multiple solution indeterminacies in monetary policy analysis abstract a sizeable fraction of recent research on monetary policy has been concerned with issues relating to analytical indeterminacies i e multiple solutions in rational expectations re models most of the literature features sophisticated re analysis conducted within dynamic models that reflect optimizing behavior by individual agents and incorporate taylor style policy rules a few papers have suggested that some of the particular indeterminacy arguments are misleading or irrelevant for the most part however there has been little dissent from the position that these indeterminacies present a genuine problem for monetary policy makers the purpose of the present paper by contrast is to argue that conclusions based on multiple solution indeterminacy findings are of dubious merit rather generally

eductive stability in real business cycle models we reexamine issues of coordination in the standard rbc model is the unique rational expectations equilibrium attainable by rational agents who contemplate the possibility of small deviations from equilibrium surprisingly we nd that coordination cannot be expected even with strong common knowledge assumptions rational agents anticipating small but persistent deviations are led to take actions that eventually contradict the common knowledge assumption this impossibility theorem for eductive learning is not fully overcome when adaptive learning is incorporated into the framework

monetary policy and fiscal limits with no default abstract this paper discusses monetary and fiscal policy interactions that stabilize government debt two distortions prevail in the model economy income taxes and liquidity constraints possible obstructions to fiscal policy include a ceiling on the equilibrium debt to gdp ratio zero or negative elasticity of tax revenues and a political intolerance of raising tax rates at the fiscal limit two mechanisms restore solvency fiscal inflation which reduces the real value of nominal debt and open market operations which diminish the size of government debt held by the private sector three regimes achieve this goal in all regimes monetary policy is passive in all regimes a muted tax response to government debt is consistent with equilibrium the propensity of a fiscal authority to smooth output is found to determine what is an acceptable response in the form of tax rate changes to the level of government debt while monetary policy determines the timing and magnitude of fiscal inflation impulse responses show that the inflation and tax hikes needed to offset a permanent shock to transfers are lowest under nominal interest rate pegs in this regime most of the reduction in the real value of government debt comes from open market purchases

the zero lower bound the dual mandate and unconventional dynamics abstract this paper examines monetary policy when it is constrained by the zero lower bound zlb on the nominal interest rate our analysis uses a nonlinear new keynesian model with technology and discount factor shocks specifically we investigate why technology shocks may have unconventional effects at the zlb what factors affect the likelihood of hitting the zlb and the implications of alternative monetary policy rules we initially focus on a new keynesian model without capital model 1 and then study that model with capital model 2 the advantage of including capital is that it introduces another mechanism for intertemporal substitution that strengthens the expectational effects of the zlb four main findings emerge 1 in model 1 the choice of output target in the taylor rule may reverse the effects of technology shocks when the zlb binds 2 when the central bank targets steady state output in model 2 a positive technology shock at the zlb leads to more pronounced unconventional dynamics than in model 1 3 the presence of capital changes the qualitative effects of demand shocks and alters the impact of a monetary policy rule that emphasizes output stability and 4 in model 1 the constrained linear solution is a decent approximation of the nonlinear solution but meaningful differences exist between the solutions in model 2

monetary and fiscal policy design at the zero lower bound evidence from the lab the global economic crisis of 2007 8 pushed many advanced economies into a liquidity trap a macroeconomic scenario characterised by nomial rates at the zero lower bound zlb low inflation and output below trend we design an experiment to generate empirical evidence on the effectiveness of policies aimed at managing expectations against liquidity traps in a controlled laboratory environment where expectations are elicied directly from human subjects our results suggest that monetary policy alone is not sufficient to insulate the economy form the risk of falling into a liquidity trap even if it preventively cuts the policy augmented with a fiscal switching rule succeeds in avoiding and escapiing liquidity trap episodes we also measure larger than unity fiscal mulipliers when monetary policy is constrained by the zlb experimental results in different treatments are well explained by adaptive learning

raise rates to raise inflation neo fisherianism in the new keynesian model increasing the inflation target in a new keynesian nk model may require increasing rather than decreasing the nominal interest rate in the short run we refer to this positive short run comovement between the nominal rates and inflation conditional on a nominal shock as neo fisherianism we show that the nk model is more likely to be neo fisherian the more persistent is the change in the inflation target and the more flexible are prices neo fisherianism is driven by the forward looking nature of the model modifications that make the framework less forward looking make it less likely for the model to exhibit neo fisherianism

stable near rational sunspot equilibria abstract we introduce a new class of solutions to nonlinear forward looking models called near rational sunspot equilibria nrse nrse are natural nonlinear extensions of the usual sunspot equilibria associated with the linearized version of the economy and are near rational in that agents use the optimal linear forecasting model when forming expectations generic results for existence and stability under learning are established nrse in indeterminate nonlinear models are found to be stable under learning provided that the corresponding linearized model s minimal state variable solution is e stable nrse are readily computable and our results make it possible to use the standard linear tools to search for stable nrse we illustrate our results using a canonical nonlinear new keynesian model

