myths and facts of the utility death spiral abstract as the electricity industry is changing worldwide the swift expansion of basic forms of distributed generation dg particularly photovoltaic deployment threatens the current utility business models that during the transitional stages may challenge the reliability of electricity systems and societal welfare these findings are matters of major concern to policy makers as the shift towards more decentralized power systems must be sustainable and although this brings great opportunities it also pauses important challenges the transition calls for policy and regulation attention for some researchers dg development should be accompanied with design changes to distribution tariffs the addition of connection charge and modifications to net metering while for others certain of these measures could discourage dg investments in this context and given multiple uncertainties the authors propose a system dynamics model to examine the effect of the diffusion of photovoltaic technology on the revenues of utilities and customers the paper concludes that for the colombian case it is possible under certain conditions to attain a balance between social welfare and the aversion of the utility death spiral through systemic interventions

beggar thy neighbour exchange rate regime misadvice from misapplications of mundell 1961 and the remedy economists invoke mundell 1961 in arguing for the general policy of a flexible exchange rate regime as a means of restoring equilibria after shocks but there is a discrepancy between the intent of the general policy and attempts at its implementation as identified by specific changes in exchange rates when we assemble the set of specific changes called for by distinct economists operating as advocates for individual countries these are uniformly in the form of beggar thy neighbour advice i e travesties of objectively identifying disequilibria and a menace to international cooperation and peace this paper traces the unintended travesties to problems of complexity and uncertainty problems that implicitly are assumed absent in mundell 1961 rendering the situation so simple that equilibria are transparent the problems remained essentially unaddressed when economists extended mundell 1961 via expected utility theory since this theory also ignores the impossibility of maximising and the complexities of central bankers private firms and others in doing the evaluation stage in reaching decisions the problems can be overcome by modelling within skat the stages of knowledge ahead theory this paper points to experimental evidence in support of the view that under all sorts of disequilibrating shocks currency unions outperform flexible currencies by eliminating the inefficiencies generated by exchange rate uncertainty

the u s investment tax credit for solar energy alternatives to the anticipated 2017 step down abstract solar photovoltaic pv installations in the united states have been deployed at a rapid pace in recent years a development that is attributed in significant part to the federal investment tax credit itc yet this credit is scheduled to step down from 30 to 10 at the beginning of 2017 for corporate investors for a sample of five u s states and different segments of the solar industry we find that the anticipated itc step down in 2017 would increase the levelized cost of solar power by a significant margin raising the specter of a cliff for the solar industry our analysis identifies and evaluates an alternative phase down scenario that would reduce the itc gradually over time and eliminate it completely by 2024 for this alternative phase down scenario it is shown that solar pv would remain broadly competitive provided the solar industry can maintain the pace of cost reductions demonstrated in past years

the central banker as a risk manager estimating the federal reserve s preferences under greenspan we derive a natural generalization of the taylor rule that links changes in the interest rate to the balance of the risks implied by the dual objective of sustainable economic growth and price stability this monetary policy rule reconciles economic models of expected utility maximization with the risk management approach to central banking within this framework we formally test and reject the standard assumption of quadratic and symmetric preferences in inflation and output that underlies the derivation of the taylor rule our results suggest that fed policy decisions under greenspan were better described in terms of the fed weighing upside and downside risks to their objectives rather than simply responding to the conditional mean of inflation and of the output gap

inflation and unemployment the world economy today is vastly different from the 1930s when seymour harris the chairman of this meeting infected me with his boundless enthusiasm for economics and his steadfast confidence in its capacity for good works economics is very different too both the science and its subject have changed and for the better since world war ii but there are some notable constants unemployment and inflation still preoccupy and perplex economists statesmen journalists housewives and everyone else the connection between them is the principal domestic economic burden of presidents and prime ministers and the major area of controversy and ignorance in macroeconomics i have chosen to review economic thought on this topic on this occasion partly because of its inevitable timeliness partly because of a personal interest reaching back to my first published work in 1941

