key findings from the core north american scenarios in the emf34 intermodel comparison abstract within canada mexico or the united states policy making organizations are evaluating energy markets and energy trade within their own borders often by ignoring how these countries energy systems are integrated with each other these analytical gaps provided the main motivation for the energy modeling forum emf 34 study on north american energy integration and trade this paper compares north american results from 17 models and discusses their policy motivation oil and natural gas production in the three major countries are modestly sensitive to crude oil and natural gas price changes although these elasticities are below unity carbon taxes displace coal and some natural gas with renewables within all three power markets lower natural gas prices replace coal and some renewables with natural gas within electric generation higher intermittent renewable penetration in the power sector displaces coal and some natural gas a key conclusion is that much remains to be done in integrating future analyses and in sharing and improving the quality and consistency of the underlying data

low natural gas prices and the financial cost of ramp rate restrictions at hydroelectric dams abstract peaking hydroelectric dams that employ variable stop start reservoir releases can have adverse impacts on downstream river ecosystems efforts to mitigate these impacts have relied predominantly on the use of ramp rate restrictions which limit the magnitude of hour to hour changes in reservoir discharge ramp rate restrictions shift hydropower production towards less valuable off peak hours imposing a financial penalty on dam owners that is a function of the spread difference between peak and off peak electricity prices this study examines how low natural gas prices in the u s have reduced the cost of implementing ramp rate restrictions at dams by narrowing the peak off peak price spread significantly lower costs of ramp rate restrictions could open new opportunities for improving environmental flows at dams including the purchase of more natural streamflow patterns by downstream stakeholders a type of arrangement for which there is growing precedent we also explore the role that uncertainty in the cost of ramp rate restrictions could play in precluding downstream stakeholders from forming these types of agreements with dam owners results suggest that financial collar contracts could mostly eliminate inter annual variability in the net cost of restrictions and provide those purchasing more natural flows with greater certainty

environmental pricing of externalities from different sources of electricity generation in chile abstract the rapid increase in electricity demand in chile means a choice must be made between major investments in renewable or non renewable sources for additional production current projects to develop large dams for hydropower in chilean patagonia impose an environmental price by damaging the natural environment on the other hand the increased use of fossil fuels entails an environmental price in terms of air pollution and greenhouse gas emissions contributing to climate change this paper studies the debate on future electricity supply in chile by investigating the preferences of households for a variety of different sources of electricity generation such as fossil fuels large hydropower in chilean patagonia and other renewable energy sources using double bounded dichotomous choice contingent valuation a novel advanced disclosure method and internal consistency test are used to elicit the willingness to pay for less environmentally damaging sources policy results suggest a strong preference for renewable energy sources with higher environmental prices imposed by consumers on electricity generated from fossil fuels than from large dams in chilean patagonia policy results further suggest the possibility of introducing incentives for renewable energy developments that would be supported by consumers through green tariffs or environmental premiums methodological findings suggest that advanced disclosure learning overcomes the problem of internal inconsistency in sb db estimates

a two country natrex model for the euro dollar this paper develops a natrex natural real exchange rate model for two large economies the eurozone and the united states the natrex approach has already been adopted to explain the medium long term dynamics of the real exchange rate in a number of industrial countries so far however it has been applied to a one country framework where the rest of the world is treated as given in this paper we build a natrex model where the two economies are fully specified and allowed to interact our theoretical model offers the basis for empirical estimation of the euro dollar equilibrium exchange rate that will be carried out in future research jel classification f31 f36 f47

on the economics of ramping rate restrictions at hydro power plants balancing profitability and environmental costs this paper examines the impact of ramping rate restrictions imposed on hydro operations to protect aquatic ecosystems a dynamic optimization model of the profit maximizing decisions of a hydro operator is solved for various restrictions on water flow using data for a representative hydro operation in ontario profits are negatively affected but for a range of restrictions the impact is not large ramping restrictions cause a redistribution of hydro production over a given day which can result in an increase in total hydro power produced this affects the need for power from other sources with consequent environmental impacts

