capital accumulation sectoral heterogeneity and the taylor principle abstract in the presence of capital accumulation the taylor principle may not be sufficient for determinacy under reasonable parameter values in this paper i consider a two sector extension of the models used in the existing literature i show that what matters for whether the taylor principle is sufficient is the price stickiness of investment goods price stickiness of consumer goods on the other hand matters very little the taylor principle is sufficient i find unless there is considerable price stickiness in the investment goods sector

the case of co firing the market level effects of subsidizing biomass co combustion abstract biomass combustion in co firing power plants has been treated differently in renewable electricity promoting policy schemes some policy schemes subsidize biomass co combustion while some do not in this study we analyze the impacts of a policy choice on the fuel uses investment decisions co 2 emissions and on the values of renewable electricity promoting policy instruments in particular we look at the impacts of feed in tariff and a subsidy to renewable energy both together with co 2 emissions price we present an electricity and heat market model where all the solid fossil fuel power plants are able to co fire biomass and fossil fuel in the numerical application the model is used to analyze the differences caused by the policy instruments the results show that subsidizing biomass combustion in a co firing power plant decreases the investments in pure renewable technology however the use of solid fossil fuels is not increased significantly also the co 2 intensity levels of electricity production are nearly equal whether biomass co combustion is subsidized or not

optimal monetary policy responses to relative price changes abstract an optimizing model with a flexible price sector and a sticky price sector is presented to analyze the effects of relative price changes on inflation fluctuations the relative price of the flexible price good represents a shift parameter of the new keynesian phillips curve the optimal monetary policy is to target sticky price inflation rather than a broad inflation measure although stabilizing the relative price around its efficient value is one of the appropriate goals of the central bank stabilizing sticky price inflation is sufficient for achieving this goal an optimal monetary policy for a small open economy is also discussed

evaluating the impact of three incentive programs on the economics of cofiring willow biomass with coal in new york state abstract plantations of fast growing willow shrubs are being promoted as a source quality biomass feedstock for bioenergy and bioproducts in new york state ny in the near term cofiring of the feedstock in combination with other woody biomass with coal in existing utility power boilers is considered to be the most promising conversion method for energy generation despite the clear technological viability and associated environmental benefits cofiring of willow has not been widely adopted the relatively high production cost of the willow feedstock which is over twice that of coal is the primary reason for this lack of interest taxes that account for some of the social costs of using coal and or incentives that appropriate value for some of the social benefits of using willow are essential for eliminating most or the entire current price differential this paper presents an integrated analysis of the economics of power generation from cofiring willow biomass feedstock with coal from the perspective of the grower aggregator and the power plant emphasis is placed on analyzing the relative impact of a green premium price a closed loop biomass tax credit and payments to growers under the proposed conservation reserve program crp harvesting exemption policy the crp payments reduced the delivered cost of willow by 36 35 to 1 90 gj 1 and 1 70 gj 1 under current and increased yield conditions respectively these prices are still high relative to coal other incentives are required to ensure commercial viability the required levels of green premium price 0 4 1 0 cents kwh 1 and biomass tax credit 0 75 2 4 cents kwh 1 vary depending on whether the incentives were being applied by themselves or in combination and whether current yield or potential increased yields were being considered in the near term cofiring willow biomass and coal can be an economically viable option for power generation in ny if the expected overall beneficial effects associated with the production and use of the biomass is accounted for

timing and real indeterminacy in monetary models an increasingly common approach to the theoretical analysis of monetary policy is to ensure that a proposed policy does not introduce real indeterminacy and thus sunspot fluctuations into the model economy policy is typically conducted in terms of directives for the nominal interest rate this paper uses a discrete time money in the utility function model to demonstrate how seemingly minor modifications in the trading environment result in dramatic differences in the policy restrictions needed to ensure real determinacy these differences arise because of the differing pricing equations for the nominal interest rate

optimal monetary policy in a currency area abstract this paper investigates how monetary policy should be conducted in a two region general equilibrium model with monopolistic competition and price stickiness this framework delivers a simple welfare criterion based on the utility of the consumers that can be used to evaluate monetary policy in a currency area if the two regions share the same degree of nominal rigidity the terms of trade are completely insulated from monetary policy and the optimal outcome is obtained by targeting a weighted average of the regional inflation rates these weights coincide with the economic sizes of the region if the degrees of rigidity are different the optimal plan implies a high degree of inertia in the inflation rate but an inflation targeting policy in which higher weight is given to the inflation in the region with higher degree of nominal rigidity is nearly optimal