future proof tariff design recovering sunk grid costs in a world where consumers are pushing back abstract traditional analysis of distribution network tariff design assumes a lack of alternatives to grid connection for the fulfilment of consumers electricity needs this is radically changing with breakthroughs in two technologies 1 photovoltaics pv enable domestic and commercial consumers to self produce energy 2 batteries allow consumers and self producers to gain control over their grid energy and capacity parameters contributing to the state of the art the grid cost recovery problem for the distribution system operator dso is modelled as a non cooperative game between consumers in this game the availability and costs of the two named technologies strategically interact with tariff structures four states of the world for user s access to technologies are distinguished and three tariff structures are evaluated the assessed distribution network tariff structures are energy volumetric charges with net metering energy volumetric charges for both injection and withdrawal and capacity based charges results show that in a state of the world with new technology choices for grid users both efficiency and equity issues can arise when distribution network charges are ill designed

how feed in remuneration design shapes residential pv prosumer paradigms as part of their clean technology and decarbonization strategies numerous countries have introduced feed in remuneration fir schemes to spur the deployment of solar photovoltaics pv however in the light of rising retail electricity prices and falling costs for rooftop solar installations in recent years policy makers and regulators face the difficult task of deciding when and how these schemes should be amended or phased out to understand how such actions might shape the role of residential solar and the resulting economics in a changing electricity system we study how the design of fir schemes affects optimal pv system sizes to illustrate our approach we draw on empirical data on the fir policies of net metering and feed in tariffs from california and germany between 2005 and 2016 using a techno economic model and a conceptual framework we show that fir design and its interplay with retail electricity prices and pv system costs jointly determine whether residential pv installations are economic how they are sized and which prosumer paradigms they spur our analysis holds numerous implications for policy makers and advisors responsible for redesigning or adapting existing fir mechanisms as well as for the stakeholders of an emerging ecosystem based on residential solar pv

us china rivalry the macro policy choices stylised representations of recent us and chinese tax reforms tariffs against imports and alternative chinese monetary targeting are examined using a calibrated global macro model that embodies both trade and financial interdependencies for both countries unilateral capital tax relief and bilateral tariffs are shown to be beggar thy neighbor policies as large economies both enjoy optimal tariffs even bilaterally though net outcomes are shown to depend on the allocation of revenues bilateral tariffs are most advantageous for the us if the additional revenue finances indirect tax relief once us bilateral tariffs are imposed china is a net loser irrespective of its policy response though a currency float is shown to cushion the effects on its gdp in the short run equilibria in normal form non cooperative tariff games have the us imposing tariffs while china liberalises

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

china s exchange rate trap japan redux today s american mercantile pressure on china to appreciate the renminbi against the dollar is eerily similar to the american pressure on japan to appreciate the yen that began over 30 years ago indeed the yen went all the way from 360 to the dollar in august 1971 at the end of the bretton woods period of fixed exchange rate parities to touch 80 to the dollar in april 1995 then the american government relented and announced a strong dollar policy that signaled the end of japan bashing but the overvalued yen and the expectation of appreciation destabilized the japanese financial system the bubble economy of the late 1980s was followed by a deflationary slump and a zero interest liquidity trap in the 1990s mckinnon and ohno 1997 at least some of today s critics of east asian countries pegging to the dollar would agree that international saving imbalances rather than misaligned exchange rates are the root cause of the u s current account deficit one can argue whether it is mainly a saving deficiency in the united states or a saving glut in the rest of the world bernanke 2005 either way the central position of the united states under the world dollar standard gives it alone an unlimited international line of credit in its own currency however suppose that the u s trade deficit is misdiagnosed to result from a misaligned exchange rate so that a surplus country on the dollar s periphery is forced to appreciate against the world s dominant money it will suffer a slowdown in economic

effects of permanent and transitory tax changes in a life cycle labor supply model with human capital i examine effects of labor income taxation in life cycle models with human capital accumulation in this case the opportunity cost of time equals the wage plus returns to work experience this has several interesting consequences first the data appear consistent with larger labor supply elasticities than prior work suggests second contrary to conventional wisdom permanent tax changes can have larger effects on current labor supply than temporary changes third human capital dampens responses of young workers to transitory tax changes fourth labor supply elasticities increase with age fifth human capital amplifies the effect of permanent tax changes in the long run

central bank independence and macroeconomic performance some comparative evidence this note uses information on a sample of sixteen oecd countries to assess the relationship between central bank independence and macroeconomic performance as previous work suggests politically controlled central banks are more likely to pursue policies that lead to high and variable inflation however the authors find little evidence that political control of central bank policy has any impact on measures of the level or variability of growth unemployment or the ex ante real interest rate copyright 1993 by ohio state university press

