the demand elasticity impacts on the strategic bidding behavior of the electricity producers due to the oligopoly structure of the electricity markets and to the constraints imposed by the transmission network the producers may exert market power by strategically bidding higher than their marginal costs this brings market performance far from the perfect competition equilibrium with higher market clearing price and extra surpluses obtained by the producers demand elasticity can significantly affect the market performance contributing to mitigate the strategic bidding behavior of the producers compared to other commodity markets demand elasticity in the electricity markets is low but even a small increase can result in appreciable improvement of the market performance the network constraints of the power system play a specific role in determining the oligopoly equilibrium of the gaming behavior of the electricity producers the model of supply function equilibrium is first applied to a simple three bus test system for a conceptual analysis and then to a standard ieee 30 bus test system the effects of an increase of demand elasticity are assessed resorting to a set of proper quantitative indexes

the new electricity market of singapore regulatory framework market power and competition abstract this study examines whether the new electricity market of singapore nems is functioning at a workable level of competition the generation market of the nems appears highly concentrated by a four firm concentration ratio or the herfindahl hirschman index however other measures of market power present that the nems is working at close to a competitive market first there seems to be a number of effective competitors in the market second supply margin assessment and residual supply index support that the market is competitive though there are some possibilities in which the largest generator or a few large generators jointly could still have market power third the lerner index of the nems shows that the generation market is fairly competitive and the lerner index adjusted with an industry level price elasticity of demand implies that there has not been much exercise of market power finally vesting contracts a contractual obligation of a specified quantity of electricity supply to the market have appeared to be a strong and effective tool to mitigate market power in the nems the vesting contracts are considered the force behind the lowering in the average uniform singapore electricity price and the lerner index in 2004

forecasting residential electricity consumption in greece using monthly and quarterly data abstract this paper studies electricity consumption household use only in greece we explore the dynamic relationships among several potentially relevant time series variables and develop appropriate models for forecasting it is apparent that personal disposable income temperature and the price of electricity used by the households play an important role in the demand for electricity in this study we use both monthly and quarterly data and find that the performance of quarterly models may not be as good as that of the monthly ones for transfer function model identification we use the linear transfer function ltf method which is more efficient and easier to use than the traditional cross correlation ccf method

the demand for residential electricity new evidence on time varying elasticities this study employs a generalized functional form to examine demand for residential electiricity the appropriatenes of the conventional double log and linear forms are tested time varying elasicities are estimated major findings are summarized as follows 1 the double log and linear forms can be rejected at the 0 05 and 0 01 levels respectively 2 long run own price elasticities declined in absolute value consistently from 2 13 to 1 19 during the period 1950 87 3 long run income elasticities also decreased from 1 29 to 0 97 during the same period and 4 long run corss price elasticities with respect to the price of natural gas dropped form 0 40 to 0 29 these results may be heplful to decision makers in determining the change in total revenues owning to the change in prices pricing strategies the effectiveness of energy conservation programmes the effect of rising real income on the demand for residential electricity and future demand

intermediation and resale in networks i study intermediation via sequential bilateral bargaining in markets with a network structure a partition of the network into layers captures intermediation power competition governs trade withi

competition marginal cost tariffs and spot pricing in the chilean electric power sector abstract setting up competitiveness and privatizing the power sector has been an important goal of chilean energy policy since 1974 the new organization of the electric sector includes deconcentration of generating and distributing companies a new marginal cost and spot pricing system coordination of generating companies through an economic load dispatching centre eldc and a scheme for sharing transmission lines this paper describes why and how those tasks were carried out in chile