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

a dynamic analysis of interfuel substitution for swedish heating plants abstract this paper estimates a dynamic model of interfuel substitution for swedish heating plants we use the cost share linear logit model developed by considine and mount considine t j mount t d 1984 the use of linear logit models for dynamic input demand systems review of economics and statistics 66 434 443 all estimated own price elasticities are negative and all cross price elasticities are positive the estimated dynamic adjustment rate parameter is small however increasing with the size of the plant and time indicating fast adjustments in the fuel mix when changing relative fuel prices the estimated model is used to illustrate the effects of two different policy changes

the danish green certificate system some simple analytical results we formulate a simple static equilibrium model for the electricity market taking account of both green certificates and co2 emission permits the objective is to investigate the relationship between these markets under the existence of upper and lower price bounds on the green certificates both in the short and in the long run we perform various comparative static changes of the parameters of the model and study how these affect the endogenous variables of the model as well as producers and consumers surplus we also investigate the effects of imports and exports of electricity several comparative static results are derived and in particular it is shown that harsher co2 emission constraints and increased import wholesale price both may lead to reduced capacity of green electricity

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

does the reserve bank of australia follow a forward looking nonlinear monetary policy rule abstractthe conventional monetary policy rule describes a simple linear relationship between the domestic interest rate inflation rate and output gap an important extension to this rule is to inc

new keynesian economics and the phillips curve models with sticky prices are an important part of new keynesian economics the author shows that several of the new keynesian models imply a formulation that is similar to the expectations augmented phillips curve of milton friedman and edmund phelps he then presents new estimates of the new keynesian phillips curve the author uses two proxies for price expectations survey based measures and an econometric based measure originally developed by bennett mccallum 1976 overall the results are consistent with the model but the survey based results are more precise suggesting that the surveys may be better measures of actual expectations copyright 1995 by ohio state university press

a new keynesian model with staggered price and wage setting under learning abstract this paper provides a study of the implications for economic dynamics when the central bank sets its nominal interest rate target in response to variations in wage inflation i provide results on the existence uniqueness and stability under learning of rational expectations equilibrium for alternative specifications of the manner in which monetary policy responds to economic shocks when nominal rigidities are present monopolistically competitive producers set prices via staggered price contracts and households set nominal wages in the same fashion in this setting the conditions for determinacy and learnability of rational expectations equilibrium differ from a model where only prices are sticky i find that when the central bank responds to wage and price inflation and to the output gap a taylor principle for wage and price inflation arises that is related to stability under learning dynamics in other words a moderate reaction of the interest rate to wage inflation helps to avoid instability under learning and indeterminacy

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

contract length heterogeneity and the persistence of monetary shocks in a dynamic generalized taylor economy we develop the generalized taylor economy gte in which there are many sectors with overlapping contracts of different lengths in economies with the same average contract length monetary shocks will be more persistent when longer contracts are present using the bils klenow distribution of contract lengths we find that the corresponding gte tracks the u s data well when we choose a gte with the same distribution of completed contract lengths as the calvo the economies behave in a similar manner

adaptive expectations and perfect foresight in a nonlinear metzlerian model of the inventory cycle it has long been known that the motions of aggregate inventory investment are an important facet of the business cycle see e g blinder and maccini 1991 some elementary insights into the dynamic feedback effects between inventories production and sales were provided by metzler 1941 in a small theoretical model the present note adopts his framework but seeks to overcome the limitation of its linear specifications our basic idea corresponds to the concept of a flexible inventory accelerator while metzler postulated that desired inventory investment in discrete time is equal to the gap between desired and actual stocks of inventories some later studies have introduced a constant proportionality factor for the adjustment of inventories here we go one step further and hypothesize a variable stock adjustment speed as it turns out fast adjustments in a vicinity of the stationary equilibrium cause local instability but if for

investments into forest biorefineries under different price and policy structures abstract increasing scarcity of oil reserves and the high co2 emissions from using oil have contributed to the development of renewable biofuels pulp and paper mill integrated forest biorefineries offer one important means to increase biofuel production this study analyzes the effects of policies to support biofuel production in the pulp and paper sector we study the relative effectiveness of three biofuel supporting policy instruments namely production subsidy input subsidy and investment subsidy we present a partial equilibrium pulp and paper market model with a biorefinery investment option a numerical model is used to evaluate the impacts of policy instruments on wood prices as well as input choices and investment strategies of pulp and paper industries the data represent the finnish pulp and paper sector we evaluate the values and direct costs of the policy instruments in a situation of exogenous biofuel production targets the direct costs of input and investment subsidies are higher than those of a production subsidy with all the policy instruments finnish pulp and paper mills would invest in wood gasifying technology instead of black liquor based one the number of biorefinery units is dependent on the subsidy type investment and input subsidies are likely to result in more numerous but smaller biofuel production units than a production subsidy with all the policy instruments the demand for wood increases in finland leading to higher wood prices this in turn could reflect negatively on the profitability of the pulp and paper industries to a significant degree the model and the results can be generalized to other countries and markets where integrated pulp and paper mills are operating