equilibrium indeterminacy and asset price fluctuation in japan a bayesian investigation this paper investigates sources of asset price fluctuation in japan using an estimated financial accelerator model for explicit treatment of expectational beliefs characterized by sunspots the model is analyzed over the parameter space where the equilibrium can be indeterminate we show that indeterminacy arises if the financial accelerator effect is sufficiently large according to our bayesian estimation results japan s economy was affected by sunspot shocks however the contribution of the sunspots to asset price volatility was low rather net worth and cost shocks drove the asset price fluctuation we find however that the sunspots substantially affected capital investment

is quantity theory still alive this paper investigates whether the quantity theory of money is still alive we argue that it is but that the slippage is not negligible for countries with low inflation the relationship between average inflation and the growth rate of money is tenuous at best a correction for variation in output growth and the opportunity cost of money using theory implied elasticities helps explain the slippage for the period since 1990 inflation targeting at low rates of inflation makes it harder to establish the long run relationship between monetary growth and inflation

when does a central bank s balance sheet require fiscal support abstract using a simple general equilibrium model we argue that it would be appropriate for a central bank with a large balance sheet composed of long duration nominal assets to have access to and be willing to ask for support for its balance sheet by the fiscal authority otherwise its ability to control inflation may be at risk this need for balance sheet support a within government transaction is distinct from the need for fiscal backing of inflation policy that arises even in models where the central bank s balance sheet is merged with that of the rest of the government

nominal price rigidity money supply endogeneity and business cycles abstract this paper investigates the ability of nominal price rigidity to explain the co movement of inflation with the cyclical component of output observed in the post war u s data a dynamic general equilibrium model is constructed with the introduction of monopolistic competition and nominal price rigidity in a standard real business cycle model allowing for an endogenous money supply rule it is then demonstrated that sticky price models can explain the observed associations between movements in inflation and output much better than flexible price models this result depends little on whether money supply is assumed to be endogenous or not

real balance effects timing and equilibrium determination this paper examines whether the existence and the timing of real balance effects contribute to the determination of the absolute price level as suggested by patinkin 1949 1965 and if they afiect conditions for local equilibrium uniqueness and stability i show that there exists a unique price level sequence that is consistent with an equilibrium under interest rate policy only if beginning ofperiod money yields transaction services predetermined real money balances can then serve as a state variable implying that interest rate setting must be passive a violation of the taylor principle for unique stable and non oscillatory equilibrium sequences on the contrary when the end of period money stock facilitates transactions the equilibrium displays nominal indeterminacy and equilibrium uniqueness requires an interest rate setting consistent with the taylor principle

learning heterogeneity and complexity in the new keynesian model abstract we present a new keynesian model in which a fraction n of agents are fully rational and a fraction 1 n of agents are bounded rational after deriving a simple reduced form we demonstrate that the taylor condition is sufficient for determinacy and stability both when the proportion of fully rational agents is held fixed and when it is allowed to vary according to reinforcement learning however this result relies on the absence of persistence in the monetary policy rule and we demonstrate that the taylor condition is not sufficient for determinacy and stability in the presence of interest rate smoothing for monetary policy rules that imply indeterminacy we demonstrate the existence of limit cycles via hopf bifurcation and explore a rational route to randomness numerically our results support the broader literature on behavioural new keynesian models in which the taylor condition is known to be a useful guide to monetary policy despite not always being sufficient for determinacy and or stability

renewable energy support mechanisms in the gulf cooperation council states analyzing the feasibility of feed in tariffs and auction mechanisms renewable energy will be a crucial ingredient in the transition to a more sustainable future the renewable energy sector requires a variety of financial support mechanisms in order to further consolidate and expand currently the most prominent renewable energy support mechanisms are feed in tariffs and renewable energy auctions although these mechanisms have been used and analyzed extensively in western countries and more recently economies in transition they have rarely been examined in the arab gulf region yet particularly the gulf cooperation council gcc states have undertaken important steps towards renewable energy adoption which could be greatly facilitated with the use of financial support mechanisms this paper analyzes the feasibility of feed in tariffs and renewable energy auctions adoption in gcc based on an extensive meta analysis of the literature on these two mechanisms in both developed and developing countries the paper identifies a set of conditions necessary for success and evaluates the presence of favorable these conditions in the gcc context our findings reveal that while conditions that would ensure political feasibility are largely absent for both types of mechanisms auctions could be a more successful strategy at the moment