urban infrastructure mines on the economic and environmental motives of cable recovery from subsurface power grids abstract subsurface power grids constitute one of the largest copper stocks in many industrialized cities over time parts and zones of these systems have been continuously disconnected and abandoned resulting in the emergence of urban infrastructure ores this study aims to assess how current conditions and practices influence economic and environmental motives of cable recovery from such power grids by applying an infrastructure manager s perspective and evaluating 16 scenarios involving different extraction technologies and procedures surface materials urban locations and types of cables we identify key areas where solutions or changes to increase incentives for cable recovery are needed the assessed scenarios display significantly different cable extraction costs where excavation in city centers with asphalt or cobblestone pavements generates the highest costs while greenbelts offer the best conditions in most cases cable revenues are not even close to outweighing the extraction costs this is especially true for paper coated cables or cables with aluminum conductors for which the revenues are much lower than for plastic insulated copper cables although economic conditions could be improved by integrating cable recovery to regular system upgrade projects or by applying non digging technologies clear incentives rely on the cable in question being especially valuable most of the cable recovery scenarios display environmental motives in terms of net savings in ghg emissions due to metal recycling in contrast to the economic results recycling of aluminum power cables is here more awarding than that of corresponding copper cables we conclude that under current conditions urban mining does not make economic sense to infrastructure managers unless it is integrated as an added value to system upgrade projects apart from such re arrangements in infrastructure provision several other practice related changes to cut cable extraction costs are possibly within reach for the managers still an economically motivated practice relies on several external performance drivers such as market diffusion of non digging technologies improved cable recycling processes and increased scrap metal prices our conclusion that the arguments for urban mining are currently more environmental than financial points towards changed perspectives where such activities are seen as a way for infrastructure managers to contribute to societal goals such as climate change mitigation and reduced mineral resource dependence

integration of price cap and yardstick competition schemes in electrical distribution regulation the disadvantages of traditional rate of return regulation for distribution tariffs have led to he development of new regulatory schemes to stimulate efficiency in the provision of the service under what has been called benchmark regulation the paper assesses the chilean model company regulation that aims at making the private distribution monopoly compete with a reference efficient model company through a yardstick competition approach it compares it with the price cap scheme used in electricity distribution in england and wales it contributes with a proposal to integrate both schemes the proposed hybrid methodology is developed and evaluated capturing the best characteristics of both regulatory schemes mathematical models to relate operational costs with electrical variables are developed

competing for order flow in otc markets we develop a model of a two sided asset market in which trades are intermediated by dealers and are bilateral dealers compete to attract order flow by posting the terms at which they execute trades which can include prices quantities and execution times and investors direct their orders toward dealers that offer the most attractive terms of trade equilibrium outcomes have the following properties first investors face a trade off between trading costs and speeds of execution second the asset market is endogenously segmented in the sense that investors with different asset valuations and different asset holdings will trade at different speeds and different costs for example under a leontief technology to match investors and dealers per unit trading costs decrease with the size of the trade in accordance with the evidence from the market for corporate bonds third dealers implicit bargaining powers are endogenous and typically vary across sub markets finally we obtain a rich set of comparative statics both analytically by studying a limiting economy where trading frictions are small and numerically for instance we find that the relationship between trading costs and dealers bargaining power can be hump shaped

a search based theory of the on the run phenomenon we propose a model in which assets with identical cash flows can trade at different prices infinitely lived agents can establish long positions in a search spot market or short positions by first borrowing an asset in a search repo market we show that short sellers can endogenously concentrate in one asset because of search externalities and the constraint that they must deliver the asset they borrowed that asset enjoys greater liquidity a higher lending fee specialness and trades at a premium consistent with no arbitrage we derive closed form solutions for small frictions and provide a calibration generating realistic on the run premia

environmental relevance and use of energy indicators in environmental management and research this thesis aim is to develop an approach for scoping of environmental aspects regarding the material use in a large organisation in order to contribute to a strategic environmental management the study object is the swedish national rail authority the transport sector is closely linked to the environmental pressures caused by our society consequently a lot of studies have been made regarding the contribution from different transport sectors however the bulk of these studies concerns only the transports and thus omits the environmental pressures from the material use needed to support these sectors i e building and maintaining the infrastructure the rail transport sector is generally conceived to be the most environmentally adapted land transport mode however this notion commonly only includes environmental pressures from the traffic phase the method uses material related energy use and co2 emissions as a proxy to environmental pressures from material use furthermore the robustness of the method is tested by the use of scenarios and sensitivity analysis in particular the environmental relevance of the energy indicator is studied the approach developed in this thesis can be used to introduce new perspectives such as upstream environmental pressures to an organisation s environmental management it can be employed to identify hot spots in an organisation s material use consequently this new knowledge can be used to influence the design of new products to set environmental demands for purchasing and to focus further environmental analyses of the hot spots the approach can also be used to broaden the perspectives in for instance environmental impact assessments strategic environmental assessment and environmental reviews in the studied rail building project 3 products constituted 99 5 weight of the total material use these products were steel rails concrete ties and ballast materials they share the common characteristics of being noncomplex non toxic and made out of very few materials