recent developments in international finance a guide to research abstract this is a critical evaluation of the state of the art in international finance several points of reference are selected the mundell fleming branson mfp paradigm the monetary model with purchasing power parity ppp as a long run anchor the representative agent approach and the natural real exchange rate natrex model their strengths and weaknesses are identified from both a theoretical and empirical point of view we conclude with a suggestion of what is a fruitful explanation of medium to longer run movements in the real exchange rate and the current account

tax disturbances and real economic activity in the postwar united states abstract this paper investigates the macroeconomic effects of cyclical fluctuations in marginal tax rates it finds that systematically including tax variables in a standard real business cycle model substantially improves the model s ability to reproduce basic facts about postwar u s business cycle fluctuations in particular modeling fluctuations in personal and corporate income tax rates increases the model s predicted relative variability of hours and decreases its predicted correlation between hours and average productivity fluctuations in tax rates produce large substitution effects that alter the leisure labor supply decision

by force of demand explaining cyclical fluctuations of international trade and government spending abstract this paper explores the role of demand shocks as an alternative to productivity shocks in driving both domestic and international business cycles within the international real business cycle irbc framework in addition to those well documented domestic business cycle fluctuations e g the volatility and cyclicality of output consumption investment labor hours and labor productivity and international business cycle properties e g the countercyclical net export and the comovement puzzle this paper focuses on two additional stylized facts in the industrialized countries the procyclical trade openness the gdp fraction of trade volume and the countercyclical government size the gdp fraction of government spending using a parsimonious dynamic stochastic general equilibrium model we show that the model s predictions under productivity shocks are not consistent with these facts instead a demand shock driven model replicates the above facts while matching other domestic and international business cycle properties an estimated version of the model confirms the quantitatively important impacts of demand shocks

consumers willingness to pay for green electricity a meta analysis of the literature at present electricity generated from power plants using renewable sources costs more than electricity generated from power plants using conventional fuels consumers bear these expenses directly or indirectly through higher prices for renewable energy or taxes the number of studies published over the last few years focusing on people s preferences for renewables has increased steadily making it more and more difficult to identify key explanatory factors that determine people s willingness to pay wtp for renewables we present results of a meta regression on valuation of consumer preferences for a larger share of renewable energy in their electricity mix our meta regression results reveal a number of important factors that explain the differences in wtp values for renewable energy different valuation methods show widely different values with choice experiments producing the highest estimates our results further indicate that consumers wtp for green electricity differs by source with hydropower being the least valued variables that are often omitted from primary valuation studies are important in explaining differences in values these variables describe individual and household characteristics as well as information on the type of power plant that will be replaced by renewables further the marginal effect of a survey conducted in the us is pronounced we also assess the potential for using the results for out of sample value transfer and find a median error of 21 c 2015 elsevier b v all rights reserved

can fiscal spending stimulate private consumption abstract empirically government expenditure shocks seem to crowd in private consumption while neoclassical and new keynesian models predict crowding out we derive conditions under which a government in utility specification in a sticky price model helps to reconcile theory and evidence

current real business cycle theories and aggregate labor market fluctuations hours worked and the return to working are weakly correlated traditionally the ability to account for this fact has been a litmus test for macroeconomic models existing real business cycle models fail this test dramatically we modify prototypical real business cycle models by allowing government consumption shocks to influence labor market dynamics this modification can in principle bring the models into closer conformity with the data our empirical results indicate that it does

the future of u s natural gas production use and trade two computable general equilibrium models one global and the other providing u s regional detail are applied to analysis of the future of u s natural gas the focus is on uncertainties including the scale and cost of gas resources the costs of competing technologies the pattern of greenhouse gas mitigation and the evolution of global natural gas markets results show that the outlook for gas over the next several decades is very favorable in electric generation given the unproven and relatively high cost of other low carbon generation alternatives gas is likely the preferred alternative to coal a broad ghg pricing policy would increase gas use in generation but reduce use in other sectors on balance increasing its role from present levels the shale gas resource is a major contributor to this optimistic view of the future of gas gas can be an effective bridge to a lower emissions future but investment in the development of still lower co2 technologies remains an important priority international gas resources may well prove to be less costly than those in the u s except for the lowest cost domestic shale resources and the emergence of an integrated global gas market could result in significant u s gas imports