wealth and volatility we document that in the us over the course of the past century there has been a systematic negative relation between household wealth and business cycle volatility we develop a microfounded dynamic equilibrium model that contains elements of a traditional keynesian framework in which economic uctuations can be driven by sunspot type uctuations in household optimism or pessimism the novel feature is that the scope for equilibrium uctuations due to sunspots depends on the exogenously given value of household wealth when wealth is high consumers demand is not sensitive to unemployment expectations and the economy is robust to condence crisis when wealth is low consumers demand is sensitive to unemployment expectations the economy becomes vulnerable to condence driven uctuations and is in general more volatile in this case there is a potential role for public policies to stabilize demand we conclude by providing micro economic evidence on the importance of wealth in aecting the sensitivity of demand to aggregate conditions we show that during the great recession consumers with low

short and long interest rate targets can both short and long term interest rates be targeted independently can the target of the term structure help solve the problem of multiplicity of equilibria that occurs when only the short rate is targeted both questions are addressed and the answer is yes to both

the design of monetary and fiscal policy a global perspective abstract we study the emergence of multiple equilibria in models with capital and bonds under various monetary and fiscal policies we show that the presence of capital is indeed another independent source of local and global multiplicities even under active policies that yield local determinacy we also show how a very similar mechanism generates multiplicities in models with bonds and distortionary taxation we then explore the design of monetary policies that avoid multiple equilibria we show that interest rate policies that respond to the output gap while potentially a source of significant inefficiencies may be effective in preventing multiple equilibria and costly oscillatory equilibrium dynamics

self fulfilling recessions at the zero lower bound abstract we highlight an overlooked source of equilibrium multiplicity in monetary economies subject to a zero bound on nominal interest rates in environments with sufficient endogenous propagation depressed contemporary economic conditions must directly lower expectations of future output and inflation a current recession followed by gradual convergence back to steady state may then be an equilibrium outcome without any exogenous impulse we present this mechanism heuristically in partial equilibrium and in two computed examples of new keynesian economies expansionary fiscal policy makes the recessionary equilibrium more severe at the margin but commitment to a sufficiently large expansion can rule out multiplicity

the new keynesian liquidity trap abstract many new keynesian models produce a deep recession with deflation at the zero bound these models also make unusual policy predictions useless government spending technical regress capital destruction and forward guidance can raise output moreover these predictions are larger as prices become less sticky and as changes are expected further in the future i show that these predictions are strongly affected by equilibrium selection for the same interest rate path equilibria that bound initial jumps predict mild inflation small output variation negative multipliers small effects of far off expectations and a smooth frictionless limit fiscal policy considerations suggest the latter equilibria

interest rate targeting abstract the paper develops a model in which the monetary authority successfully targets the nominal interest rate while also holding down the forecast variance of the price level the latter objective pins down the extent of monetary accommodation to shifts in the demand for money and other shocks and thereby makes determinate the levels of money and prices at each date empirical evidence for the united states suggests that the model s predictions accord reasonably well with observed behavior for nominal interest rates growth rates of the monetary base and rates of inflation

inflation and output in new keynesian models with a transient interest rate peg a familiar result in the canonical dynamic new keynesian dnk model is that policymakers constrained by the zero bound can improve outcomes by promising to keep rates low after the zero bound is not binding we examine a general class of interest rate pegs in a variety of dnk models standard versions of the model produce counterintuitive reversals where the effect of the interest rate peg can switch from highly expansionary to highly contractionary for modest changes in the length of the interest rate peg this unusual behavior does not arise in sticky information models of the phillips curve

forward guidance and the role of central bank credibility under heterogeneous beliefs abstract this paper studies the macroeconomic effects of central bank forward guidance when central bank credibility is endogenous we take a stylized new keynesian model with an occasionally binding effective lower bound constraint on nominal interest rates and heterogeneous and boundedly rational households central bank forecasts follow a bivariate var not taking into account the time variation in the distribution of aggregate expectations in this framework we extend the central bank s toolkit to allow for the publication of its own forecasts delphic guidance and the commitment to a future path of the nominal interest rate odyssean guidance we find that both delphic and odyssean forward guidance increase the likelihood of recovery from a liquidity trap even though odyssean guidance alone appears more powerful in inducing recovery we find it to increase ex post macroeconomic volatility and thus reduce welfare

are central banks projections meaningful central banks projections i e forecasts conditional on a given interest rate path are often criticized on the grounds that their underlying policy assumptions are inconsistent with the existence of a unique equilibrium in many forward looking models the present paper describes three alternative approaches to constructing projections that are not subject to that criticism using a standard new keynesian model as a reference framework yet and even though they imply an identical path for the interest rate the three approaches are shown

introduction to intertemporal equilibrium theory indeterminacy bifurcations and stability institute of economic research kyoto university yoshida honmachi sakyoku kyoto 606 japannishimura kier kyoto u ac jpthis paper provides an overview of the basic concepts of intertemporal equi librium theory and discusses the frameworks and techniques used in this subject it then goes on to introduce the main themes discussed in the papers included inthis symposium issue journal of economic literature classification numbers c61 d90 o41

