionary exchange rate regime a managed float offers flexibility while a credible fixed exchange rate regime offers price stability due to the time inconsistency problem optimal wage indexation under a managed float may imply complete indexation of wages to prices a managed float is shown to be unambiguously superior to a binding fixed exchange rate regime if wage setters value price stability as high as the policy maker does

implications of economic interdependence for endogenous wage indexation decisions this paper shows how economic interdependence affects the indexation decisions of atomistic wage setters in an environment in which monetary authorities do not observe stochastic disturbances before making their policy choices if stochastic disturbances are common across countries interdependence has no effect on equilibrium indexation choices in identical countries however if disturbances are country specific numerical simulations show that interdependence is likely to reduce equilibrium indexation choices relative to a small open economy we also show that indexation choices may be either strategic complements or strategic substitutes but that strategic complementarity becomes more likely as the degree of interdependence rises

optimal wage indexation in a multisector economy optimal wage indexation is analyzed in an economy subject to common and sector specific supply shocks and aggregate demand shocks where one sector has wage contracts and the other has a walrasian labor market it is shown that it is optimal in this setting to index wages partially to unanticipated economywide inflation and to industry specific profits consequently this study provides possible theoretical explanations for observation of both cpi indexation and profit sharing contracts and for the failure of purely aggregative indexation models to explain disaggregate level behavior copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

some empirical evidence on the effects of shocks to monetary policy on exchange rates this paper investigates the effects of shocks to u s monetary policy on exchange rates we consider three measures of these shocks orthogonalized shocks to the federal funds rate orthogonalized shocks to the ratio of nonborrowed to total reserves and changes in the romer and romer index of monetary policy in sharp contrast to the literature we find substantial evidence of a link between monetary policy and exchange rates specifically according to our results a contractionary shock to u s monetary policy leads to i persistent significant appreciations in u s nominal and real exchange rates and ii significant persistent deviations from uncovered interest rate parity in favor of u s interest rates

international evidence on the demand for money one of the current questions in the literature on the demand for money is whethe r the adjustment of actual to desired money holdings is in nominal or real terms this paper describes a simple procedure that can be used to test the nominal against the real hypothesis the test is carried out for twenty seven countries the paper also tests the structural stability of the demand for money equations and the correctness of th e dynamic specification the results are strongly in favor of the nom inal adjustment hypothesis there is however some evidence of moder ate structural instability before and after 1973 the instability doe s not affect the conclusion that the nominal adjustment hypothesis do minates the real adjustment hypothesis copyright 1987 by mit press

price setting behaviour competition and markup shocks in the new keynesian model abstract this paper shows that firms price setting behaviour determines whether a higher level of competition among firms amplifies or dampens short run inflationary pressures in the new keynesian model when strategic complementarity in pricing decisions prevails the effect of markup shocks is relatively small

openness central bank independence and the sacrifice ratio traditional explanations of the negative correlation between openness and inflation presume that an inverse relationship between the degree of openness and the sacrifice ratio reduces the inflation bias of descretionary monetary policy temple 2002 concludes however that such a relationship fails to emerge in cross country data our analysis of the same cross country data considered by temple indicates that once the degree of central bank independence and its interaction with greater openness and the sacrifice ratio in addition increased openness lessens the positive effect of central bank independence on the sacrifice ratio

the impact of wind power generation on the electricity price in germany abstract this paper investigates the relationship between intermittent wind power generation and electricity price behaviour in germany using a garch model i evaluate the effect of wind electricity generation on the level and the volatility of the electricity price in an integrated approach the results show that variable wind power reduces the price level but increases its volatility this paper s results also indicate that regulatory change has stabilised the wholesale price the electricity price volatility has decreased in germany after a modification of the marketing mechanism of renewable electricity this gives confidence that further adjustments to regulation and policy may foster a better integration of renewables into the power system

does greater trade openness reduce inflation further evidence using panel data techniques abstract in this article we estimate the relation between inflation and trade openness q j econ 108 1993 869 the higher the gains in terms of product in generating an inflationary surprise the greater the incentives will be for the government to effect such a surprise

testing commitment models of monetary policy evidence from oecd economies in ation rates in a number of oecd follow a common trend over the past four decades in ation starts out low in the 1960s rises for a time before peaking in the 1970s or early 1980s and then falls back to initial levels this similarity in the behavior of trend in ation suggests that any explanation of long run in ation trends ought to apply across oecd countries ireland 1999 shows that a simple time inconsistency model of monetary policy modifled to allow for a time varying nairu can explain long run trends in u s in ation in this paper we show that this result cannot serve as an explanation of the common trend in oecd in ation as it flts the data only in the u s we investigate two important variants of the hypothesis i that time inconsistency was an important component of central bank behavior in earlier decades but has become less signiflcant in recent years and ii that time inconsistency problems drive u s in ation which afiects in ation rates in other countries as a result of central bankers attempts to manage nominal exchange rate movements vis a vis the u s dollar we flnd that the flrst hypothesis flts the data no better than the baseline model we flnd some support for the international spillovers version of the model but the behavior of non u s central bankers with respect to domestic unemployment rates is not well described by the time inconsistency mechanism

electricity price forecasting using sale and purchase curves the x model abstract our paper aims to model and forecast the electricity price by taking a completely new perspective on the data it will be the first approach which is able to combine the insights of market structure models with extensive and modern econometric analysis instead of directly modeling the electricity price as it is usually done in time series or data mining approaches we model and utilize its true source the sale and purchase curves of the electricity exchange we will refer to this new model as x model as almost every deregulated electricity price is simply the result of the intersection of the electricity supply and demand curve at a certain auction therefore we show an approach to deal with a tremendous amount of auction data using a subtle data processing technique as well as dimension reduction and lasso based estimation methods we incorporate not only several known features such as seasonal behavior or the impact of other processes like renewable energy but also completely new elaborated stylized facts of the bidding structure our model is able to capture the non linear behavior of the electricity price which is especially useful for predicting huge price spikes using simulation methods we show how to derive prediction intervals for probabilistic forecasting we describe and show the proposed methods for the day ahead epex spot price of germany and austria

the time varying nairu and its implications for economic policy the nairu the unemployment rate consistent with a constant rate of inflation is estimated in this paper as a parameter allowed to vary over time value is determined in an econometric model where the inflation rate depends on its past values demand and supply shocks the nairu estimated for the gdp deflator varies over the past forty years within 5 4 to 6 5 percent its estimated value for the most recent quarter 1996 q2 is 5 6 percent the nairu has declined in recent years in response to global competition immigration other factors weakening labor s bargaining position and the rapidly declining prices of computers and other electronics