shale gas policy in the united kingdom an argumentative discourse analysis shale gas has become an energy policy priority in the united kingdom in light of profitable extraction activities in the united states since 2012 the coalition government has created key economic drivers to encourage shale exploration whilst growing activism in affected site communities has stirred significant media and academic commentary this study examines the growing national debate as a matter of discourse adopting an argumentative discourse analytic approach to assess data collected from stakeholder interviews n 21 and key policy actor statements quoted in broadsheet newspapers we explore three dominant storylines emerging in relation to shale gas policy 1 cleanliness and dirt concerns the relative framing of the environmental benefits and harms of shale gas 2 energy transitions pathways and diversions concerns geographic metaphors of transitions to carbon intensive and low carbon energy systems and 3 geographies of environmental justice concerns divisions of economic benefit distribution environmental impact and procedural fairness we find that central government policy rhetoric emphasises economic development regulatory oversight and distribution of benefits to site communities whilst minimising discussion of the implications of shale gas for anthropogenic climate change the role of these discourses in influencing shale gas policy is discussed

optimal provision of hydroelectric power under environmental and regulatory constraints hydroelectric power plants can quickly and inexpensively respond to changes in electricity demand however this operational flexibility can cause negative environmental im pacts and these environmental effects are miti gated through direct restrictions on hydropower operations rather than taxes or other market based mechanisms a dynamic model of hydro electric generation is used to derive hourly hydro electric generation and purchases of replacement power to meet contract demand in the presence of these operational restrictions the pattern of hydropower generation is shown to depend on differences between on peak and off peak spot electricity prices within the operational restric tions set by external regulatory mechanisms

time consistent optimal fiscal policy this article studies the properties of optimal fiscal policy in a stochastic growth model when the government cannot commit itself beyond the next period s capital income tax rate we find that the results contrast markedly with those under full commitment first capital income tax rates are very high 65 on average versus close to zero on average under full commitment second labor income taxes are rather low on average about 12 versus a value of around 31 under full commitment finally labor income taxes are quite volatile whereas under full commitment their standard deviation is essentially zero

survey of western u s electric utility resource plans we review long term electric utility plans representing 90percent of generation within the western united states and canadian provinces we address what utility planners assume about future growth of electricity demand and supply what types of risk they consider in their long term resource planning and the consistency in which they report resource planning related data the region is anticipated to grow by 2percent annually through 2020 before demand side management about two thirds of the utilities that provided an annual energy forecast also reported energy efficiency savings projections in aggregate they anticipate an average 6 4percent reduction in energy and 8 6percent reduction in peak demand by 2020 new natural gas fired and renewable generation will replace retiring coal plants although some utilities anticipate new coal fired plants most are planning for steady growth in renewable generation over the next two decades most planned solar capacity will come online before 2020 with most wind expansion after 2020 fuel mix is expected to remain 55percent of total generation planners consider a wide range of risks but focus on future demand fuel prices and the possibility of ghg regulations data collection and reporting inconsistencies within and across electric utility resource plans lead to recommendations on policies to address this issue

understanding carbon lock in abstract this paper narrative argues that industrial economies have been locked into fossil fuel based energy systems through a process of technological and institutional co evolution driven by path dependent increasing returns to scale it is asserted that this condition termed carbon lock in creates persistent market and policy failures that can inhibit the diffusion of carbon saving technologies despite their apparent environmental and economic advantages the notion of a techno institutional complex is introduced to capture the idea that lock in occurs through combined interactions among technological systems and governing institutions while carbon lock in provides a conceptual basis for understanding macro level barriers to the diffusion of carbon saving technologies it also generates questions for standard economic modeling approaches that abstract away technological and institutional evolution in their elaboration the question of escaping carbon lock in is left for a future paper