assessing and managing regulatory risk in renewable energy contrasts between canada and the united states abstact a challenge for energy firms when considering new investments is to balance expected financial gains against potential risks however while investment opportunities in different jurisdictions are often straightforward to identify the policy or regulatory risks for investors are more difficult to accurately ascertain here i provide a novel conceptual framework for how firms can assess regulatory risk that focuses on the institutional processes governing policy making risks are lower and policies will subsequently be more stable in jurisdictions where regulatory agencies have greater autonomy from politicians and where policies are formulated through more rigid policy making processes the contrasting development patterns of renewable energy policies in ontario and texas offer support for the framework i further develop strategies for how firms can successfully manage regulatory risks in different types of environment

inflation forecasts and monetary policy proposals for inflation targeting as a strategy for monetary policy leave open the important operational question of how to determine whether current policies are consistent with the long run inflation target an interesting possibility is that the central bank might target current private sector forecasts of inflation either those made explicitly by professional forecasters or those implicit in asset prices we address the issue of existence and uniqueness of rational expectations equilibria when the central bank uses private sector forecasts as a guide to policy actions in a dynamic model which incorporates both sluggish price adjustment and shocks to aggregate demand and aggregate supply we show that strict targeting of inflation forecasts is typically inconsistent with the existence of rational expectations equilibrium and that policies approximating strict inflation forecast targeting are likely to have undesirable properties we also show that economies with more general forecast based policy rules are particularly susceptible to indeterminacy of rational expectations equilibria we conclude that although private sector forecasts may contain information useful to the central bank ultimately the monetary authorities must rely on an explicit structural model of the economy to guide their policy decisions this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

introduction to a general equilibrium approach to economic growth abstract endogenous growth theory has had some success in explaining the observed data related to the process of economic growth however the results of the models in this literature are typically very sensitive to their micro economic structure it is therefore important to understand how the growth process behaves under more general specifications of such features as the number of commodities the number and preferences of consumers the factors of production and the financial and information structures in other words valuable insights can be gained by integrating growth theory into the framework of general equilibrium theory the summary of the papers in this volume focuses on seven issues that are crucial to this integration and highlights the contributions of the papers to the resolution of these issues journal of economic literature classification numbers c61 d50 d90 f43 o30 o41

the formation of consumer inflation expectations new evidence from japan s deflation experience using a new data set we investigate the relationship between the inflation experience and expectations of households in japan focusing on the post 1995 deflationary era our first finding is that inflation expectations increase with age second we find that measured inflation rates also increase with age although age and inflation expectations continue to exhibit a positive correlation even after controlling for the household level inflation rate analysis suggests that the correlation between age and inflation expectations is driven largely by the correlation between cohort and inflation expectations which we interpret to represent the effect of historical inflation experience on inflation expectations

the perils of taylor rules abstract since john taylor s 1993 carnegie rochester conf ser publ policy39 195 214 seminal paper a large literature has argued that active interest rate feedback rules that is rules that respond to increases in inflation with a more than one for one increase in the nominal interest rate are stabilizing in this paper we argue that once the zero bound on nominal interest rates is taken into account active interest rate feedback rules can easily lead to unexpected consequences specifically we show that even if the steady state at which monetary policy is active is locally the unique equilibrium typically there exist an infinite number of equilibrium trajectories originating arbitrarily close to that steady state that converge to a liquidity trap that is a steady state in which the nominal interest rate is near zero and inflation is possibly negative journal of economic literature classification numbers e52 e31 e63

asymmetric monetary policy and the yield curve we discuss the taylor rule near low inflation and interest rates using an additional option like term in the federal reserve s loss function i e the deflation put we extend the classic taylor rule to one with an asymmetric response that is more accommodative when the inflation rate is very low once calibrated this payoff profile gives an exact and easily communicable prescription for federal reserve policy under regimes of low inflation simple models of central bank behavior can produce highly complex yield curve shapes using the usual taylor rule and our proposed extension as building blocks we construct a robust framework for generating realistic yield curves and the evolution of the economy our main focus is the impact on the yield curve and the economy of the deflation put we find that for economies like the u s the deflation put reduces yields for all maturities we also find that in highly leveraged economies such as japan the consequence of an asymmetric deflation fighting policy may result in improved economic conditions but also raises the possibility of higher longterm yields as a consequence

money and interest in a cash in advance economy the authors analyze an aggregative general equilibrium model in which the use of money is motivated by a cash in advance constraint applied to purchases of a subset of consumption goods the system is subject to both real and monetary shocks which are economy wide and observed by all they develop methods for verifying the existence of characterizing and explicitly calculating equilibria copyright 1987 by the econometric society