international evidence on tradables and nontradables inflation abstract using 1970 1985 sectoral data for the oecd we find that inflation in nontradable goods exceeds inflation in tradables we identify a demand shift towards nontradables and faster growth of total factor productivity in the tradable goods sector as the prime causes of the differential inflation in addition disinflation attempts and the exchange rate regime appear to have exerted significant influence on the relative inflation rate

persistent trade effects of large exchange rate shocks this paper presents a theoretical basis for the argument that large exchange rate shocks such as the 1980s dollar cycle may have persistent effects on trade flows and the equilibrium exchange rate itself we begin with a partial equilibrium model in which large exchange rate fluctuations lead to entry or exit decisions that are not reversed when the currency returns to its previous level then we develop a simple model of the feedback from hysteresis in trade to the exchange rate itself here we see that a large capital inflow which leads to an initial appreciation can result in a persistent reduction in the exchange rate consistent with trade balance

investor heterogeneity market segmentation leverage and the equity premium puzzle abstract financial economists for the past two decades have attempted to explain why the equity premium is so high now known as the equity premium puzzle epp we model investor heterogeneity market segmentation and optimal leverage using the time separable standard power utility market completeness and ignoring transaction costs to explain the epp we explain both the epp and the related risk free rate puzzle without resorting to preference modification furthermore we show a unique interior equilibrium for the debt ratio contrary to the work by f modigliani m h miller the cost of capital corporation finance and the theory of investment american economic review 48 1958 261 297 corporate income taxes and the cost of capital american economic review 53 1963 433 443 and s c myers presidential address the capital structure puzzle journal of finance 39 1984 575 592 our simulations show the relevance of our models

openness exchange rate regimes and the phillips curve abstract recent research suggests that the phillips curve slope measured using sacrifice ratios from the period 1961 88 is positively related to trade openness contradicting the romer 1993 openness and inflation theory and evidence quarterly journal of economics 108 869 903 hypothesis that disinflations are less costly in open economies in this paper i consider sacrifice ratios and output inflation trade offs from 1981 98 and allow their dependence on openness to vary with the exchange rate regime sacrifice ratios are weakly negatively related to openness but the strength of the relationship does not increase with exchange rate flexibility output inflation trade offs are negatively related to openness and the strength of the relationship increases with exchange rate flexibility

on the performance of nominal income targeting as a strategy for monetary policy in a small open economy abstract there is a great deal of support for nominal income targeting in the literature on strategies for monetary policy in a closed economy framework is nominal income targeting equally attractive in a small open economy this paper compares nominal income targeting to alternative monetary policy rules in a stochastic macro model for a small open economy we find that both the weighting in the overall price level of the exchange rate and foreign prices and the elasticity of output supplied with respect to the real exchange rate are important factors in assessing the attractiveness of nominal income targeting in a small open economy where the size of both parameters is not negligible a rule targeting the overall price level may actually be preferred to nominal income targeting

renewable generation and electricity prices taking stock and new evidence for germany and austria abstract economic theory predicts that the increase of renewable electricity production should reduce the price of electricity in the short run which is also known as the merit order effect although the merit order effect is only one of several consequences of renewable production on the electricity system it is crucial to determine its size for the economic evaluation of renewable energies in this paper we present a comprehensive overview of relevant past research results on the price effect of renewables additionally we conduct a new empirical analysis of the price effect of renewable production for the austrian german region a market that clearly qualifies for a merit order effect analysis given its characteristics based on the review and our own analysis we show that the merit order effect varies depending on the region and the assessment method chosen we also find that the size of this effect is less dispersed throughout different markets than previously suggested by the literature

exchange rate pass through openness and the sacrifice ratio abstract considerable recent work has reached mixed conclusions about whether and how globalization affects the inflation output trade off and suggests that the ultimate effect of openness on the output inflation relationship is influenced by a variety of factors in this paper we consider the impact of exchange rate pass through and examine how pass through conditions the effect of openness on the sacrifice ratio we develop a simple theoretical model showing how the extent of both pass through and openness can interact to influence the output inflation relationship next we empirically explore the nature of these two variables and their interaction results indicate that greater pass through increases the sacrifice ratio that there is statistically significant interaction between pass through and openness and once the extent of pass through is taken into account alongside other factors that affect the sacrifice ratio such as central bank independence openness fails to exert an empirically robust effect on the sacrifice ratio

on the market impact of wind energy forecasts this paper presents an analysis of how day ahead electricity spot prices are affected by day ahead wind power forecasts demonstration of this relationship is given as a test case for the western danish price area of the nord pool s elspot market impact on the average price behaviour is investigated as well as that on the distributional properties of the price by using a non parametric regression model to assess the effects of wind power forecasts on the average behaviour the non linearities and time variations in the relationship are captured well and the effects are shown to be quite substantial furthermore by evaluating the distributional properties of the spot prices under different scenarios the impact of the wind power forecasts on the price distribution is proved to be considerable the conditional price distribution is moreover shown to be non gaussian this implies that forecasting models for electricity spot prices for which parameters are estimated by a least squares techniques will not have gaussian residuals hence the widespread assumption of gaussian residuals from electricity spot price models is shown to be inadequate for these model types the revealed effects are likely to be observable and qualitatively similar in other day ahead electricity markets significantly penetrated by wind power

does globalisation discipline monetary policymakers abstract this paper analyses globalisation using a small general equilibrium model it concludes that whether increased openness a reduction in the costs of international trade helps to discipline monetary policy in large open economies depends on the type of trade costs moreover to the extent that globalisation induces stronger competition in the goods market this may also have an adverse effect on monetary policy discipline the latter is due to international expenditure switching which becomes a more forceful channel as competition intensifies thus the answer to the question in the title is not necessarily affirmative

openness and the effects of monetary policy abstract economic theory suggests that an economy s openness reduces the ability of monetary policy to affect output while increasing its effects on inflation using annual data from the 1953 1990 period for a panel of 38 countries the paper s empirical results support the theoretical predictions the more open the economy the smaller larger the output inflation effects of a given change in the money supply this finding is robust across all the different specifications and estimation methods examined

