foreign exchange market reactions to sovereign credit news abstract we analyse the reaction of the foreign exchange spot market to sovereign credit signals by fitch moody s and s p during 1994 2010 we find that positive and negative credit news affects both the own country exchange rate and other countries exchange rates we provide evidence on unequal responses to the three agencies signals fitch signals induce the most timely market responses and the market also reacts strongly to s p negative outlook signals credit outlook and watch actions and multiple notch rating changes have more impact than one notch rating changes considerable differences in the market reactions to sovereign credit events are highlighted in emerging versus developed economies and in various geographical regions

impact of sovereign rating changes on stock market co movements the case of latin america abstractwe aim to determine if long term foreign currency sovereign rating assessments from s p moody s and fitch for the advanced emerging latin american countries brazil mexico and chile have any significant effect on the correlation between their stock market returns in the last decade with that purpose in mind we obtain the time varying correlation by cdcc modeling using arx aparch filtered returns the analysis shows that the rating changes do not have a significant effect on the correlations in general after testing for robustness we reveal that an upgrade to an investment grade level for a country is more likely to positively diversify it from others in the region instead of creating a common positive regional investment environment results have important implications for investors and policymakers

the future developments of the electricity prices in view of the implementation of the paris agreements will the current trends prevail or a reversal is ahead abstract we assess the impact on the european electricity market of the european union clean energy for all europeans package which implements the eu nationally determined contribution in paris cop 21 we focus on the year 2030 which is the year with defined climate targets for the assessment we employ a game theoretic framework of the wholesale electricity market with high technical detail the model is applied to two core scenarios a base scenario and a low carbon scenario to provide insights regarding the future electricity capacity generation mix cross border trade and electricity prices we also assess three additional variants of the core scenarios concerning different levels of a fossil and co2 prices b additional flexibility provided by batteries c market integration we find that the electricity prices in 2030 substantially increase from today s level driven by the increase in fuel and co2 prices the flexibility from batteries helps in mitigating the price peaks and the price volatility the increased low marginal cost electricity generation the expansion of non dispatchable and distributed capacities and the higher market integration further reduce the market power from producers in the electricity markets from today s level

terms of trade shock and the current account in a monetary economy over the period 1973 81 the terms of trade of non oil developing countries deteriorated at about 2 per cent per annum this was accompanied by an increase in current account deficits in excess of 3 per cent above what they had been in the previous decade see khan and knight 1983 for a discussion these authors find the terms of trade shocks the major cause of the deficits this has led to a renewal of interest in the effects of changes in terms of trade for a small open economy the conventional wisdom first put forward by laursen and metzler 1950 and harberger 1950 emphasized the fact that a terms of trade worsening lowered real income which in turn lowered savings and worsened the current account the laursen metzler effect the recent reappraisal was initiated by obstfeld 1982 he showed in an infinite horizon optimizing framework with perfect capital mobilizing that if the discount rate was a function of the level of utility surpluses and not deficits accompany an unanticipated and permanent terms of trade worsening the long run level of the discount rate is tied down by the given world rate of interest this in turn fixes the long run level of utility the terms of trade shock tends to lower the level of utility and agents save to offset this across steady states there is only a substitution effect on the other hand if the discount rate is fixed and equal to the world interest rate then the economy adjusts to the terms of trade shock by immediately lowering real expenditure by the same amount as the decline in real income so that the current account is always balanced svensson and razin 1983 showed that in a two period framework this does not necessarily happen for the infinite horizon case they showed that if preferences were separable over time and the discount rate was increasing in instantaneous utility then obstfeld s results were indeed obtained in a two period overlapping generations model the results could be modified owing to the fact that human wealth and non human wealth are not perfect substitutes and a terms of trade shock affects these differently see matsuyama 1988 for a discussion but it is still true that an unanticipated permanent terms of trade shock has a one shot effect on the current account unless some ad hoc costs of adjustment are introduced see e g persson and svensson 1985 and matsuyama 1988 the uncertain lifetime model see e g frenkel and razin 1988 and matsuyama 1987 generates non trivial

an analysis of the decline of electricity spot prices in europe who is to blame abstract the european electricity markets are going through a phase of agitating transition which is shaped by different key factors such as the expansion of renewable energies the changes in the eu carbon trading scheme and the european market integration in addition markets are affected by the volatile prices of primary energy carriers e g gas and coal the development of these different factors led to a decline of german wholesale electricity prices of almost 40 from about 51 mwh in 2011 to 31 mwh in 2015 the goal of this study is to analyze the contribution of different price drivers to this decline thus an agent based modeling and a regression approach are applied to investigate the effect of price drivers and to verify model results by comparing both approaches our results show that against the public perception the impact of carbon and coal prices on german electricity prices has been twice as high as the renewable expansion between 2011 and 2015 furthermore if carbon and coal prices do not recover to at least the level of 2011 electricity prices will remain on the current low level complicating the economic operation of gas power plants