deleveraging and monetary policy japan since the 1990s and the united states since 2007 japan s deleveraging became serious because the negative feedback loop was japan s deleveraging became serious because the negative feedback loop was not contained in its early stage of development the japanese government did not not contained in its early stage of development the japanese government did not act promptly to recapitalize banks that were suffering from the erosion of their act promptly to recapitalize banks that were suffering from the erosion of their capital buffer due to their large holdings of stocks as a result japan s banks only capital buffer due to their large holdings of stocks as a result japan s banks only slowly recognized bad loans while stopping lending to promising new projects slow slowly recognized bad loans while stopping lending to promising new projects slow but protracted asset sales resulted in a long period of asset price declines nonfi nanbut protracted asset sales resulted in a long period of asset price declines nonfi nancial companies perceived the deterioration of their balance sheets as permanent cial companies perceived the deterioration of their balance sheets as permanent and cut spending drastically as japan s economy stagnated the total amount of bad and cut spending drastically as japan s economy stagnated the total amount of bad loans turned out to be much larger than initially estimated loans turned out to be much larger than initially estimated

the robustness and efficiency of monetary policy rules as guidelines for interest rate setting by the european central bank abstract this paper examines the implications of recent research on monetary policy rules for practical monetary policy making with special emphasis on strategies for setting interest rates by the european central bank ecb the paper draws on recent research and new simulations of a large open economy model to assess the efficiency of a simple benchmark rule in comparison with other proposed rules further it stresses new results on the robustness of monetary policy rules in which each rule that is optimal or good according to one model or researcher is tested for robustness by other researchers using different models because of the large increase in the number of economists focussing on econometric evaluation of monetary policy rules for the interest rate instrument and because of the parallel increase in the variety of models being developed for this purpose much more evidence is becoming available on the robustness of simple monetary policy rules for the interest rate than ever before

capital and macroeconomic instability in a discrete time model with forward looking interest rate rules abstract we establish the necessary and sufficient conditions for local real determinacy in a discrete time production economy with monopolistic competition and a quadratic price adjustment cost under forward looking policy rules for the case where capital is in exogenously fixed supply and the case with endogenous capital accumulation using these conditions we show that i indeterminacy is more likely to occur with a greater share of payment to capital in value added production cost ii indeterminacy can be more or less likely to occur with constant capital than with variable capital iii indeterminacy is more likely to occur when prices are modelled as jump variables than as predetermined variables iv indeterminacy is less likely to occur with a greater degree of steady state monopolistic distortions and v indeterminacy is less likely to occur with a greater degree of price stickiness or with a higher steady state inflation rate in contrast to some existing research our analysis indicates that capital tends to lead to macroeconomic instability by affecting firms pricing behavior in product markets rather than households arbitrage activity in asset markets even under forward looking policy rules

what drives renewable energy development abstract this viewpoint reviews renewable energy development in 14 markets that differ in market structure restructured vs not restructured use of feed in tariff fit yes vs no transmission planning anticipatory vs reactive and transmission interconnection cost allocated to a renewable generator high vs low we find that market restructuring is not a primary driver of renewable energy development renewable generation has the highest percent of total installed capacity in markets that use a fit employ anticipatory transmission planning and have loads or end users paying for most if not all of the transmission interconnection costs in contrast renewable developers have been less successful in markets that do not use a fit employ reactive transmission planning and have generators paying for most if not all of the transmission interconnection costs while these policies can lead to higher penetration of renewable energy in the short run their high cost to ratepayers can threaten the economic sustainability of renewable energy in the long run

an inquiry into the sources of macroeconomic fluctuations abstract this paper attempts to decompose the sources of fluctuations in quarterly employment by industry and region into 1 an aggregate national shock 2 region specific shocks 3 industry specific shocks and 4 idiosyncratic factors the empirical analysis is motivated by a dynamic theory of the business cycle the empirical methodology is the engle watson dynamic mimic model implemented via the em algorithm the work is motivated as an attempt to compare empirically aggregate single factor theories of the cycle with real business cycle theories emphasizing industrial or regional shocks

did the expiration of retail price caps affect prices in the restructured texas electricity market on january 1 2007 the electric reliability council of texas ercot market became the first restructured market in the us to completely remove caps on the prices which could be charged to residential energy consumers by the retailers associated with the traditional or incumbent utility service providers our analysis suggests that the expiration of the price to beat ptb price caps may have led to a reduction in the average prices charged by competitive retail electric providers reps