empirical analysis of the merit order effect and the missing money problem in power markets with high res shares an on going debate in the energy economics and power market community raises the question if energy only power markets are increasingly failing due to growing feed in shares from subsidized renewable energy sources res the argument being essentially that the merit order effect of res production depresses day ahead spot market prices which in turn creates a situation where power plant owners cannot recover investment costs missing money problem we argue in short that energy only power markets are not failing in principle but are rather facing several market distortions that hinder proper market functioning namely 1 the gap between the electricity volume actually traded at day ahead spot markets versus the overall electricity consumption and 2 the regulatory assumption that variable res generation i e wind and photovoltaic pv truly has zero marginal operation and grid integration costs in this paper we show that both effects over amplify the well known merit order effect of res power feed in and indirectly also the missing money problem beyond a level that is explainable by underlying physical realities we empirically analyze the impacts of wind and pv power feed in on the day ahead market for the epex german austrian market zone a region that is already today experiencing significant feed in tariff fit subsidized res power feed in ca 20 fit share our analysis shows that if necessary regulatory adaptations are taken i e increasing the spot market s share of overall load demand and using the true marginal costs of res units in the merit order energy based power markets remain functional despite high res power feed in

evidence on nominal wage rigidity from a panel of u s manufacturing industries we provide a set of stylized facts on the response of industry nominal wage growth to aggregate and industry specific influences using annual data for 450 u s manufacturing industries over the period 1958 to 1989 we find support for the canonical wage contracts model the response of nominal wage growth to expected inflation is estimated to be between 0 6 and 0 8 this estimate holds for several sectors within manufacturing the response of nominal wage growth to unexpected inflation is around 0 1 indicating a striking departure from the classical assumption of full indexation we also find support for the multisector wage indexation models the estimated profit sharing elasticity is positive as hypothesized in these models the instrumental variable estimates of the profit sharing elasticity are typically between 0 1 and 0 2 copyright 1996 by ohio state university press

habit persistence and the nominal term premium puzzle a partial resolution i introduction the consumption based capital asset pricing model ccapm has become the dominant paradigm in asset pricing theory because of its intuitive characterization of asset risk that is unlike expectations based asset pricing theories e g the present value model of stock prices which inherently assume risk neutrality the ccapm is predicated upon risk averse agents attempting to achieve a smooth consumption profile through the trading of assets from this perspective the risk of an asset is captured by the covariance of the asset s return with agents marginal utility of consumption or more broadly agents intertemporal marginal rate of substitution of wealth with this characterization the ccapm extends the results of the standard capm i e the risk of an asset is reflected in the covariance of the asset s return with the market portfolio to a general equilibrium setting however this intuitively appealing theory has not found much empirical support perhaps the most famous demonstration of inconsistency between the theory and data was rajnish mehra and edward prescott s 1985 analysis of the equity premium i e the difference between the average return on equity and that on government bonds using calibration methods rather than a formal statistical approach they showed that a standard ccapm severely underpredicts the size of the risk premium on equity the important implication of this finding is that the basic ccapm incorrectly models the covariance structure between the return on equity and asset holders intertemporal marginal rate of substitution economists response to this empirical rejection has been to either identify new sources of risk e g that implied by a particular monetary environment as in labadie 1989 or define alternative preferences toward risk e g the use of non expected utility theory as presented in weil 1989 and epstein and zin 1989 the potential for this research was illustrated recently by george constantinides s 1990 resolution of the equity premium puzzle in a model that included habit formation in consumption by relaxing the standard ccapm s assumption of time separable preferences constantinides demonstrated that a relatively smooth consumption profile and large risk premium on equity are consistent with equilibrium in a complete markets rational expectations framework 1 i use this insight to study another risk premium puzzle specifically the behavior of the nominal term premium the existence of a nominal term premium puzzle was demonstrated in papers by backus gregory and zin 1989 and salyer 1990 in which the term structure implications within a lucas 1982 type cash in advance cia economy were studied while some equilibrium characteristics of this model were consistent with the data both papers demonstrated that the model predicts the wrong sign of the term premium the theory implies the term premium should be negative while based on quarterly data for yields of three and six month u s treasury bills over the period 1959 1 1989 4 the observed term premium is positive similar to the equity premium puzzle as posed by mehra and prescott 1985 the prediction of a negative average term premium signals a critical discrepancy between the risk associated with nominal bonds as perceived by market participants and as captured by the models moreover this term premium puzzle is in some sense a stronger rejection of the underlying asset pricing model than that embodied by the equity premium puzzle to see this recall that within the consumption based asset pricing model the sign of the risk premium on any asset depends on the sign of the covariance between the marginal utility of consumption and that asset s return applying this reasoning to the case of the equity premium suggests that while the discrepancy in size between the observed equity premium and that generated within the model is troubling the model s prediction of a positive equity premium implies that the basic payout structure of equity within the model is consistent with that in the data e

is equilibrium indexation efficient this paper investigates the welfare properties of equilibrium indexation in a decentralized economy if indexation is costless so all firms index then the equilibrium degree of indexation is efficient but if indexation is costly and this leads some firms not to index equilibrium indexation is inefficient because indexation has externalities for nonindexed firms firms choose too little indexation if labor demand is more responsive to movements in real money than to movements in real wages the results do not depend on the relative importance of real and nominal shocks

trade openness and inflation the role of real and nominal price rigidities the paper revisits the long standing question of the impact of trade openness on the inflation output trade off by accounting for the effects of product market competition on price flexibility the study develops a new keynesian open economy dynamic stochastic general equilibrium model with non constant price elasticity of demand and calvo price setting in which the frequency of price adjustment is endogenously determined it demonstrates that trade openness has two opposing effects on the sensitivity of inflation to output fluctuations on the one hand it raises strategic complementarity in firms pricing decisions and the degree of real price rigidities which makes inflation less responsive to changes in real marginal cost on the other hand it strengthens firms incentives to adjust their prices thereby reducing the degree of nominal price rigidities and increasing the sensitivity of inflation to changes in marginal cost the study explains the positive relationship between competition and the frequency of price adjustment observed in the data it also provides new insights into the effects of global economic integration on the phillips curve

foreword for the special section on wind and solar energy uncovering and accommodating their impacts on electricity markets the articles in this special section focus on wind and solar energy and the impact these energy technologies and services will have the utility markets the aim is to give particular focus on some of the areas of investigation that may allow to 1 uncover the impact of renewables on electricity market e g on market clearing outcomes need for ancillary services and investment and to 2 propose methodological innovations being theoretically sound and of practical relevance in order to accommodate substantial shares of renewables in power systems electricity network and markets were designed based on a long history of dealing with various forms of dispatchable generation as well as a fairly predictable inelastic electricity consumption pattern in a centralized top down manner little uncertainty was involved on both generation and demand sides hence allowing for a design of electricity markets accounting for the necessity of a forward optimal allocation with a real time mechanism supporting actual power system operation