an interpretation of recent research on exchange rate target zones how do exchange rate bands work compared to completely fixed rates between realignments or more precisely what are the dynamics of exchange rates interest rates and central bank interventions within exchange rate bands does the difference between bands and completely fixed exchange rates matter and if so which of the two arrangements is best or more precisely what are the tradeoffs that determine the optimal bandwidth this article will present an interpretation of some selected recent theoretical and empirical research on exchange rate target zones with emphasis on main ideas and results and without technical detail

indivisible labor lotteries and equilibrium abstract this paper considers an economy where labor is indivisible and agents are identical although the discontinuity in labor supply at the individual level disappears as a result of aggregation it is shown that indivisible labor has strong consequences for the aggregate bahavior of the economy it is also shown that optimal allocations involve lotteries over employment and consumption

a view to the future of natural gas and electricity an integrated modeling approach abstract this paper demonstrates the value of integrating two highly spatially resolved models the rice world gas trade model rwgtm of the natural gas sector and the regional energy deployment system reeds model of the u s electricity sector the rwgtm passes electricity sector natural gas prices to the reeds model while the reeds model returns electricity sector natural gas demand to the rwgtm the two models successfully converge to a solution under reference scenario conditions we present electricity sector and natural gas sector evolution using the integrated models for this reference scenario this paper demonstrates that the integrated models produced similar national level results as when running in a stand alone form but that regional and state level results can vary considerably as we highlight these regional differences have potentially significant implications for electric sector planners especially in the wake of substantive policy changes for the sector e g the clean power plan

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

stochastic optimal control international finance and debt abstract we use stochastic optimal control dynamic programming dp to derive the optimal debt net worth consumption net worth current account net worth and endogenous growth rate in an economy which could be a country region or sector within a country unlike the literature that uses an intertemporal budget constraint or the maximum principle the dp approach does not require perfect foresight or certainty equivalence our results are generalizations of the merton model and are explained graphically within a mean variance context two examples are provided to illustrate the usefulness of our technique in predicting debt crises

abundant low cost natural gas and deep ghg emissions reductions for the united states abstract this paper analyzes the implications of the natural gas revolution on the us ability to achieve deep ghg emissions reductions of 80 below 2005 levels by 2050 it uses a hybrid energy economy model to test how prevailing low us natural gas prices influence the magnitude of the required carbon price needed to achieve this target while the paper finds in general that lower gas prices resulting from plentiful gas necessitate a higher carbon price to achieve this target informing firms and consumers in advance about the magnitude of the future carbon price can lower the necessary level

optimal fiscal and monetary policy some recent results this paper studies the quantitative properties of fiscal and monetary policy in business cycle models in terms of fiscal policy optimal labor tax rates are virtually constant and optimal capital income tax rates are close to zero on average in terms of monetary policy the friedman rule is optimal nominal interest rates are zero and optimal monetary policy is activist in the sense that it responds to shocks to the economy

employment and hours over the business cycle abstract approximately one quarter of the adjustment in total hours of employment over the business cycle represents adjustments in hours while the remainder is explained by changes in employment real business cycle models characterize agents as either continuously adjusting their hours or making only labor force participation decisions about jobs with indivisible hours in this paper we extend the representative agent framework to allow for decisions on both participation and hours we calibrate and simulate a dynamic version of the model and show that it is better able to mimic some features of the aggregate data

time consistent control in non linear models abstract the paper shows how to use optimal control to compute optimal time consistent markovian government policies in nonlinear dynamic general equilibrium models it extends cohen and michel s 1988 results for the linear quadratic case the method involves replacing private agents costate variables with flexible functions of current state variables in the government s maximization problem the functions hold in equilibrium to an arbitrarily close approximation they can be found numerically by perturbation or projection methods a stochastic model of optimal public spending illustrates the technique

a model of intertemporal emission trading banking and borrowing abstract this paper provides a general treatment of emission trading banking and borrowing in an intertemporal continuous time model using optimal control theory the decentralized behavior of firms is shown to lead to the least cost solution attainable under joint cost minimization explicit solutions for the time paths of emissions and permit prices are derived when firms are allowed to both bank and borrow and when firms are only allowed to bank emission permits the policy implications of emission banking and borrowing are discussed