imperfect transparency and shifts in the central bank s output gap target abstract in the new keynesian framework the public s expectation about the future path of monetary policy is an important determinant of current economic conditions this paper examines the impact of unobservable shifts in the central bank s output gap target on inflation and output dynamics i show that when the degree of persistence of a shock is private information of the central bank and policy is discretionary in nature it is optimal for the central bank not to reveal the future expected path of the output gap target perfect transparency unambiguously increases inflation and output volatility and thus lowers welfare

two fallacies concerning central bank independence this paper takes issue with two basic conclusions prevalent in the literature on central bank behavior first the paper argues that it is inappropriate to presume that central banks will in the absence of any precommitment technology necessarily behave in a discretionary fashion that implies an inflationary bias since there is no functional connection between average rates of money creation or inflation and policy responsiveness to cyclical disturbances it is entirely feasible for the bias to be avoided in other words there is no necessary tradeoff between flexibility and commitment second to the extent that the absence of any absolute precommitment technology is nevertheless a problem it will apply to a consolidated central bank plus government entity as well as to the central bank alone thus contracts between governments and central banks do not overcome the motivation for dynamic inconsistency they merely relocate it this abstract was borrowed from another version of this item

cost competitiveness of residential solar pv the impact of net metering restrictions abstract the policy of net metering allows operators of residential and commercial solar pv systems to sell surplus electricity back to their utility at the going retail rate this policy has recently been criticized on the grounds that it provides a subsidy for residential and commercial solar installations a subsidy that is paid for by all ratepayers in response public utility commissions have begun to take up this regulatory issue this paper presents a theoretical and empirical analysis of the effects of net metering restrictions we examine the impact that overage tariffs ot will have on the size of future residential pv investments overage tariffs credit electricity generated by the solar system but not consumed by the household and thus transferred back to the utility at a rate below the going retail electricity rate our calculations focus on three representative locations in the states of california nevada and hawaii we find that if overage electricity is credited at some rate set at or above the levelized cost of electricity lcoe there would be sufficient incentives for investors in residential solar pv to continue in the current mode of solar rooftop installations even though the profitability of these investments might be reduced substantially at the same time we find that the lcoe is a tipping point insofar as overage tariffs set below that level would have a sharply negative effect on the individual size and overall volume of new rooftop installations

partially independent central banks politically responsive governments and inflation theories of central bank independence have more exact implications regarding inflation in different political economic environments than generally understood or empirically examined they imply that inflation in any given country time will be a weighted average of what it would be if the central bank completely controlled monetary policy and what it would be if the government completely controlled it with the degree of central bank independence weighting the former an equation embodying this theoretical expectation is estimated by constrained least squares from a time series cross section of inflation rates in developed democracies since the bretton woods era the results confirm that the antiinflationary benefit of central bank independence is not constant but rather depends on every variable in the broader politicaleconomic environment to which wholly autonomous central banks and governments would respond differently conversely the inflationary impacts of all such political economic variables depend on the degree of central bank independence

just how low are china s labour costs this paper provides a new perspective on chinese international competitiveness in manufacturing using relative unit labour costadvantage than that implied by a comparison of wages alone china s cost advantage derives from large currency devaluations thas t preceded the establishment of a de facto peg around 1995 and rapid productivity growth in the period since 1995 we nd that chinese unit labour costs are about 25 40 per cent of us labour costs they are also low relative to costs in the eu japan mexico korea and most other newly industrialising countries however china s relative unit labour costs indicatea substantially smaller cost

inflation zone targeting abstract we study optimal monetary policy design in a simple model that deviates from the linear quadratic paradigm and provides a rationale for the practice of inflation zone targeting we show that the presence of either zone quadratic preferences or a zone linear relationship between inflation and economic activity provides strong incentives to deviate from conventional linear policies we calibrate the model based on parameters for the united states and the euro area and employ a numerical dynamic programming algorithm to derive the optimal policies with this algorithm we examine the role of uncertainty model structure and relative preference towards economic stability in determining the width of the implied targeted inflation zone