limited asset markets participation monetary policy and inverted aggregate demand logic abstract this paper incorporates limited asset markets participation in dynamic general equilibrium and develops a simple analytical framework for monetary policy analysis aggregate dynamics and stability properties of an otherwise standard business cycle model depend nonlinearly on the degree of asset market participation while moderate participation rates strengthen the role of monetary policy low enough participation causes an inversion of results dictated by conventional wisdom the slope of the is curve changes sign the taylor principle is inverted optimal welfare maximizing discretionary monetary policy requires a passive policy rule and the effects and propagation of shocks are changed however a targeting rule implementing optimal policy under commitment delivers equilibrium determinacy regardless of the degree of asset market participation our results may justify fed s behavior during the great inflation period

heat or power how to increase the use of energy wood at the lowest cost abstract we compute the optimal subsidy level for fuelwood consumption that makes it possible to achieve the french biomass energy consumption target for this purpose we model the competition and trade offs between the consumption of fuelwood for heat fw h and the consumption of fuelwood for electricity fw e to do so we couple a forest sector model with an electricity simulation model and we test different scenarios combining fw h and fw e that account for contrasting potential increases in the carbon price and the potential reduction in the number of nuclear plants we assess the implications of these scenarios on 1 the budgetary costs for the government 2 industrial wood producers profits 3 cost savings in the power sector for the different scenarios tested and 4 the carbon balance we show that the scenario with the highest carbon price and the lowest number of nuclear plants is the least expensive from a budgetary perspective indeed when associated with a high carbon price co firing may increase fw e demand with a lower subsidy level which makes it possible to reduce the cost of reaching the target however in this case fw e crowds out part of fw h which may cause political and economic issues from a carbon balance perspective an fw h only scenario performs better than any other scenario that combines fw h and fw e due to the relatively low emissions factors of alternative technologies for electricity generation and in particular nuclear energy

the optimal rate of inflation with trending relative prices relative price trends mean that monetary policy cannot stabilize the nominal prices of all consumption categories if prices are sticky monetary policy must then trade off distortions within different categories more weight should be placed on stabilizing prices for which adjustment entails greater distortions with exogenous price stickiness a simple model calibrated to u s data implies that slight deflation is optimal even absent money demand considerations if price stickiness is endogenous because of fixed costs of adjustment small inflation or small deflation can be optimal depending on whether demand conditions or price adjustment costs vary across sectors

what is wrong with taylor rules using judgment in monetary policy through targeting rules it is argued that inflation targeting is best understood as a commitment to a targeting rule rather than an instrument rule e ither ageneral targeting rule explicit objectives for monetary policy or a specific targeting rule a criterion for the forecasts of the target variables to be fulfilled essentially the equality of the marginal rates of transformation and substitution between the target variables targeting rules allow the use of judgment and extramodel information are more robust and easier to verify than optimal instrument rules and they can nevertheless bring the economy close to the socially optimal equilibrium

monetary policy and indeterminacy after the 2001 slump abstract this paper estimates a simple new keynesian model of the u s economy allowing for indeterminacy over the period following the 2001 slump an episode for which the adequacy of monetary policy is intensely debated we find that only when measuring inflation with core pce does monetary policy appear to have been sufficiently active to rule out indeterminacy we then relax the assumption that inflation in the model is measured by a single indicator and re formulate the artificial economy as a factor model where the theory s concept of inflation is the common factor to the empirical inflation series cpi and pce provide better indicators of the latent concept while core pce is less informative finally we estimate an extended economy that distinguishes between core and headline inflation rates this model comfortably rules out indeterminacy and confirms the view that the federal reserve put more weight on core pce inflation when setting the policy rate during this period

the cofiring problem of a power plant under policy regulations cofiring of fossil and renewable fuels can contribute to reaching tightening climate and renewable energy goals the increase in biomass share in cofiring decreases the use of fossil fuel and increases renewable energy production we study how energy and climate policies promote that increase first we present and solve an electricity producer s profit maximization problem with detailed technical description of cofiring we then study the effectiveness of policy instruments e g feed in laws and emission trading on biomass utilization in cofiring the study offers a novel approach to explore the cofiring problem because of the endogenous fuel choice combined with the policy analysis we study two different power plants that are located in two different european electricity market areas our analysis shows that both feed in tariff and feed in premium can have unexpected weaknesses when they are introduced together with emission trading therefore decision makers should be well informed and cautious when introducing these policies

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