the macroeconomic effects of distortionary taxation abstract prescott 1986 estimates that technology shocks account for 75 of the fluctuations in the postwar u s economy this paper reestimates the contribution of technological change for a standard business cycle model that includes a public sector and fiscal disturbances i find that a significant fraction of the variance of aggregate consumption investment output capital stock and hours of work can be explained by disturbances in labor and capital tax rates and government consumption i also use the model to quantify the welfare costs of capital and labor taxation for both the time series and welfare calculations maximum likelihood estimates of taste technology and policy parameters are used

government spending and the international business cycle in this paper the author develops a stochastic general equilibrium model of the world economy it differs from previous multicountry models in the introduction of the government sector the author assumes that countries produce a nonspecialized traded good and that households derive utility from the consumption of private and public goods and services this simple modification has a potential explanation for the low cross country correlations in private consumption and output and the countercyclical trade balances that are observed empirically

oil and international energy this article focuses on issues surrounding international oil markets within the wider context of international energy the global economy and conflicting agendas such as energy security and climate change it is suggested that important aspects of the current situation appear unsustainable increasing uncertainty and raising methodological difficulties for any assessment of likely future developments it is argued that the dynamics of oil prices during the 2002 9 cycle reflected great uncertainty about future fundamentals as well as the absence of previously anticipated stabilizing feedbacks from supply from demand or from policy it is suggested that damaging oil price swings could be moderated by better policy though probably not by financial regulation in the longer term the uncertainties remain very great especially since the tensions between a realist view of likely energy market developments and the imperatives of the climate change agenda remain unresolved a wide range of policies in producer and consumer countries are likely to affect not only oil prices but also the contentious issue of the distribution of rents within the industry copyright 2011 oxford university press

pricing weather derivatives this article presents a general method for pricing weather derivatives specification tests find that a temperature series for fresno ca follows a mean reverting brownian motion process with discrete jumps and autoregressive conditional heteroscedastic errors based on this process we define an equilibrium pricing model for cooling degree day weather options comparing option prices estimated with three methods a traditional burn rate approach a black scholes merton approximation and an equilibrium monte carlo simulation reveals significant differences equilibrium prices are preferred on theoretical grounds so are used to demonstrate the usefulness of weather derivatives as risk management tools for california specialty crop growers

natural gas scenarios in the u s power sector abstract the united states power sector is being transformed by the recent rise in the availability and use of unconventional natural gas specifically shale gas that transformation has already produced some of the most significant changes in the operation of the portfolio of electricity generation since wwii further implications are likely to that end we present results from numerical modeling of different united states u s power sector futures these futures assess questions affecting today s natural gas and electric power markets including the impacts of forthcoming epa rules on power plants decarbonization options such as a clean energy standard ces potential improvements in key generation technologies expanded use of natural gas outside of the power generation sector and higher costs for natural gas production assumed to arise from more robust environmental and safety practices in the field the simulations were done using the reeds model looking out to the year 2050 reeds is a capacity expansion model that determines the least cost combination of generation options that fulfill a variety of user defined constraints such as projected load capacity reserve margins emissions limitations and operating lifetimes the baseline scenario shows strong growth in natural gas generation leading to a roughly 2 5 fold increase in gas demand by 2050 many other scenarios also see strong growth in gas fired generation highlighting questions about portfolio diversity climate change and research and development prioritization

the output employment and interest rate effects of government consumption abstract we study the impact on aggregate variables of changes in government consumption using the neoclassical stochastic growth model we show theoretically that the impact on output and employment of a persistent change in government consumption exceeds that of a temporary change we also show that in principle there can be an analog to the keynesian multiplier in the neoclassical growth model finally in an empirically plausible version of the model we show that the interest rate impact of a persistent government consumption shock exceeds that of a temporary one our results provide counterexamples to existing claims in the literature

anticipation learning and welfare the case of distortionary taxation we study the impact of anticipated fiscal policy changes in the ramsey economy when agents form expectations using adaptive learning we extend the existing framework by distortionary taxes as well as elastic labour supply which makes agents decisions non predetermined but more realistic we detect that the dynamic responses to anticipated tax changes under learning have oscillatory behaviour moreover we demonstrate that this behaviour can have important implications for the welfare consequences of fiscal reforms