exchange rate determination the role of factor price rigidities and nontradeables this paper introduces factor labor markets into the intertemporal monetary model of obstfeld and rogoff and combines this richer market structure with a new utility independent representation of nontradeables this allows us to explore the international monetary transmission mechanism for factor price wage rigidities under different degrees of macroeconomic openness factor price rigidities imply similar properties for the international transmission mechanism as domestic producer price rigidities nontradeables give raise to interesting new effects under asymmetric monetary shocks they create short run ppp deviations increase exchange rate volatility relative to price level volatility and reduce positive consumption and negative output comovements 2000 elsevier science b v all rights reserved

hyteresis in import prices the beachhead effect this paper shows that temporary real exchange rate fluctuations can have persistent hysteretic effects on trade specifically when market entry costs are sunk sufficiently large exchange rate shocks alter domestic market structure and thereby induce hysteresis this simple result has strong implications for exchange rate theory t rade policy and estimation of trade equations empirical evidence su ggests that the recent dollar overvaluation induced hysteresis in u s import prices namely the aggregate pass through equation of exchange rates to import prices shifted in the 1980s the shift s nature and timing is broadly consistent with the hysteresis hypothesis copyright 1988 by american economic association

monetary policy cooperation and multiple equilibria abstract we consider international monetary policy regimes in a world of two identical economies characterized by unemployment persistence in the non cooperative regime markov perfect nash equilibrium policies are generally not unique furthermore policies may be asymmetric in this otherwise symmetric model monetary policy cooperation also exhibits multiple equilibria but these are fewer and always symmetric cooperation may be counterproductive or beneficial for either country depending upon the initial non cooperative and resulting cooperative outcome

grand corruption instead of commitment reconsidering time inconsistency of monetary policy abstract this paper suggests that inflation may be affected differently by grand corruption compared to its positive nexus with petty corruption in an extended barro and gordon 1983a model grand corruption may serve as a quasi commitment device a cheating expropriating government may actually deter a monetary authority from cheating reneging furthermore rogoff s 1985 conservative central banker has an unambiguously beneficial effect she reduces the inflationary bias even more while also rendering fiscal policy more effective the model nests the standard fiscal monetary interaction logic with and without expropriation as well as the diametrical symbiosis result obtained by dixit and lambertini 2003a

monopolistic competition relative prices and output adjustment in the open economy abstract this paper explains price and output dynamics in an open economy characterized by a monopolistic competitive market structure in which pricing decisions incur costs this leads producers to pre set the price path for several periods the paper derives an optimal pricing rule including the optimal pre setting horizon it does so for a rational expectation equilibrium characterized by staggered unsynchronized price setting for which the degree of staggering is endogenously determined

monetary policy and country size abstract this paper uses a two country lucas tree model with a cash in advance constraint to investigate the impact of country size on monetary policy in the presence of externalities in this example the externality is the holding of domestic currency by foreign firms it is shown that large countries have a relatively smaller incentive to inflate than small countries cross country empirical tests show that among industrialized countries there exists a negative and significant relationship between the average of inflation rates between 1979 and 1989 and the average of both gdp and population jel e5 f4

openness inflation and the phillips curve a puzzle models of open economies with nominal rigidities are often thought to predict a correlation between openness to trade and the slope of the output inflation trade off or phillips curve using a variety of measures of the trade off and a standard measure of openness this paper argues that the direct evidence for a correlation is not strong in turn this calls into question the usual explanation for the negative correlation between openness and inflation that was documented by romer 1993 the paper considers some alternative explanations for the romer evidence

the macroeconomic effects of monetary and fiscal policy in a small open economy does the exchange rate regime matter abstract this paper develops a small open economy model in the spirit of obstfeld and rogoff 1995 the introduction of endogenous traded sector output unlocks current account and real exchange rate effects within this framework where specific consideration is given to the case with fixed but adjustable parities exchange rate devaluation generates similar qualitative effects as a money supply expansion under floating rates output and external effects of government spending shocks are broadly consistent with the adjusted basic non micro founded mundell and fleming mf framework but differ in significant ways from the baseline mf model contrary to the textbook mf model a government expenditure shock depreciates the nominal exchange rate and generates real effects under the fixed rate system

optimal wage indexation and monetary policy in an economy with imported raw materials abstract an economy s openness from the input side has important effects on the optimal design of its macroeconomic policies given the exchange rate regime the larger the share of imported raw materials in domestic production the smaller the optimal degree of wage indexation to unanticipated inflation alternatively given the wage indexation parameter the larger the share of imported raw materials in domestic production the smaller the optimal degree of foreign exchange intervention by the monetary authority the more flexible the exchange rate

public debt indexation and denomination with an independent central bank abstract this paper examines the interaction between public debt management and the design of monetary institutions the analysis shows that delegation of monetary policy to an independent central bank is more effective in containing inflationary expectations than the use of foreign currency or inflation indexed debt if delegation of monetary policy is viable the optimal policy is to issue nominal debt this increases the sensitivity of taxes and output to unexpected inflation thus minimizing the inflation needed to offset supply shocks evidence on central bank independence debt composition and output variability suggests that the normative argument has some positive content

crash states and the equity premium solving one puzzle raises another abstract this paper examines the behavior of asset returns as predicted by the consumption based capital asset pricing model within an artificial economy that includes a low probability crash state in consumption and dividends it is demonstrated that the behavior of agents intertemporal marginal rate of substitution in such an economy is consistent with the hansen and jagannathan 1991 frontier even though the consumption process in the model is calibrated to actual data preferences are time separable and agents relative risk aversion is restricted to moderate levels moreover as demonstrated by rietz 1988 the crash state economy can replicate the mean of excess returns on equity i e the equity premium however the model severely underpredicts the volatility of excess returns

trade union density and inflation performance evidence from oecd panel data this paper examines the impact of union membership rates on inflation in oecd countries a positive effect of union density is estimated even after controlling for fixed effects and time dummies additional institutional characteristics for example union coordination employment protection laws and central bank independence do not affect inflation directly in a panel setting but do influence the size of the unionization coefficient via interaction terms the results are robust to controlling for potential common causes such as oil price shocks and the political stance of the government and to using gmm iv techniques to handle possible endogeneity biases

a near rational model of the business cycle with wage and price inertia this paper presents a model in which insignificantly suboptimal behavior causes aggregate demand shocks to have significant real effects the individual loss to agents with inertial price wage behavior is second order in terms of the parameter describing the shock while the effect on real economic variables is first order thus significant changes in business activity can be generated by anticipated money supply changes provided that some agents are willing to engage in nonmaximizing behavior which results in small losses