are small scale grid connected photovoltaic systems a cost effective policy for lowering electricity bills and reducing carbon emissions a technical economic and carbon emission analysis this research discusses findings from technical simulations and economic models of 1kw p and 3kw p grid connected photovoltaic pv systems supplying a rural home electricity load in parallel with the electricity network in western australia wa the technical simulations are based on electricity billing consumption monitoring an energy audit data combined with 15min interval load and pv system performance for commercially available technologies and balance of system components using long term meteorological input data the economic modelling uses 2010 market prices for capital costs operational costs electricity tariffs subsidies and is based on discounted cash flow analyses which generate a final net present value npv for each system against network electricity costs in australian dollars aud over a 15 year investment horizon the results suggest that current market prices generate a negative npv a net private loss even with the current government subsidies which lead to higher home electricity costs than conventional network electricity use additionally the private costs of carbon emission mitigation aud tco 2 e 1 for the grid connected pv system simulations and models were around aud 600 700 tco 2 e 1 a particularly expensive option when compared to existing large scale renewable energy mitigation activities

exchange rate regimes and wage comovements in a ricardian model with money we construct a ricardian model of trade with money and trade costs the model predicts that the nominal wages of the trading countries exhibit stronger positive comovements when the countries fix their bilateral exchange rates while comovements of real wages are not affected by exchange rate regimes our numerical experiments suggest that a reduction in trade costs increases both nominal and real wage comovements regardless of regimes when downward nominal wage rigidity is introduced nominal wage comovements under the fixed regime remain stronger than under the flexible regime and the difference is smaller on the shorter time horizon while a slight difference in real wage comovements between the two regimes shows up and is larger on the shorter time horizon when we consider membership in the economic and monetary union of the european union as a fixed exchange rate regime panel regression results based on data from oecd countries are broadly consistent with our model and numerical experiments

the deflation bias and committing to being irresponsible i model deflation at zero nominal interest rate in a microfounded general equilibrium model i show that one can analyze deflation as a credibility problem if three conditions are satisfied first the government s only policy instrument is increasing the money supply by open market operations in short term bonds second the economy is subject to large negative demand shocks third the government cannot commit to future policy i call the credibility problem that arises under these conditions the deflation bias i propose several policies to solve it they all involve printing money or issuing nominal debt in addition they require cutting taxes buying real assets such as stocks or purchasing foreign exchange the government credibly commits to being irresponsible by pursuing these policies it commits to higher money supply in the future so that the private sector expects inflation instead of deflation this is optimal since it curbs deflation and increases output by lowering the real rate of return

time of day pricing and the levelized cost of intermittent power generation abstract an important characteristic of most renewable energy sources is intermittency in their ability to generate electricity yet intermittency is usually ignored in life cycle cost calculations intended to assess the competitiveness of electric power from renewable as opposed to dispatchable energy sources such as fossil fuels this paper demonstrates that for intermittent renewable power sources a traditional life cycle cost calculation should be appended by a correction factor which we term the co variation coefficient it captures any synergies or complementarities between the time varying patterns of electricity generation and pricing we estimate the co variation coefficient for specific settings in the western united states our estimates imply that the benchmark of cost competitiveness for solar photovoltaic pv power is 10 to 15 lower than previous average life cycle cost analyses have suggested in contrast the generation pattern of wind power exhibits complementarities with electricity pricing schedules yielding a cost assessment that is higher than that suggested by traditional calculations for the specific settings we study the corresponding magnitude of the markup is 10 to 15

inflation band targeting and optimal inflation contracts in this paper we provide a theoretical treatment of how inflation target ranges cope with the time inconsistency problem arising from incentives for the monetary policymaker to exploit the short run trade off between employment and inflation to pursue short run employment objectives as in a barro gordon 1983 model inflation band targets are able to achieve many of the benefits that arise under practically less attractive solutions such as the conservative central banker and optimal inflation contracts our theoretical model also shows how an inflation targeting range should be set and how it should respond to changes in the nature of shocks to the economy

politics and business cycles in industrial democracies politics alberto alesina influences from political competition on macroeconomic policy are often thought to be a source of economic fluctuations politicians are described as being driven by two not mutually exclusive main motivations they want to be reelected and they harbour political or ideological biases when such theories are confronted with actual cycles in a number of industrial countries the pattern of inflation unemployment output and budget deficits indicates that partisan policy making is a fairly widespread phenomenon with more limited evidence that electoral preoccupations result in major fluctuations the combination of partisanship and electoral cycles may easily result in socially undesirable outcomes in particular the degree of politico institutional stability and the independence of the central bank have a bearing on macroeconomic outcomes these observations raise a number of important questions about the design of political institutions