stochastic depreciation and the business cycle the authors study a version of the neoclassical growth model in which shocks to both aggregate productivity and the depreciation of capital generate fluctuations around the steady state growth path depreciation shocks induce an inverse comovement between average labor productivity and hours worked when the model is calibrated to u s data it generates a correlation between productivity and hours which is significantly closer to the observed value than that of standard real business cycle models furthermore the addition of depreciation shocks does not cause a deterioration of the predictions of the model concerning other comovements copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

sustaining wealth simulating a sovereign wealth fund for the uk s oil and gas resources past and future abstract exhaustible resources and the revenues they generate present a number of broad problems for macroeconomic management for example tax revenues can be large and highly volatile and the stream of revenues is finite an increasing number of countries now view resource funds and or fiscal rules for resource revenues as the answer to these challenges in this paper we explore the consequences for the uk if past revenues arising from the depletion of subsoil assets had been channelled into a sovereign wealth fund we show that had a decision been made to establish such a fund in 1975 this could have been substantial in size by 2018 about gbp 354 billion and moreover would have had a number of benefits such as a reduction in volatility of resource revenues flowing to the treasury crucially the fund s value would have substantially boosted the size of the government balance sheet yielding corresponding fiscal benefits we argue this missed opportunity is underlined further by considering the current debate about shale gas development in the uk notwithstanding considerable uncertainties favourable and optimistic projections for key parameters are required for any shale based fund to match what we simulate based on past experience for conventional subsoil assets

introduction north american natural gas markets in transition abstract over many decades energy markets have seen a variety of new technologies with the potential of replacing existing practices for providing conventional fossil fuels unlike synthetic fuels during the 1970s or hydrogen during the 2000s however hydraulic fracturing for producing natural gas shale resources has had a dramatic impact because it has been cost effective this article describes a model comparison effort organized by stanford s energy modeling forum and provides a brief overview of the principal findings by individual modeling teams that participated in the study

an options pricing approach to ramping rate restrictions at hydro power plants this paper investigates the impact of ramping rate restrictions imposed on hydro operations to protect aquatic ecosystems the optimal ramping decision is specified as an optimal control problem which results in a hamilton jacobi bellman hjb equation electricity prices are modelled as a regime switching stochastic process the optimal control is determined by solving the hjb equation numerically using a fully implicit finite difference approach with semi lagrangian time stepping the paper focuses on the effect of ramping restrictions on a hydro plant s value and optimal operations and provides an analysis of which factors cause ramping restrictions to have a greater or lesser impact on profitability it is shown that hydro plant value is negatively affected by ramping restrictions but the extent of the impact depends on key parameters which determine the desirability of frequent changes in water release rates interestingly for the case considered value is not sensitive to ramping restrictions over a large range of restrictions the results point to the importance of accurately modelling electricity prices in gauging the trade offs involved in imposing restrictions on hydro operators which may hinder their ability to respond to volatile electricity prices and meet peak demands

has fiscal policy helped stabilize the postwar u s economy abstract in this paper i consider whether postwar fiscal policy has helped stabilize the u s economy i do this by adding to the stochastic growth model fiscal policy feedback rules estimated from postwar data these rules allow fiscal policies to respond to current and lagged output and labor hours i use the estimated policy rules to see if postwar fiscal policy reduces output volatility and or lengthens expansions and shortens recessions i find that fiscal policy in general provides little stability on either count i also find that the endogenous feedback links by themselves can provide some stabilization

selective hedging in hydro based electricity companies abstract we analyze risk management trends in electricity commodity markets using the production and transaction data and written hedging policies of 12 norwegian hydropower companies the scope of our analysis is the hedging of physical electricity production using the power derivatives available at nasdaq omx commodities in their hedging policy these companies either use a cashflow at risk c far approach or a hedge ratio approach or follow no explicitly stated approach we find that the derivative cashflows constitute substantial profits for these companies furthermore hedging contributes to reducing the c far for 10 of the companies these findings are surprising considering that we expect hedging to yield zero expected profit and to smooth the earnings overall our findings reveal that a practice of incorporating market views in hedging decisions is widespread in the sample companies as both sanctioned in their written hedging policy and as indicated by the substantial hedging profits