welfare and macroeconomic interdependence we develop a baseline model of monetary and fiscal transmission in interdependent economies the welfare effects of expansionary policies are related to monopolistic supply in production and monopoly power of a country in trade an unanticipated exchange rate depreciation can be beggar thyself rather than beggar thy neighbor as gains in domestic output are offset by deteriorating terms of trade smaller and more open economies are more prone to suffer from inflationary shocks larger economies benefit from moderate demand led expansions but may be worse off if policy makers attempt to close the output gap fiscal shocks are generally beggar thy neighbor in the long run in the short run they raise domestic demand at given terms of trade thus reducing the welfare benefits from monetary expansions analytical tractability makes our model uniquely suitable as a starting point to approach the recent new open economy macroeconomic literature

openness the sacrifice ratio and inflation is there a puzzle abstract the standard time inconsistency based explanation for the negative correlation between openness and inflation requires an inverse relationship between the sacrifice ratio and openness but daniels et al 2005 openness central bank independence and the sacrifice ratio journal of money credit and banking 37 2 371 379 have provided evidence that controlling for central bank independence reveals a positive relationship this paper embeds the time inconsistency approach within a model of a multisector imperfectly competitive open economy in this setting greater openness raises the sacrifice ratio but reduces the inflation bias thus failure to observe an inverse relationship between openness and the sacrifice ratio does not necessarily imply that the time inconsistency approach is irrelevant to understanding the openness inflation relationship

disaggregate evidence on price stickiness and implications for macro models i introduction fashions that take hold of the field of macroeconomics share important characteristics with the economy its practitioners seek to understand approaches that are in vogue exhibit cycles with varying frequencies and amplitudes during the 1960s theories based on assumptions of widespread wage and price stickiness dominated the landscape the new classical macroeconomics that emerged in the 1970s challenged the preeminence of these keynesian theories and by the mid 1980s real business cycle theories assuming widespread price flexibility received a considerable portion of macroeconomists attention beginning in the early 1990s as reviewed by gordon 1990 mankiw 1990 and mankiw and romer 1991a 1991b a keynesian counterrevolution occurred and by the conclusion of the 1990s sticky price theories had regained much of their luster today as discussed by woodford 2003 price stickiness is a fundamental building block of numerous theories aimed at explaining both movements in domestic variables such as employment and real output and changes in international variables such as the trade balance and the current account there has as we discuss below been empirical work seeking to determine whether real world data might be consistent with the implications of macroeconomic theories with inflexible product prices there has been very little work however to determine whether the most influential approaches to testing the reasonableness of micro based models of price stickiness support the underlying assumption of widespread price rigidities at the micro level instead leading studies in the literature examine only aggregate data we find this quite surprising given that so many modern macroeconomic models consider economies populated with representative producers that establish an array of product prices that are fixed in the short run which in most models is commonly taken to be the current period of analysis are most product prices really sticky bils and klenow 2004 have addressed this question by studying the frequency of price adjustments for 123 categories of consumer goods and services their answer is that most prices in fact change relatively frequently with about half of prices changing roughly every 4 or 5 too although they found that the prices of certain services and what they call processed physical goods adjust more slowly their overall results offer relatively little support for sticky price models in this paper we also examine microeconomic data for the united states in contrast to bils and klenow however we examine industry level data on firm prices and costs we employ the empirical methodology proposed by the highly influential study by gali and gertler 1999 which in turn is based on the micro based analysis of imperfect competition and price stickiness proposed by calvo 1983 nevertheless our conclusions are broadly similar to those of bils and klenow overall we find that across the industries to which we are able to apply the gali gertler style approach no more than 43 of total sales are generated by industries with estimated periods of price adjustment of 6 quarters or more this percentage drops to below 23 when the discount factor is restricted to reasonable values and under these restrictions industries accounting for at least 36 of all sales in the industries we analyze have estimated price adjustment intervals of less than 2 quarters in all empirical approaches we consider unrestricted analyses producing estimates of industry specific discount factors at least 44 of total sales of the industries we consider are generated by industries with estimated price adjustment speeds of less than 1 yr furthermore in most specifications the unweighted average price adjustment interval for all industries is below 1 yr and the weighted average using industry shares of total sales as weights price adjustment interval for all specifications ranges from no higher than 3

inflation targeting and output inflation tradeoffs abstract this article assesses whether the adoption of inflation targeting it helps reduce the output inflation tradeoff we address the self selection problem of it policy adoption by the endogenous switching regressions and show that the output inflation tradeoffs are significantly lower in it countries not only over the whole sample but also across the developed and developing country subsamples in addition we also find strong evidence supporting the positive selection hypothesis i e countries have higher probability of adopting it are exactly those who benefit more larger reduction of output inflation tradeoff from the implementation of it additional results reveal that economies with higher trade openness lower financial openness and less flexible exchange rate regime are associated with larger tradeoff between output and inflation but the effects are only statistically significant in the it regime

monopolistic competition and the effects of aggregate demand how important is monopolistic competition to an understanding of the effects of aggregate demand on output we ask the question at three levels can monopolistic competition by itself explain why aggregate demand movements affect output can it together with other imperfections generate effects of aggregate demand in a way that perfect competition cannot if so can it give an accurate account of the response of the economy to aggregate demand movements the answers are no yes and yes

the merit order effect a detailed analysis of the price effect of renewable electricity generation on spot market prices in germany the german feed in support of electricity generation from renewable energy sources has led to high growth rates of the supported technologies critics state that the costs for consumers are too high an important aspect to be considered in the discussion is the price effect created by renewable electricity generation this paper seeks to analyse the impact of privileged renewable electricity generation on the electricity market in germany the central aspect to be analysed is the impact of renewable electricity generation on spot market prices the results generated by an agent based simulation platform indicate that the financial volume of the price reduction is considerable in the short run this gives rise to a distributional effect which creates savings for the demand side by reducing generator profits in the case of the year 2006 the volume of the merit order effect exceeds the volume of the net support payments for renewable electricity generation which have to be paid by consumers