estimation of short run and long run elasticities of energy demand from panel data using shrinkage estimators this article discusses the problem of obtaining short run and long run elasticities of energy demand for each of 49 states in the united states using data for 21 years estimation using the time series data by each state gave several wrong signs for the coefficients estimation using pooled data was not valid because the hypothesis of homogeneity of the coefficients was rejected shrinkage estimators gave more reasonable results the article presents in a unified framework the classical empirical bayes and bayes approaches for deriving these estimators

an empirical equilibrium model of a decentralized asset market i estimate a search and bargaining model of a decentralized market to quantify the effects of trading frictions on asset allocations and asset prices and to quantify the effects of intermediaries that facilitate trade using business aircraft data i find that relative to the walrasian benchmark 12 4 percent of the assets are misallocated and prices are approximately 27 3 percent lower dealers play an important role in reducing frictions in a market with no dealers 15 7 percent of the assets would be misallocated perhaps surprisingly in a market with no dealers prices would increase by 2 8 percent because sellers outside options improve relative to buyers thus counteracting the effects of higher search costs and slower trade on asset prices

pricing and liquidity in decentralized asset markets i develop a search and bargaining model of liquidity provision in over the counter markets where investors differ in their search intensities a distinguishing characteristic of my model is its tractability it allows for heterogeneity unrestricted asset positions and fully decentralized trade i find that investors with higher search intensities i e fast investors are less averse to holding inventories and more attracted to cash earnings which makes the model corroborate a number of stylized facts that do not emerge from existing models i fast investors provide intermediation by charging a speed premium and ii fast investors hold larger and more volatile inventories then i use the model to study the effect of trading frictions on the supply and price of liquidity the results have policy implications concerning the volcker rule

electricity demand in a developing country paraguay this study analyzes the residential and commercial demand for electricity in ten regions in paraguay for 1970 1977 models that are both linear and nonlinear in the parameters are estimated the nonlinear model takes advantage of prior information on the nature of the appliances being utilized and simultaneously deals with the demand discontinuities caused by appliance indivisibility three dynamic equations including a novel cumulative adjustment model all indicate rapid adjustment to desired appliance stock levels finally the multiproduct surplus loss obtained from an estimated demand equation is used to measure the welfare cost of power outages 15 references

equilibrium pricing and trading volume under preference uncertainty information collection processing and dissemination financial institutions is challenging this can delay the observation by traders of the exact capital charges and constraints of their institution during this delay traders face preference uncertainty in this context we study optimal trading strategies and equilibrium prices in a continuous centralized market we focus on liquidity shocks during which preference uncertainty is likely to matter most preference uncertainty generates allocative ineficiency but need not reduce prices traders progressively learning about the preferences of their institution conduct round trip trades which generate excess volume relative to the frictionless market in a cross section of liquidity shocks the initial price drop is positively correlated with total trading volume across traders the number of round trips is negatively correlated with trading profits and average inventory

factoring the elasticity of demand in electricity prices as electricity markets are liberalized consumers become exposed to more volatile electricity prices and may decide to modify the profile of their demand to reduce their electricity costs this paper analyzes the effect that the market structure can have on the elasticity of the demand for electricity it then describes how the consumers behavior can be modeled using a matrix of self and cross elasticities it is shown how these elasticities can be taken into consideration when scheduling generation and setting the price of electricity in a pool based electricity market these concepts are illustrated using a 26 generator system