united states current account deficits a stochastic optimal control analysis abstract the pessimists and the optimists disagree whether the us external deficits and the associated buildup of us net foreign liabilities are problems that require urgent attention a warning signal should be that the debt ratio deviates significantly from the optimal ratio the optimal debt ratio or debt burden should take into account the vulnerability of consumption to shocks from the productivity of capital the interest rate and exchange rate the optimal debt ratio is derived from inter temporal optimization using dynamic programming because the shocks are unpredictable and it is essential to have a feedback control mechanism the optimal ratio depends upon the risk adjusted net return and risk aversion both at home and abroad on the basis of alternative estimates we conclude that the pessimists fears are justified on the basis of trends the trend of the actual debt ratio is higher than that of the optimal ratio the optimists are correct that the current debt ratio is not a menace because the current level of the debt ratio is not above the corresponding level of the optimum ratio

nonconvex equilibrium models for gas market analysis failure of standard techniques and alternative modeling approaches abstract this paper provides a first approach to assess gas market interaction on a network with nonconvex flow models in the simplest possible setup that adequately reflects gas transport and market interaction we elaborate on the relation of the solution of a simultaneous competitive gas market game its corresponding mixed nonlinear complementarity problem mncp and a first best benchmark we provide conditions under which the solution of the simultaneous game is also the solution of the corresponding mncp however equilibria cannot be determined by the mncp as the transmission system operator s tso s first order conditions are insufficient which goes back to nonconvexities of the gas flow model this also implies that the welfare maximization problem may have multiple solutions that sometimes do not even coincide with any of the market equilibria our analysis shows that even in the absence of strategic firms market interaction fails to implement desirable outcomes from a welfare perspective due to the tso s incentive structure we conclude that the technical environment calls for a market design that commits the tso to a welfare objective through regulation and propose a design where the market solution corresponds to a welfare maximum and vice versa

nominal exchange rate regimes and the real exchange rate abstract two assumptions about the real exchange rate are common in the literature on international finance 1 the real exchange rate is a random walk 2 the time series properties of the real exchange rate depend on the nominal exchange rate regime this paper presents evidence that indicates that the random walk behavior of the real exchange rate is only a characteristic of the post world war ii period moreover our findings also suggest that what is crucial to the real exchange rate behavior is the particular historical period rather than the nominal exchange rate arrangement

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

sensitivity of natural gas deployment in the us power sector to future carbon policy expectations abstract one option for reducing carbon emissions in the power sector is replacement of coal fired generation with less carbon intensive natural gas combined cycle ngcc generation in the united states where there is abundant low cost natural gas supply increased ngcc deployment could be a cost effective emissions abatement opportunity at relatively modest carbon prices however under scenarios in which carbon prices rise and deeper emissions reductions are achieved other technologies may be more cost effective than ngcc in the future in this analysis using a us energy system model with foresight a version of the national energy modeling system or nems model we find that varying expectations about carbon prices after 2030 does not materially affect ngcc deployment prior to 2030 all else equal an important implication of this result is that under the set of natural gas and carbon price trajectories explored here myopic behavior or other imperfect expectations about potential future carbon policy do not change the natural gas deployment path or lead to stranded natural gas generation infrastructure we explain these results in terms of the underlying economic competition between available generation technologies and discuss the broader relevance to us climate change mitigation policy

propagation mechanisms for government spending shocks a bayesian comparison the inability of a simple real business cycle model to predict a rise in consumption in response to increased government expenditures observed in many empirical studies has stimulated the development of alternative theories of government spending shocks using the bayesian approach we evaluate the quantitative performance of five extant models and find that neither of the considered transmission mechanisms for government spending helps improve the fit of the baseline model moreover we find that consumption decreases in all estimated models in response to a rise in government spending