income velocity of money in agricultural developing economies t he response of income velocity of money to economic growth has implications for monetary planning in a developing economy velocity is the ratio of nominal income to money stock and decreases only if money stock rises at a faster rate than nominal income a well known hypothesis in this context is that of friedman 1959 which states that in countries experiencing a secular rise in real income per capita the stock of money generally rises over long periods at a decidedly higher rate than does money income i e velocity declines ezekiel and adekunle 1969 and melitz and correa 1970 in their international crosscountry comparisons have found evidence largely in favour of the friedman hypothesis this in its turn has strengthened the hope for active growthoriented monetary planning the extent of resources that can be transferred for investment purposes through non inflationary monetary expansion increases as development proceeds cross section studies involving developed and developing economies do not provide satisfactory indications of what happens to velocity over time in any individual developing economy firstly velocities have not behaved uniformly in all the developing economies secondly international cross country comparisons do not adequately explain why velocity changes in any individual economy is it because money is a luxury good i e income elasticity of demand for money is greater than unity to the agents in the economy is it because economic development brings about structural changes in the economy which lead to the observed behaviour of velocity is it because monetary habits change in a systematic way it is important to have time series analyses of developing economies to provide answers to such questions for example in a study of malaysia and singapore short 1973 found that though velocity did move inversely to per capita income this negative impact was overpowered by the change in monetary habits which the increase in bank offices caused the aim of this paper is to analyse the temporal behaviour of income velocity of money in agricultural developing economies in the literature on velocity and demand for money in developing economies attention is focussed mainly on three issues i the incomeelasticity of demand for money and in particular whether money is a luxury good or not ii the growth of monetisation and changes in monetary habits and iii the effect of the cost of holding money one important factor which has suffered total neglect is the role of sectoral differences in money demand behaviour and the structural shifts in the sectoral composition of income that accompany development money demand behaviour may vary across sectors this is true not only in developing economies but also in developed economies for example goldfeld 1976 has found that the business sector and the household sector in the united states have different money demand functions an implicit specification error is committed in the aggregative money demand or velocity equation whenever the sectoral income composition factor is omitted on a priori grounds this factor should have special significance in developing economies where sectoral shares in national income change over time in the absence of flow offunds accounts and adequate data on sectoral money holdings for most of the developing economies direct estimation of sectoral demand functions is not possible thus an aggregative specification which incorporates the sectoral income composition factor is necessary to analyse the behaviour of velocity

the impact of renewables on electricity prices in germany an update for the years 2014 2018 abstract increasing electricity prices for private consumers manifested the idea of price boosting renewable energy sources in germany s public opinion literature however widely concurs that wind and photovoltaics have a reducing effect on spot market electricity prices the underlying merit order effect led to historically low exchange prices in the past years to quantify this effect this study analyses historic demand and supply curves from the german day ahead market to reconstruct electricity prices without the feed in of wind and photovoltaics from 2014 to 2018 results show that renewable energy sources considerably reduced electricity prices by between 2 89 ct kwh in 2014 to 8 89 ct kwh in 2017 this allowed german end consumers to save a total of 40 billion from 2014 to 2018 additionally wind and pv contributed significantly to security of supply demand could not have been met by domestic conventional and nuclear generation capacities in up to 424 hours in 2018 the study highlights the necessity to further speed up the expansion of wind and photovoltaics

public inflation aversion and the political economy of macroeconomic policymaking do the macroeconomic priorities of citizens differ across countries if so what accounts for this variation and what are its consequences for explanations of the choice of monetary institutions macroeconomic policy and international monetary cooperation this article uses survey data from twenty advanced economies to examine individual preferences about macroeconomic priorities the analysis establishes three key findings first the results suggest that economic context defined by inflation and unemployment performance has a substantial impact on the public s economic objectives in a way that is broadly consistent with the specification of utility loss functions in the theoretical political economy literature second the results suggest that there is significant cross country variation in inflation aversion controlling for economic context third some of this variation is accounted for by national level factors affecting the aggregate costs of inflation and unemployment these results have significant implications for optimal monetary policymaking the explanation of variation in economic outcomes and for accounts of the choice of institutional frameworks for policymaking i thank the bank of england the center for basic research in the social sciences and the institution for social and policy studies for research support and jim alt andrew bailey bill bernhard lawrence broz john freeman jeff frieden jim granato shigeo hirano david lake jeff lax simon price rose razaghian ron rogowski david stasavage gabriel sterne mike tomz jim vreeland the editor and two anonymous reviewers for helpful comments all views expressed are those of the author and do not represent those of the bank of england

the market value of variable renewables the effect of solar wind power variability on their relative price this paper provides a comprehensive discussion of the market value of variable renewable energy vre the inherent variability of wind speeds and solar radiation affects the price that vre generators receive on the market market value during windy and sunny times the additional electricity supply reduces the prices because the drop is larger with more installed capacity the market value of vre falls with higher penetration rate this study aims to develop a better understanding on how the market value with penetration and how policies and prices affect the market value quantitative evidence is derived from a review of published studies regression analysis of market data and the calibrated model of the european electricity market emma we find the value of wind power to fall from 110 of the average power price to 50 80 as wind penetration increases from zero to 30 of total electricity consumption for solar power similarly low value levels are reached already at 15 penetration hence competitive large scale renewable deployment will be more difficult to accomplish than as many anticipate

capital account liberalization and inflation abstract evidence from over 100 countries suggests a strong link between capital account openness and lower inflation in particular widespread capital account liberalization during the early 1990s appears to have contributed to the world wide disinflation observed during that decade alternative indices of capital account openness including those of quinn and toyoda measuring international financial openness and closure department of political science georgetown university washington dc 1996 mimeo yield similar results