modeling market power in korea s emerging power market abstract the korean power market is being formed from the unbundled generation transmission and distribution assets of korea electric power corporation the kepco generation has been allocated to six independent gencos with a combined generating capacity of 46 629 mw in 2002 this gave an 11 margin over the peak load that year 41 921 mw one of the concerns for any power market is whether individual participants can increase profits and prices by withholding generation from the market to address this concern a cournot based model of korean power system was created and applied to a set of loads representing the load duration curve for korea s system loads in 2002 our simulation results show a strong possibility for exercise of market power to increase market price in korean market under tight market conditions even 1 gw of withholding can cause a large increase in market price if loads unexpectedly grow faster than the 5 recent experience the gencos will have the collective ability and incentive to spike prices further vesting contracts can reduce the incentive to act strategically requiring that the gencos offer 50 of their capacity in long term forward contracts greatly reduces the payoff to act strategically and requiring vesting for 75 of their capacity results in prices that are essentially the same as the competitive equilibrium depending on the price for the vesting contracts this policy can reduce the incentives to add new generation by gencos or the competitive fringe another approach to reducing the effects of market power is establishing demand response programs simulated here by increasing the elasticity of overall demand these programs can reduce the incentives to withhold capacity but to a lesser degree than vesting contracts the genco with the greatest ability to influence prices through withholding is the largest knhp however acting on its own without the support of the other gencos its ability to raise prices is limited this applies even more for the other gencos alone their ability to run up prices by withholding is limited only when they reinforce each other s withholding by further withholding do we see the extreme prices of the cournot equilibrium in the long run the high prices from the cournot equilibrium create a strong incentive for entry of new generating capacity while the gencos that do the most withholding in the cournot solution do not gain by adding new generation several of the gencos that do relatively less withholding would gain net revenues from adding capacity that is likely to exceed the cost of new capacity for participants on the competitive fringe the incentives to add new generating capacity are much stronger they do not have a stake in maintaining the high cournot solution prices and benefit from increased withholding by the incumbent gencos the projected net revenues from new baseload and peaking capacity greatly exceed the thresholds needed to recover investment costs with freedom for new entrants to add capacity the cournot equilibrium prices cannot be sustained

entry and exit in otc derivatives markets we develop a parsimonious model to study the equilibrium and socially optimal decisions of banks to enter trade in and possibly exit an otc market although we endow all banks with the same trading technology banks optimal entry and trading decisions endogenously lead to a realistic market structure composed of dealers and customers with distinct trading patterns we decompose banks entry incentives into incentives to hedge risk and incentives to make intermediation profits we show that dealer banks enter more than is socially optimal in the face of large negative shocks they may also exit more than is socially optimal when markets are not perfectly resilient

the real time price elasticity of electricity the real time price elasticity of electricity contains important information on the demand response of consumers to the volatility of peak prices despite the importance empirical estimates of the real time elasticity are hardly available this paper provides a quantification of the real time relationship between total peak demand and spot market prices we find a low value for the real time price elasticity which may partly be explained from the fact that not all users observe the spot market price if we correct for this phenomenon we find the elasticity to be fairly low for consumers currently active in the spot market if this conclusion applies to all users this would imply a limited scope for government intervention in supply security issues

wind coal and the cost of environmental externalities abstract we compare the cost of generating electricity with coal and wind in chile on average we estimate that the levelized cost of coal including externalities is 84 mwh it is efficient to abate air pollutants so x no x and pm 2 5 but not co 2 with abatement the cost wrought by environmental externalities equals 23 mwh or 27 of total cost depending on the price of coal the levelized cost may vary between 72 and 99 mwh the levelized cost of wind is 144 mwh with capacity factor of 24 this cost includes backup capacity to maintain lolp which equals 13 mwh or 9 of total cost the levelized cost of wind varies between 107 mwh with capacity factors of 35 to 217 mwh with capacity factors of 15 wind is competitive only with capacity factors around 35 and very high coal prices alternatively a carbon price of 73 tco 2 268 tc would make coal and wind equally costly but this value implies a marginal damage at the 98th percentile of the distribution deduced from tol s 2011 estimates rather far from the mean 16 tco 2 59 tc

liquidity premia in dynamic bargaining markets abstract this paper develops a search theoretic model of the cross sectional distribution of asset returns abstracting from risk premia and focusing exclusively on liquidity in contrast with much of the transaction cost literature it is not assumed that different assets carry different exogenously specified trading costs instead different expected returns due to liquidity are explained by the cross sectional variation in tradeable shares the qualitative predictions of the model are consistent with much of the empirical evidence

the new chilean transmission charge scheme as compared with current allocation methods we describe the new method used in chile to allocate transmission charges among generating companies and customers as defined in law 19 940 of march 2004 also known as ley corta or short law we show that the new chilean transmission charge scheme is a hybrid based on marginal cost pricing identification of use through economic benefits and flow identification methods and last a postage stamp to redistribute almost all the charges that customers have to pay we also estimate the direct per kilowatthour charge that customers will pay and discuss its effect on location and expansion signals