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

the tobin tax asset accumulation and the real exchange rate abstract we extend a standard model of exchange rate determination in a small open economy to examine the general equilibrium consequences of a tax on foreign assets the model 1 incorporates asset market clearing at a point in time 2 accounts for asset accumulation over time by way of trade imbalances and the government s financing needs and 3 broadens the government s policy options to include a tariff on the traded good and a tax on foreign assets a capital tax results in a transitory trade deficit because agents shift to home assets their decumulation of foreign assets is mirrored in a trade deficit

currency substitution and the real exchange rate the utility maximization approach abstract this paper studies the currency substitution hypothesis with rational expectations in terms of a sidrauski type model where domestic and foreign money enter the utility function it shows that contrary to liviatan 1981 the approach does not necessarily contradict calvo and rodriguez 1977 furthermore the impact of monetary stabilization policy is fully characterized with flexible and pre fixed rates for an extension of dornbusch and mussa 1975 a brief analysis of the optimal quantity of money is also provided

do credit rating agencies provide valuable information in market evaluation of sovereign default risk abstract we assess the marginal information value of credit rating announcements on market pricing of sovereign risk as measured by cds spreads we demonstrate that accurate assessment of the effect of credit rating changes must be conditioned on relevant information known prior to the rating change to this end we include macroeconomic conditions and the watch or outlook status of the bond immediately prior to the rating change in our information set the empirical work employs a dynamic panel macroeconomic model with 56 countries using monthly data from january 2004 through august 2012 we find that watch outlook status plays a critical role in accurately determining the information value of credit rating changes with point estimates in some cases changing by a factor of eight cds spreads respond most strongly to credit rating changes when bonds are on stable status but also respond significantly when bonds are on outlook status the least response is found for bonds on watch status at the time of the downgrade the downgrades in these cases are largely anticipated and the information value incorporated at the time of the negative watch announcements

the capital inflows problem revisited a stylized model of southern cone disinflation in the late 1970s countries in latin america s southern cone initiated attempts to lower domestic inflation rates through the progressive reduction of a preannounced rate of exchange rate devaluation the stabilization programs gave rise to massive capital inflows real exchange rate appreciation and current account deficits this paper develops a stylized intertemporal framework in which the effects of a credible preannounced disinflation scheme can be studied it is shown that even when agents have perfect foresight and markets clear continuously the capital inflows phenomenon and the associated real appreciation may result while unanticipated permanent inflation changes are neutral in the paper anticipated inflation is neutral only in exceptional circumstances a preannounced disinflation operates by altering the path of an expenditure based real domestic interest rate that depends on expected changes in the prices of liquidity services and nontradable consumption goods

the credit signals that matter most for sovereign bond spreads with split rating abstract we investigate how split ratings influence the information content of credit rating events on the sovereign bond markets during 2000 2012 we find that market reactions are far stronger for negative events on the inferior ratings and for positive events on the superior ratings such evidence suggests aversion of market participants to the ambiguity inherent in split ratings sovereign credit spreads are particularly responsive to negative events by s p the more conservative agency in the sample moody s positive events have a significant impact only when moody s assigns superior pre event ratings compared with s p there is little evidence that split ratings involving fitch have any market implication

dollarization and inflation in a two country optimization model abstract in a two country two currency model this paper examines the conditions of dollarization analyzes the effect of government inflation finance and studies the strategic interdependence of different currency inflation jel f30

endogenous real exchange rate fluctuations in an optimizing open economy model abstract this paper constructs a simple intertemporal model of a small open economy inhabited by forward looking agents in which endogenous fluctuations in the real exchange rate can arise in equilibrium i e fluctuations that are not linked to movements in economic fundamentals the key condition for the main results is the assumption that the marshall lerner condition does not hold i e that the country s exports and imports are inelastic to its real exchange rate it is shown that given that the marshall lerner condition fails there exist periodic equilibria and or stationary sunspot equilibria in the neighborhood of the stationary state

the plunge in german electricity futures prices analysis using a parsimonious fundamental model abstract the german market has seen a plunge in wholesale electricity prices from 2007 until 2014 with base futures prices dropping by more than 40 this is frequently attributed to the unexpected high increase in renewable power generation using a parsimonious fundamental model we determine the respective impact of supply and demand shocks on electricity futures prices the used methodology is based on a piecewise linear approximation of the supply stack and time varying price inelastic demand this parsimonious model is able to replicate electricity futures prices and discover non linear dependencies in futures price formation we show that emission prices have a higher impact on power prices than renewable penetration changes in renewables demand and installed capacities turn out to be similarly important for explaining the decrease in operation margins of conventional power plants we thus argue for the establishment of an independent authority to stabilize emission prices