can public spending boost private consumption this paper analyses the effects on private consumption from an increase in productive and unproductive public spending a new keynesian model incorporating price and wage rigidities monetary policy and various fiscal rules is developed and estimated using bayesian techniques to capture the key cyclical characteristics of the us economy we find that price and wage rigidities along with a positive shock to the part of public spending that is productive are suficient to boost private consumption moreover we show that this initial positive reaction of private consumption is adequate to create a positive present value consumption multiplier for more than five years finally we show that our main results remain robust to changes in the monetary rule and the various methods of deficit financing

electric sector capacity planning under uncertainty climate policy and natural gas in the us abstract this research investigates the dynamics of capacity planning and dispatch in the us electric power sector under a range of technological economic and policy related uncertainties using a two stage stochastic programming approach model results suggest that the two most critical risks in the near term planning process of the uncertainties considered here are natural gas prices and the stringency of climate policy stochastic strategies indicate that some near term hedging from lower cost wind and nuclear may occur but robustly demonstrate that delaying investment and waiting for more information can be optimal to avoid stranding capital intensive assets hedging strategies protect against downside losses while retaining the option value of deferring irreversible commitments until more information is available about potentially lucrative market opportunities these results are explained in terms of the optionality of investments in the electric power sector leading to more general insights about uncertainty learning and irreversibility the stochastic solution is especially valuable if decision makers do not sufficiently account for the potential of climate constraints in future decades or if fuel price projections are outdated

shale gas the unfolding story in the early 2000s us gas production was in slow but steady decline despite increasing drilling activity as us natural gas prices rose in response to the resulting tight market the only supply side solution appeared to lie in the development of liquefied natural gas lng projects in the middle east and africa for importation to the north american market almost unnoticed in its early stages the us shale gas phenomenon gathered momentum from 2004 onwards through the combination and application of two proven technologies namely horizontal drilling and pressure induced hydraulic fracturing or fracking the pioneers of this approach were not the majors but the much smaller domestically focused independent upstream companies who together with a well established and adaptable service sector instigated what is now commonly referred to as the shale gas boom and which has increased us natural gas production to the point where only minimal imports of lng are expected to be required for the foreseeable future this paper looks at the genesis of the us shale gas industry the intensive nature of its operations and the factors which have underpinned its success to date it also addresses the question of whether similar developments might be expected in europe and what specific challenges would need to be overcome in a world where increased lng supply has created trade flow and price linkages between regional gas markets the paper also examines the impact us shale production has had on other markets through the re direction of lng originally intended for the us market

natural gas uncertainty and climate policy in the us electric power sector abstract this paper investigates how uncertainties related to natural gas prices and potential climate policies may influence capacity investments utilization and emissions in us electricity markets using a two stage stochastic programming approach model results suggest that climate policies are stronger drivers of greenhouse gas emission trajectories than new natural gas supplies the dynamics of learning and irreversibility may give rise to an investment climate where strategic delay is optimal hedging strategies are shown to be sensitive to the specification of probability distributions for climate policy and natural gas prices highlighting the important role of uncertainty quantification in future research the paper also illustrates how this stochastic modeling framework could be used to quantify the value of limiting methane emissions from natural gas production

on the mean reverting properties of target zone exchange rates one key prediction of the target zone model is that the exchange rate should be mean reverting within the band although this property is widely referred to in the target zone literature little work has been done to test it in this paper we seek to remedy this important lacuna in the literature by examining the time series properties of the seven currencies participating in the exchange rate mechanism erm of the european monetary system for the period 13 march 1979 to 9 april 1992 using standard univariate unit root tests we find little evidence of mean reversion however using variance ratio test statistics which control for heterogeneity in the distribution of exchange rate behaviour we find much more evidence of mean reversion another part of our work includes implementing a panel unit root test

fiscal spending shocks endogenous government spending and real business cycles abstract we analyze a real business cycle model in which the government optimally chooses public investment and nonmilitary current expenditures to maximize the welfare of the representative private agent we characterize the optimal response of endogenous spending to shocks to technology and to military expenditures comovements between the components of government spending and other macroeconomic aggregates predicted by the model are compared with the corresponding comovements in the u s data the model captures the qualitative features of the relative volatilities of the components of government spending quite well but predicts too high correlations between the components of government spending and output