estimating deficit probabilities with price responsive demand in contract based electricity markets studies that estimate deficit probabilities in hydrothermal systems have generally ignored the response of demand to changing prices in the belief that such response is largely irrelevant we show that ignoring the response of demand to prices can lead to substantial over or under estimation of the probability of an energy deficit to make our point we present an estimation of deficit probabilities in chile s central interconnected system between 2006 and 2010 this period is characterized by tight supply fast consumption growth and rising electricity prices when the response of demand to rising prices is acknowledged forecasted deficit probabilities and marginal costs are shown to be substantially lower

dealer intermediation and price behavior in the aftermarket for new bond issues municipal bonds trade in decentralized broker dealer markets and are underpriced when issued but unlike equities the average price rises slowly over several days newly issued municipal bonds have high levels of price dispersion and the average price rises because the mix of trade sizes changes over time while large trades occur close to the reoffering price small trades occur between the reoffering price to as much as 5 above the reoffering price using a mixed distribution model we quantify the losses uninformed traders or issuers give up to broker dealers

portfolio choice and pricing in illiquid markets abstract this paper studies portfolio choice and pricing in markets in which immediate trading may be impossible it departs from the literature by removing restrictions on asset holdings and finds that optimal positions depend significantly and naturally on liquidity when expected future liquidity is high agents take more extreme positions given that they do not have to hold those positions for long when they become undesirable consequently larger trades should be observed in markets with more frequent trading liquidity need not affect the price significantly however because liquidity has offsetting impacts on different agents demands this result highlights the importance of unrestricted portfolio choice the paper draws parallels with the transaction cost literature and clarifies the relationship between the price level and the realized trading frequency in this literature

trade dynamics in the market for federal funds we develop a model of the market for federal funds that explicitly accounts for its two distinctive features banks have to search for a suitable counterparty and once they have met both parties negotiate the size of the loan and the repayment the theory is used to answer a number of positive and normative questions what are the determinants of the fed funds rate how does the market reallocate funds is the market able to achieve an efficient reallocation of funds we also use the model for theoretical and quantitative analyses of policy issues facing modern central banks

integrating anthropogenic material stocks and flows into a modern resource classification framework challenges and potentials in light of various policy initiatives promoting the efficient use of resources this study investigates how anthropogenic resources could be classified under the united nations framework classification for fossil energy and mineral reserves and resources 2009 unfc 2009 compared to geogenic resources anthropogenic deposits are more heterogeneous and subject to various dynamics due to the human impact on their genesis often they must be assessed not only under aspects of resource recovery but with respect to alternative waste treatment and disposal options factors which are influencing the classification of anthropogenic resources vary during the individual phases of resource classification namely prospection exploration and evaluation during the pre prospection phase the preconditions defining the setting for the following resource classification are checked i e the deposit s status of availability for mining in use stocks obsolete stocks or waste flows as well as the specific handling and mining condition system variables which determine the potentially extractable amount of materials play a major role during the exploration phase e g technological choices for recovery in the evaluation phase modifying factors with direct impact on the project s economics are investigated such as prices for secondary products avoided costs and possibly monetized externalities challenges and potentials of classifying different types of anthropogenic resources under unfc 2009 are illustrated for two different cases mining an old landfill obsolete stock is contrasted in a qualitative discussion to mining e waste waste flow finally an operative evaluation procedure is outlined which is still to be refined and illustrated via case studies

informed traders and limit order markets abstract we consider a dynamic limit order market in which traders optimally choose whether to acquire information about the asset and the type of order to submit we numerically solve for the equilibrium and demonstrate that the market is a volatility multiplier prices are more volatile than the fundamental value of the asset this effect increases when the fundamental value has high volatility and with asymmetric information across traders changes in the microstructure noise are negatively correlated with changes in the estimated fundamental value implying that asset betas estimated from high frequency data will be incorrect

residential demand for electricity the case of greece this paper examines the determinants of residential electricity consumption in greece over the period 1961 86 the paper presents first a brief description of the evolution of residential electricity consumption then it proceeds in the estimation of elasticities of residential demand for electricity using a single equation model with the ridge regression method the paper concludes that i the residential demand for electricity is price inelastic and income elastic ii there is high substitutability between electricity and lpg iii during the examined period the number of consumers played a very important role in the expansion of electricity consumption in greece and iv there is no regional variation in residential electricity demand