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

capital inflows external shocks and the real exchange rate abstract this paper examines the effects of a fall in world interest rates on capital flows and the real exchange rate in an optimizing framework with imperfect capital markets a permanent fall leads to a steady state reduction in net foreign assets and a real depreciation regardless of whether the country is initially a net creditor or net debtor on impact the real exchange rate appreciates in the net debtor case but may either appreciate or depreciate in the net creditor case the dynamics associated with a temporary shock depend not only on its duration but also on the initial asset position

the impact of renewable energies on eex day ahead electricity prices in this paper we analyze the impact of renewable energies wind and photovoltaic on the formation of day ahead electricity prices at eex we give an overview of the policy decisions concerning the promotion of renewable energy sources in germany and discuss their consequences on day ahead prices an analysis of electricity spot prices reveals that the introduction of renewable energies enhances extreme price changes in the frame of a dynamic fundamental model we show that there has been a continuous electricity price adaption process to market fundamentals furthermore the fundamental drivers of prices differ among hours with different load profiles our results imply that renewable energies decrease market spot prices and have implications on the traditional fuel mix for electricity production however the prices for the final consumers increased overall because they must pay in addition the feed in tariffs for the promotion of renewable energy

a combined modeling approach for wind power feed in and electricity spot prices abstract wind power generation and its impacts on electricity prices has strongly increased in the eu therefore appropriate mark to market evaluation of new investments in wind power and energy storage plants should consider the fluctuant generation of wind power and uncertain electricity prices which are affected by wind power feed in wpf to gain the input data for wpf and electricity prices simulation models such as econometric models can serve as a data basis this paper describes a combined modeling approach for the simulation of wpf series and electricity prices considering the impacts of wpf on prices based on an autoregressive approach thereby wpf series are firstly simulated for each hour of the year and integrated in the electricity price model to generate an hourly resolved price series for a year the model results demonstrate that the wpf model delivers satisfying wpf series and that the extended electricity price model considering wpf leads to a significant improvement of the electricity price simulation compared to a model version without wpf effects as the simulated series of wpf and electricity prices also contain the correlation between both series market evaluation of wind power technologies can be accurately done based on these series

effective protection and exchange rate determination abstract considerable research interest has entered on the implications for exchange rate determination of fluctuations in intermediate goods prices ang changes in tariff protection this paper draws together the strands of this literature by examining the role of effective protection in exchange rate determination a disaggregated portfolio balance model of the open economy is used to analyze the determination of real and nominal exchange rates in the presence of rational expectations additionally it is used to explore the implications for resource allocation of changes in the effective rate of protection in a country capable of influencing its terms of trade

monetary expansion and real exchange rate dynamics this paper examines the effect of a change in the rate of monetary expansion on the dynamics of the real exchange rate under fully flexible domestic prices and a floating exchange rate the model is similar in structure to an ealier paper by calvo and rodriguez the main difference being that in our model consumers have an infinite planning horizon and long run perfect foresight one of the main findings is that an increase in the rate of monetary expansion has the impact effect of creating a real appreciation of the exchange rate and a deterioration of the balance of payments contrary to the results of calvo and rodriguez

how renewable production depresses electricity prices evidence from the german market abstract the urgency of climate change has led several countries to develop renewable energy in order to reduce co2 emissions through the means of various subsidies in the electricity sector one drawback of such policies is the negative impact on electricity prices known as the merit order effect this paper aims at assessing how intermittent renewable production depresses electricity prices in germany which has experienced a significant increase of its renewable capacity over the last two decades to do so we use a two regime markov switching model that enables to disentangle the impact of wind and solar generation depending on the price being high or low we find as expected that renewable production induces a negative marginal effect which is stronger in regimes of relatively high prices in addition we show that both wind and solar productions have a significant impact on the distribution of prices and in particular on the frequency and expected duration of each regime this has implications in terms of market design security of supply and support mechanisms for renewables