testing monetary policy intentions in open economies 1 introductionthis article examines the relationship between economic openness and inflation performance among the most prominent research on this topic is the work by romer 1993 he demonstrates a negative relationship between economic openness and the inflation level his finding has also been viewed as supportive albeit indirectly of time consistency theory kydland and prescott 1977 1 romer 1993 argues that policymakers in more open economies have less incentive to adopt an expansionary monetary policy his argument is based on the assumption that monetary surprises in more open economies result in higher inflation for a given increase in output romer s finding that more open economies have lower inflation levels leads him to infer that this is evidence of time consistency in monetary policy practices however romer s work has not been generally accepted temple 2002 provides evidence that the openness inflation correlation does not stem from time consistency theory because the inflation level may not properly reveal the monetary authorities policy intentions temple questions this inference because it starts from a strong but unjustified assumption more open economies possess a relatively steeper phillips curve consequently temple proposes that the examination of the positive relationship between openness and the slope of the phillips curve is a fundamental condition for romer s argument he however finds little support for the positive relationship between economic openness and the slope of the phillips curve further work on the relationship of openness and monetary policy intentions comes from clarida gali and gertler 2001 2002 hereafter cgg in cgg 2001 the authors present a simple open economy model with a taylor type interest rate policy rule taylor 1993 the article concludes that the optimal monetary policy in an open economy has the same solution as that in a closed economy derived in cgg 1999 the authors also suggest that there is a direct link between the degree of economic openness and the aggressiveness of monetary policy they state that o penness does affect the parameters of the model suggesting a quantitative implication h ow aggressively a central bank should adjust the interest rate in response to inflationary pressures depends on the degree of openness cgg 2001 p 248 in subsequent work cgg 2002 revisit the issue based on a dynamic open economy new keynesian model and the role of monetary policy in open economies is refined consistent with the argument in cgg 2001 they find that the optimal monetary policy rule in an open economy is isomorphic to that in a closed economy in the nash equilibrium they also suggest that openness does not affect the optimality of a policy rule in such a scenario on the other hand economic openness does affect optimal monetary policy when the foreign optimal policy is endogenous in the domestic country s objective function this effect however is ambiguous in direction because the relationship between the degree of economic openness and the aggressiveness of monetary policy is determined by the relative size of trade and wealth effects of changes in foreign output this line of theoretical literature is limited and does not offer a definitive conclusion on the relationship between economic openness and monetary policy intentions our article provides an alternative empirical evaluation of the relationship based on prior literature we use inflation variability and persistence as the measures of monetary policy intentions one branch of the literature such as taylor 1999 cgg 2000 and owyang 2001 argues that aggressive monetary policy reduces the volatility of inflation for instance cgg 2000 estimate a forward looking taylor rule for the period between 1960 i and 1996 iv they use paul volcker s appointment as chairman of the federal reserve system as a regime shift to a more aggressive anti inflation policy stance

has greater competition restrained u s inflation this paper shows how increased goods market competition affects the behavior of inflation in a multisector economy by raising the price elasticity of demand increased goods market competition theoretically lowers inflation and makes the aggregate price level less sensitive to aggregate demand shocks we find that proxies for the aggregate degree of goods market competition are statistically and economically significant in short run phillips curve models of core inflation evidence indicates that heightened goods market competition has flattened the slope of the short run expectations augmented phillips curve and slightly lowered the nonaccelerating inflation rate of unemployment nairu

on the flexibility of monetary policy the case of the optimal inflation tax this paper examines optimal monetary policy under uncertainty in a context in which policy makers are able to make credible policy commitments we study an optimal taxation problem of minimizing the social cost of financing a stochastic and exogenous level of government transfers since in the basic model the welfare costs of inflation derive only from expected inflation the optimal monetary policy is highly responsive to the state of nature in a benchmark case in which all shocks are transitory the optimal policy calls for loading all the variability of government transfers on the shoulders of the inflation tax

imported materials prices wage policy and macroeconomic stabilization this paper analyses two simple wage rules that keep employment constant when there are shocks to the prices of imported materials one rule ties nominal wages to the gnp deflator rather than the consumer price index the second rule followed by japan after the second oil price shock ties the real wage to real gnp the paper shows the effects on output real income and other macro economic variables of choosing either rule in place of the real wage stability provided by conventional wage indexation

wind power and electricity prices at the pjm market increased deployment of wind power generation is changing the landscape of power supply around the world when integrated with electricity markets wind power is also widely known to influence the prices cleared at the market this paper examines the effect of wind power generation on the day ahead market prices in the pjm electricity market using robust econometric models and statistical inference results show that the quantified expected benefits to wholesale market participants may be substantial despite the relatively low wind power penetration levels still observed within the pjm jurisdiction relative to other markets the quantified unitary benefits outweigh by a great margin the renewable energy credits given to qualifying wind farms across the market when benefits outweigh the costs incurred to generate them welfare is accrued to this end benefit allocation mechanisms are proposed which may contribute to the continued development of wind power on the roadmap to a cleaner power industry of the future

monetary policy games inflationary bias and openness abstract when a country s central bank has higher output objectives than those of wage setters the noncooperative nash equilibrium contains an inflationary bias which is higher the flatter the economy s aggregate supply curve an economy s openness from the input side is an exogenous observable characteristic that provides a direct way of testing the theory when the imported intermediate goods displace capital labor in production a higher degree of openness flattens steepens the economy s aggregate supply curve and increases decreases the inflationary bias

globalization the output inflation tradeoff and inflation abstract this paper provides comprehensive evidence on the relation between inflation and globalization defined here as trade and financial openness using a large cross section of 91 countries over the period 1985 2004 we establish two main empirical regularities both higher trade and financial openness i reduce central banks inflation bias yielding lower average inflation and ii are associated with a larger output inflation tradeoff this evidence is at odds with the standard barro gordon framework which would require globalization to have a negative effect on the output inflation tradeoff to yield lower equilibrium inflation but it is consistent with a recent strand of new keynesian models emphasizing the role of imperfect competition and nominal rigidities our findings also support the relevance of the time inconsistency hypothesis which underlies the theoretical models predicting a relation between globalization and inflation for the oecd subsample however we do not find an effect of openness on inflation the output inflation tradeoff suggesting that these countries have created an institutional framework for central banks that eliminates distortions due to the time inconsistency problem

traded goods competitiveness and aggregate fluctuations in the united kingdom this paper presents an investigation of the relations between wage adjustment competitiveness and aggregate fluctuations in the united kingdom it uses a real business cycle model based on the distinction between internationally traded and nontraded goods the traded goods sector is assumed a price taker and the focus is on the supply side the model can account quite well for fluctuations in competitiveness output wages and the terms of trade the results suggest output flexibility and wage price rigidity a combination that produces interesting patterns of macroeconomic adjustment which parallel the predictions of more traditional keynesian models copyright 1990 by royal economic society

the inflationary bias in a model of the open economy a note abstract in this paper we highlight the importance of aggregate supply effects on the size of the inflationary bias under discretionary policy making using a simple model of an open economy that imports a foreign resource input we show that under discretion the inflationary bias bears an inverse relationship to the elasticity of output supplied with respect to the real exchange rate this theoretical finding is consistent with romer 1993 romer d 1993 openness and inflation theory and evidence quarterly journal of economics 108 869 903 empirical results that point to the existence of a negative association between openness and inflation

the new open economy macroeconomics a survey since the 1995 publication of obsteld and rogoff s redux model there has been an outpouring of research on open economy dynamic general equilibrium models that incorporate imperfect competition and nominal rigidities this paper offers an interim survey of this recent literature 2001 elsevier science b v all rights reserved