frictional intermediation in over the counter markets we extend duffie et al s 2005 search theoretic model of over the counter otc asset markets allowing for a decentralized inter dealer market with arbitrary heterogeneity in dealers valuations or equivalently inventory costs we develop a solution technique that makes the model fully tractable and allows us to derive in closed form theoretical formulas for key statistics analysed in empirical studies of the intermediation process in otc markets a calibration to the market for municipal bonds allows us to quantify important unobservable characteristics of this market including the severity of search and bargaining frictions and the nature of heterogeneity across dealers we use our calibrated model to study the effect of these market characteristics on total welfare and the distribution of gains from trade across customers and dealers

search based models of money and finance an integrated approach many applications in monetary economics of search and bargaining theory use shi trejos wright hereafter stw many applications in finance use duffie g rleanu pedersen hereafter dgp these models share several features and both concern liquidity yet they also differ in stw agents use assets as payment instruments when trading goods in dgp they pay with goods or transferable utility when trading assets we integrate the two this clarifies connections between the literatures and generates novel insights several new results are provided for the baseline stw and dgp models while the integrated structure generates even more interesting outcomes including endogenous transactions patterns and belief based dynamics

leaning against the wind during financial disruptions market makers provide liquidity by absorbing external selling pressure they buy when the pressure is large accumulate inventories and sell when the pressure alleviates this paper studies optimal dynamic liquidity provision in a theoretical market setting with large and temporary selling pressure and order execution delays i show that competitive market makers offer the socially optimal amount of liquidity provided they have access to sufficient capital if raising capital is costly this suggests a policy role for lenient central bank lending during financial disruptions

liquidity misallocation in an over the counter market abstract to understand the illiquidity of the over the counter market when dealers and traders are in long term relationships i develop a framework to study the endogenous liquidity distortions resulting from the profit maximizing screening behavior of dealers the dealer offers the trading mechanism contingent on the aggregate history of his customers summarized by the asset allocation the equilibrium distortion is type dependent trade with small surplus breaks down trade with intermediate surplus may be delayed trade with large surplus is carried out with a large bid ask spread but without delay because of dealers limited commitment the distortions become more severe when the valuation shock is frequent the valuation dispersion is large or the matching friction to form new relationships is large calibrating the model and running a horse race between matching efficiency trading speed and relationship stability i found that the liquidity disruption in the market during the recent financial crisis is more consistent with declining matching efficiency of forming trading relationships the optimal mechanism can be implemented by random quote posting

wage differentials employer size and unemployment the unique equilibrium solution to a game in which a continuum of individual employers choose permanent wage offers and a continuum of workers search by sequentially sampling from the set of offers is characterized wage dispersion is a robust outcome provided that workers search while employed as well as when unemployed the unique nondegenerate equilibrium distribution of wage offers is constructed for three cases 1 identical workers and employers 2 identical employers and an atomless distribution of worker supply prices and 3 identical workers and an atomless distribution of job productivities copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

nash cournot equilibria in hydrothermal electricity markets a method is presented that allows finding the market clearance prices within a hydrothermal power exchange market that incorporates network constraints an analysis is made of the degree of market power exerted by the various agents the nash cournot equilibrium solution of the market is achieved using the nikaido isoda function which is derived from the profit maximization functions calculated by the generating companies both thermal hydro generation and network constraints are considered in the model with coupling constraints of the hydro units also taken into account the model is applied to the main chilean interconnected power system whose abundant hydro production and existing network bottlenecks make it a valuable suitable case for study the results for pool based and bilateral contract markets highlight the strength of the method and show the contribution of the transmission system and hydro constraints

nontraditional partial adjustment models and their use in estimating the residential demand for electricity in costa rica the present study attempts to augment our very limited knowledge of electricity demand in the developing world by analyzing residential electricity consumption in a middle income level latin american country costa rica while a number of econometric investigations of the determinants of residential electricity demand have been carried out in developed countries using good data and a reasonably complete set of variables few comparable studies are available for the developing world in latin america the only two of which we are aware are berndt and samaniego 1984 and westley 1984a the former studies household electricity consumption in mexico an upper income level latin state the latter analyzes residential and commercial electricity demand in a lower income latin american country paraguay this paper is organized as follows the balance of this introduction summarizes the major issues and results then section ii discusses variables iii presents the basic econometric results and iv examines the issue of dynamic adjustment and discusses the need for more flexible partial adjustment pa models appendix a derives the linear appliance price index appendix b supplements the discussion of dynamic adjustment in section iv and appendix c derives the flexible pa models from cost minimization principles price and income elasticities