hybrid pricing in a coupled european power market with more wind power abstract in the european electricity market the promotion of wind power leads to more network congestion zonal pricing market coupling which does not take the physical characteristics of transmission into account is the most commonly used method to relieve network congestion in europe however zonal pricing fails to provide adequate locational price signals regarding scarcity of energy and thus creates a large amount of unscheduled cross border flows originating from wind generated power in this paper we investigate the effects of applying a hybrid congestion management model i e a nodal pricing model for one country embedded in a zonal pricing system for the rest of the market we find that compared to full nodal pricing hybrid pricing fails to fully utilize all the resources in the network and some wrong price signals might be given however hybrid pricing still outperforms zonal pricing the results from the study cases show that within the area applying nodal pricing better price signals are given the need for re dispatching is reduced more congestion rent is collected domestically and the unit cost of power is reduced

the merit order effect of czech photovoltaic plants abstract we assess the impact of photovoltaic power plants on the electricity supply curve in the czech republic the merit order effect is estimated as the elasticity of electricity spot price with respect to change in supply of electricity from renewable sources data for the czech electricity spot market from 2010 to 2015 are analyzed as this is the period with the steepest increase in a renewable generation capacity the effect is estimated separately for solar and other renewable sources we find a significant difference between these two groups our results show that based on hourly daily and weekly data energy produced by czech solar power plants does not decrease electricity spot price creating double cost to the end consumer however the merit order effect based on averaged daily and weekly data is shown to exist for other renewable sources excluding solar mainly water and wind this contributes to the conclusion that the czech renewables policy that prefers solar to other renewable sources may be considered as suboptimal

are currency crises predictable abstract this paper studies whether exchange rate expectations and overvaluations are predictors of currency crises the results suggest that overvaluation has predictive power in explaining the crises however although expected depreciation obtained from survey data partially takes different exchange rate misalignment measures into consideration expectations fail to anticipate currency crises

capital controls policy an intertemporal perspective abstract this paper studies capital controls policy from an intertemporal perspective using a small open economy model with optimizing agents it derives a policy rule which conforms real world stylized facts and is sustainable in the long run in particular it explicitly models the constraints on the policy rule implied by the dynamics of the economy studying several prevalent policy experiments it is demonstrated that significant real effects are generated by the interaction between controls policy and traditional policy tools this happens as controls affect agents intratemporal asset allocation and intertemporal consumption patterns the use of controls enlarges the set of possible outcomes generating some non traditional results the analysis points to new tradeoffs and hence new dilemmas faced by a government that uses controls

dynamics of a floating exchange rate regime we study the full equilibrium dynamics of a two country world economy with a floating exchange rate traded and nontraded goods and explicit modeling of the use of money the resulting exchange rate equation depends on several details of the economic structure such as the supply structure and propensities to spend on various goods although real exchange rate movements have the usual association with the current account the ordinary exchange rate may appreciate or depreciate when there are deficits on current account even when the quantities of money do not change deviations from purchasing power parity and the fisher equation are shown to be the rule rather than the exception

the influence of rating levels and rating convergence on the spillover effects of sovereign credit actions abstract this paper assesses contagion and competition as alternative types of stock market spillovers arising from sovereign rating actions our research design is based on the premise that the type of spillover effects within and between groups of countries will be influenced by the sovereign rating level split ratings and the extent of rating convergence i e specific types of rating action will induce different and or stronger effects the results reveal a clear pattern whereby downgrades of high rated countries induce contagion to both high and low rated countries while downgrades of low rated countries reveal the opposite i e they induce competitive effects split ratings are found to intensify stock market spillover effects rating convergence divergence across similarly rated sovereigns has a meaningful influence on the spillover effects for the downgrades of high rated countries rating convergence mitigates the contagion effect to other high rated countries in the region but has very limited effect on the contagion to low rated countries for downgrades of low rated countries rating convergence strengthens the competitive effect on other low rated countries but has little effect on the competitive impact on high rated countries

tariffs quotas and welfare in a monetary economy abstract the effects of tariffs and quotas on welfare in a monetary economy are considered it is shown that while both policies improve the balance of payments they have different lifetime welfare implications even when they are equivalent in the long run the speed of adjustment is shown to be more rapid under a tariff than under a quota therefore adjustment costs associated with changes in money holdings are lower under a tariff while those associated with changes in consumption are higher simulation results are used to examined the implications of various structural parameters for lifetime utility under the two policies

rating the rating agencies anticipating currency crises or debt crises abstract we revisit the question whether sovereign ratings predict financial crises in line with previous studies we find that ratings do not predict currency crises and are instead downgraded ex post however the likelihood of currency crisis and the implied probability of sovereign default are not closely linked in emerging markets post 1994 when debt crises are defined as sovereign distress when spreads are higher than 1000 basis points or 10 percentage points we find that access to international capital markets is reduced by half in addition although sovereign distress events last for typically 5 2 consecutive months they can persist for longer periods up to nine quarters finally lagged ratings and ratings changes including negative outlooks and credit watches are useful in anticipating sovereign distress

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