the impact of regulatory governance and privatization on electricity industry generation capacity in developing economies this article assesses whether a regulatory law and higher quality regulatory governance are associated with superior outcomes in the electricity industry the analysis for 28 developing economies over 1980 2001 draws on theoretical and empirical work on the impact of telecommunications regulators in developing economies controlling for privatization and competition and allowing for country specific fixed effects both regulatory law and higher quality regulatory governance are positively and significantly associated with higher per capita generation capacity this positive impact increases for more than 10 years as experience develops and regulatory reputation grows the results are robust to estimating alternative dynamic specifications including error correction models to inclusion of economy governance political risk indicators and to controlling for possible endogeneity biases the article concludes with a short discussion of causality in panel data modeling of governance models and the policy

robust incentives and the design of a climate change governance regime in building a governance regime to address climate change should we prioritize the development of global institutions or national ones this paper focuses on two neglected characteristics to inform the governance problem the incentives for investment in low carbon energy technology and the influence of historical policy volatility examining a case study of an important low carbon energy technology wind power this study finds 1 policy volatility has been substantial 2 policy changes were uncorrelated across jurisdictions suggesting that 3 investors could have substantially reduced their exposure to the risk of policy volatility by operating globally while it also has downsides a poorly coordinated international policy regime has the advantage of reducing the risk associated with a global policy failure beyond this case study the importance of this positive effect depends on the probability of policy failures in each country the correlations among them and the probability of a global policy failure

governance and renewable energy investment in mena countries how does trade matter abstract the middle east and north africa mena countries have recently developed renewable energy re markets however their rate of investment in renewable energy remains small compared to other regions in the world despite their relatively abundant endowments particularly in wind and solar while the literature identifies some barriers to investment in renewable energy we assume that the investment of mena countries could be impeded by specific governance factors furthermore we consider recent literature showing that trade openness reduces the negative effects of weak governance in this paper we empirically investigate the link between governance openness and renewable energy investment in the mena region using panel data for 15 mena countries over the period 1996 2013 our results prove that high institutional quality is associated with re investment in mena countries in addition this relationship seems to be conditional on the trade regime our results are robust to several measures of renewable energy investment and governance as well as to an alternative econometric set up

eliminating a deflationary trap through superinertial interest rate rules abstract this paper demonstrates that even in the presence of a zero lower bound on nominal interest rates central banks can eliminate a deflationary trap by the conduct of interest rate rules that have superinertia

self fulfilling deflations abstract what types of monetary and fiscal policy rules produce self fulfilling deflationary paths that are monotonic and empirically relevant this paper presents simple theoretical conditions that guarantee the existence of these paths in a general equilibrium model with sticky prices these sufficient conditions are weak enough to be satisfied by most monetary and fiscal policy rules a quantification of the model which combines a real shock a la hayashi and prescott 2002 with a simultaneous sunspot that deanchors inflation expectations matches the main empirical features of the japanese deflationary process during the lost decade the results also highlight the key role of the assumption about the anchoring of inflation expectations for the size of fiscal multipliers and in general for any policy analysis

monetary policy and the zero bound to interest rates a review1 this paper reviews the literature on what the zero bound to nominal interest rates implies for the conduct of monetary policy the aim is to evaluate the risks of hitting the zero bound and to evaluate policies that are said to be able to reduce that risk or policies that are proposed as means of helping the economy escape if it is in a zero bound trap i conclude that policies aimed at cure are arguably more uncertain tools than those aimed at prevention so prevention is a less risky strategy for policymakers but since the risks of hitting the zero bound seem quite small anyway and the risks of encountering a deflationary spiral smaller still it is conceivable that inflation objectives that typify modern monetary regimes already have more than enough insurance built into them to deal with the zero bound problem

the role of regulatory uncertainty in certificate markets a case study of the swedish norwegian market abstract price volatility in green certificate markets reflects uncertainty over future prices representing a major source of risk for renewable energy generators price risk is considered the principal deficiency of this market based policy since it causes investors to require higher returns moreover investors are exposed to regulatory risk namely the risk that a change in the regulation will materially impact the certificate price regulatory uncertainty is reflected in market volatility exacerbating certificate price risk using an econometric approach we investigate the role of regulatory changes on price volatility in the swedish certificate market the results of our analysis indicate that regulatory changes strongly affect certificate markets resulting in periods of higher volatility moreover we analyze whether certificate price volatility has changed after creating a joint swedish norwegian market results indicate that the ambivalence surrounding the creation of this bigger market led to a period of increased price volatility between 2010 and 2011 overall this article brings a better understanding of the role of regulatory uncertainty on certificate markets and gives evidence for its negative impact in terms of increased price volatility

the perils of nominal targets a monetary authority can be committed to pursuing an inflation price level or nominal gdp target yet systematically fail to achieve the prescribed goal constrained by the zero lower bound on the policy rate the monetary authority is unable to implement its objectives when private sector expectations stray far enough from the target low inflation expectations become self fulfilling resulting in an additional markov equilibrium in which the monetary authority falls short of the nominal target average output is below its efficient level and the policy rate is typically low introducing a stabilization goal for long term nominal rates can implement a unique markov equilibrium without fully compromising stabilization policy