the spillover effects of nominal wage rigidity in a multisector economy note although western economies are composed of markets with differing degrees of wage price stickiness most analytical macromodels are not composed of distinct sectors arld do not attempt to analyze how different sectors respond to policy actions and supply or demand shocks blinder and mankiw 1984 investigate how macropolicies and shocks affect a multicontract archipelago economy composed of five sectors islands each characterized by different wage price behavior they convincingly demonstrate how heterogeneous markets pose aggregation problems for policy makers and econometricians because each market reacts differently to common shocks however the blinder mankiw model is not really a model of an economy composed of integrated heterogeneous markets their archipelago model assumes that the workers in each sector island consume only the product produced in their sector a more realistic and analytically more appealing model would integrate the sectors by having each worker consume the same basket of heterogeneous goods under these circumstances conditions in one sector which affect the price of that sector s output can affect wage demands i e labor supply in another sector and thereby the output of this other sector through this channel wage price stickiness in one sector allows aggregate demand policy and shocks to have real effects on a sector with perfectly flexible sectoral wages and prices this result does not occur in the blinder mankiw model because it lacks this type of cpi labor supply linkage between sectors in fact these spillover effects have not been directly addressed by the existing literature for purposes of brevity only aggregate demand shocks will be considered in a closed economy consisting of only two sectors one having goods and labor markets which clear instantaneously henceforth the classical or walrasian sector and the

excess capacity monopolistic competition and international transmission of monetary disturbances analyzes the excess capacity monopolistic competition and international transmission of monetary policy disturbances in the united states sheds light on the international impact of monetary policy emphasis on the spillover effects of monetary disturbances similarity of framework used with open economy macroeconomics

small menu costs and large business cycles a macroeconomic model of monopoly i introduction the conflict between modern neoclassical and traditional keynesian theories of the business cycle centers upon the pricing mechanism in neoclassical models prices are fully flexible they represent the continuous optimization of economic agents and the continuous intersection of supply and demand in keynesian models prices are often assumed to be sticky they do not necessarily equilibrate all markets at all times one of the reasons for the resurgence of the equilibrium approach to macroeconomics has been the absence of a theoretical underpinning for this keynesian price stickiness this note shows that sticky prices can be both privately efficient and socially inefficient the business cycle results from the suboptimal adjustment of prices in response to a demand shock to the extent that policy can stabilize aggregate demand it can mitigate the social loss due to this suboptimal adjustment in some keynesian models prices are simply exogenously fixed 2 in others agents must set their prices in advance of the transaction date the act of altering a posted price is certainly costly these costs include such items as printing new catalogs and informing salesmen of the new price yet these menu costs are small and therefore generally perceived as providing only a weak foundation for these fixed price models however this inference is flawed small menu costs can cause large welfare losses the claim that price adjustment costs are small does not rebut the claim that they are central to understanding economic fluctuations

inflation in open economies abstract this paper relates the time consistent inflation rate to the degree of trade openness of an economy the mechanism linking the welfare effects of monetary surprises and hence the incentives to inflate to openness does not rely on a large country terms of trade effect but rather is due to imperfect competition and nominal price rigidity in the non traded sector the empirical evidence supports the main predictions of the model 1997 elsevier science b v

the markup and inflation evidence in oecd countries in this paper we evaluate the dynamic inconsistency argument put forth by kydland and prescott 1977 and barro and gordon 1983 as an explanation for differences in the average inflation experience across oecd countries the focus is on the empirical evidence relating the overall degree of competition among firms as measured by the markup of price over marginal cost and inflation over the 1973 88 period the prediction is that higher markups raise the monetary authority s incentive to increase output leading to higher equilibrium rates of inflation we find that the markup does well in explaining cross country differences in average inflation jel classification e31 e58 d43 l ecart du prix par rapport au cout marginal et l inflation resultats pour les pays de l ocde ce memoire examine l argument mis de l avant par kydland et prescott 1977 et barro et gordon 1983 pour expliquer les differences dans le taux moyen d inflation entre les pays de l ocde on porte une attention speciale aux resultats empiriques qui relient le degre general de concurrence entre les entreprises mesure par l ecart du prix par rapport au cout marginal et le niveau d inflation entre 1973 et 1988 la prediction est que des ecarts prix cout marginal plus eleves augmentent l incitation des autorites monetaires a accroitre le niveau de production ce qui entraine des taux d inflation d equilibre plus eleves il s avere que l ecart du prix par rapport au cout marginal tend a expliquer bien les differences dans le niveau moyen d inflation entre pays

trade openness and inflation episodes in the oecd boschen and weise journal of money credit and banking 2003 model the probability of a large upturn in inflation in the oecd an inflation start we extend their work to consider the impact of trade openness on the probability of such an event the main finding is that increased openness reduces the probability of an inflation start both directly and indirectly through restricting the role of general elections in triggering inflation starts

raw materials world price changes and exchange rates in a small open economy this paper studies the impact of a rise in the world price of imported raw materials oil on the small open economy exchange rate we obtain a depreciation which magnitude depends on the share and substitutability in the productive structure

the nairu unemployment and monetary policy this paper examines the precision of conventional estimates of the nairu and the role of the nairu and unemployment in forecasting inflation the authors find that although there is a clear empirical phillips relation the nairu is imprecisely estimated forecasts of inflation are insensitive to the nairu and there are other leading indicators of inflation that are at least as good as unemployment this suggests deemphasizing the nairu in public discourse about monetary policy and instead drawing on a richer variety of leading indicators of inflation

the merit order effect of wind and photovoltaic electricity generation in germany 2008 2016 estimation and distributional implications abstract generation from renewable energy sources in germany has experienced a considerable uptake in recent years mainly responsible for this development is the german renewable energy sources act erneuerbare energien gesetz eeg this paper considers redistributive implications of the eeg for different electricity consumers using time series regression analysis we show that electricity generation by wind and pv has reduced spot market prices considerably by 6 mwh in 2010 rising to 10 mwh in 2012 we use these results to build a near term forecasting tool for merit order effects projected to reach 14 16 mwh in 2016 on the other hand the costs of the eeg are passed forward to consumers in the form of a surcharge our findings highlight significant redistributive transfers under the current design of the eeg in particular some energy intensive industries are benefiting from lower wholesale electricity prices whilst being largely exempted from contributing to the costs of the scheme we also highlight implications of our results for other areas for reform of the eeg such as adequate remuneration mechanisms that ensure efficient operation and investment decisions are made under the scheme more generally these findings suggest that policy makers need to integrate distributional assessments into policy design and implementation