optimal monetary policy and determinacy under active passive regimes abstract should one expect inflation to be stable when monetary policy is passive according to the workhorse model for monetary policy analysis the answer should be no if the passive spell is too long in this paper i develop a new keynesian model in which monetary policy is optimal subject to a loose commitment constraint i show that there is a threshold degree of commitment such that the equilibrium is locally unique when monetary policy switches between active and passive stances regardless of the length of the passive spell this result also holds for a version of the model where the passive spell is endogenous and due to a demand shock driving the economy to the zero lower bound

are sunspots learnable an experimental investigation in a simple macroeconomic model abstract we conduct experiments with human subjects in a model with a positive production externality in which productivity is a nondecreasing function of the average level of employment of other firms the model has three steady states and a sunspot equilibrium that fluctuates between the high and low steady states steady states are payoff ranked low values give lower profits than higher values we investigate whether subjects can learn a sunspot equilibrium we observe coordination on the extrinsic announcements in our experimental economies cases of apparent convergence to the low and high steady states are also observed

interest rate rules and transitional dynamics in an endogenously growing open economy abstract this paper sets up an endogenous growth model of an open economy in which the monetary authority implements a gradualist interest rate rule with targets for both inflation and economic growth we show that under a passive rule a monetary equilibrium exists and is unique moreover the equilibrium is locally determinate by contrast an active rule implies either two equilibria one high growth and one low growth or none in the case of two equilibria the high growth equilibrium is locally determinate while the low growth equilibrium is a source besides the stabilization and growth effects of alternative target policies are also explored in this study moreover in departing from the existing literature we turn to focus on the analysis of transition with a particular emphasis on the case of imperfect credibility

nominal income targeting versus money growth targeting in an endogenously growing economy abstract we find that local indeterminacy more easily emerges under a regime of nominal income targeting both targeting regimes are equally effective in influencing economic growth and inflation the results thus favor money growth over nominal income as a nominal anchor

step away from the zero lower bound small open economies in a world of secular stagnation abstract we study how small open economies can escape from deflation and unemployment in a situation where the world economy is permanently depressed building on the framework of eggertsson et al 2016 we show that the transition to full employment and at target inflation requires real and nominal depreciation of the exchange rate however because of adverse income and valuation effects from real depreciation the escape has a beggar thy self effect that may end up lowering welfare while eliminating underemployment we show that as long as the economy remains financially open domestic asset supply policies or reducing the effective lower bound on policy rates may be ineffective or even counterproductive however closing domestic capital markets does not necessarily enhance the monetary authorities ability to rescue the economy from stagnation

learning to live in a liquidity trap abstract the taylor rule in combination with the zero lower bound on nominal rates has been shown to create an unintended liquidity trap equilibrium the relevance of this equilibrium has been challenged on the basis that it is not stable under least square learning in this paper we show that the liquidity trap equilibrium is stable under social learning the learning mechanism we employ includes three realistic elements mutation crossover and tournaments we show that agents can learn to have pessimistic sentiments about the central bank s ability to generate price growth giving rise to a stochastically stable environment characterized by deflation and stagnation this article is part of a special issue entitled fiscal and monetary policies

impact of public policy uncertainty on renewable energy investment wind power and the production tax credit abstract it is generally understood that the pattern of repeated expiration and short term renewal of the federal production tax credit ptc causes a boom bust cycle in wind power plant investment in the us this on off pattern is detrimental to the wind industry since ramp up and ramp down costs are high and players are deterred from making long term investments it is often assumed that the severe downturn in investment during off years implies that wind power is unviable without the ptc this assumption turns out to be unsubstantiated this paper demonstrates that it is not the absence of the ptc that causes the investment downturn during off years but rather the uncertainty over its return specifically it is the dynamic of power purchase agreement ppa negotiations in the face of ptc renewal uncertainty that drives investment volatility with contract negotiations prevalent in the renewable energy industry this finding suggests that reducing uncertainty is a crucial component of effective renewable energy policy the ptc as currently structured is not the only means existing or potential for encouraging wind power investment using data from a survey of energy professionals various policy instruments are compared in terms of their perceived stability for supporting long term investment

fostering a renewable energy technology industry an international comparison of wind industry policy support mechanisms this article examines the importance of national and sub national policies in supporting the development of successful global wind turbine manufacturing companies we explore the motivations behind establishing a local wind power industry and the paths that different countries have taken to develop indigenous large wind turbine manufacturing industries within their borders this is done through a cross country comparison of the policy support mechanisms that have been employed to directly and indirectly promote wind technology manufacturing in 12 countries we find that in many instances there is a clear relationship between a manufacturer s success in its home country market and its eventual success in the global wind power market whether new wind turbine manufacturing entrants are able to succeed will likely depend in part on the utilization of their turbines in their own domestic market which in turn will be influenced by the annual size and stability of that market consequently policies that support a sizable stable market for wind power in conjunction with policies that specifically provide incentives for wind power technology to be manufactured locally are most likely to result in the establishment of an internationally competitive wind industry

the role of energy technology innovation in reducing greenhouse gas emissions a case study of canada abstract understanding the influence of energy technology innovation in reducing a country s greenhouse gas emissions requires a systematic review to characterize the existing system a comprehensive data review of available financing mechanisms and investments by government and industry is undertaken for the case of canada coupled with an organized examination of existing international federal and regional climate policies that advance innovation results indicate that investments from early research and development through to capital expenditures are heavily weighted towards fossil fuels though federal efforts to meet international commitments have been unsuccessful regions implementing high carbon fuel phase out renewable portfolio standards and feed in tariffs were found to be successful in reducing emissions financing for clean energy projects is readily available however there is no complete database available for investors to discover these opportunities to enhance clean energy innovation in canada and enable success in emissions reductions we suggest that investments from research and development to capital expenditures and regional policies should be aligned with federal commitments along with clear communication of available financing to attract clean energy investors our approach to a systematic review is broadly applicable to other regions where there is interest in understanding and improving the role of innovation in reducing greenhouse gas emissions particularly in countries with federalist political systems and large fossil fuel reserves

state renewable energy electricity policies an empirical evaluation of effectiveness over the past decade state governments have emerged as us energy policy leaders across the country states are adopting policy instruments aimed at carbon mitigation and renewable energy deployment one of the most prevalent and innovative policy instruments is a renewable portfolio standard rps which seeks to increase the share of renewable energy electrification in the electricity market this analysis evaluates the effectiveness of state energy programs with an empirical investigation of the linkage between state rps policy implementation and the percentage of renewable energy electricity generation across states we use a variant of a standard fixed effects model referred to as a fixed effects vector decomposition with state level data from 1998 to 2006 results indicate that rps implementation is not a significant predictor of the percentage of renewable energy generation out of the total generation mix yet for each additional year that a state has an rps policy they are found to increase the total amount of renewable energy generation these findings reveal a potentially significant shortcoming of rps policies political institutions natural resource endowments deregulation gross state product per capita electricity use per person electricity price and the presence of regional rps policies are also found to be significantly related to renewable energy deployment

does trade openness matter for aggregate instability abstract this paper presents a cash in advance model of a small open economy and shows that whether an inflation targeting interest rate rule introduces aggregate instability depends in general on the degree of openness to international trade this result emerges regardless of whether prices are sticky or flexible in a closed economy as the monetary authority responds to movements in inflation the resulting changes in interest rates affect aggregate consumption through an intertemporal substitution effect and an inflation tax effect in a small open economy this policy also induces changes in the terms of trade which depending on the degree of openness can generate counteracting effects on consumption as a consequence the implications of interest rate rules on macroeconomic stability in an open economy differ from those in a closed economy

have we underestimated the likelihood and severity of zero lower bound events prior to the financial crisis most economists probably did not view the zero lower bound zlb as a major problem for central banks using a range of structural and statistical models we find that previous research understated the zlb threat by ignoring uncertainty about model parameters and latent variables focusing too much on the great moderation experience and relying on structural models whose dynamics cannot generate sustained zlb episodes our analysis also suggests that the federal reserve s asset purchases while materially improving macroeconomic conditions did not prevent the zlb constraint from having first order adverse effects on real activity and inflation

does it matter for equilibrium determinacy what price index the central bank targets what inflation rate should the central bank target we address determinacy issues related to this question in a two sector model in which prices can differ in equilibrium we assume that the degree of nominal price stickiness can vary across the sectors and that labor is immobile the contribution of this paper is to demonstrate that a modified taylor principle holds in this environment if the central bank elects to target sector one and if it responds with a coefficient greater than unity to price movements in this sector then this policy rule will ensure determinacy across all sectors the results of this paper have at least two implications first the equilibrium determinacy criterion does not imply a preference to any particular measure of inflation second since the taylor principle applies at the sectoral level there is no need for a taylor principle at the aggregate level

persistence and volatility of beveridge cycles this paper aims to explain the magnitude and cyclical behavior of the fluctuations in unemployment and vacancies adding demand externalities to an otherwise standard search and matching model reduces the need for exogenous shocks in explaining these fluctuations under plausible parameter values the equilibrium dynamics include a stable limit cycle that resembles the empirically observed counterclockwise cycles around the beveridge curve quantitatively these endogenous beveridge cycles can explain half of the volatility and almost all persistence of unemployment without any exogenous forces avoiding the amplification and propagation problems of the standard model