rationality of preliminary money stock estimates earlier studies have presented mixed evidence on the rationality of the federal reserve s preliminary money stock estimates the authors investigate the rationality of m1a m1 m2 and m3 for both seasonally and not seasonally adjusted data they find preliminary growth rates of these aggregates to be rational for not seasonally adjusted data but irrational when data are seasonally adjusted using monte carlo studies the authors conclude that irrationality in seasonally adjusted data arises from the specific seasonal adjustment procedure used by the federal reserve as a result researchers conducting similar tests may want to focus exclusively on not seasonally adjusted data copyright 1995 by mit press

the relation between price and marginal cost in u s industry a contradiction in a recent article in this journal hall 1988 examined productivity shocks at the industry level derived from constant returns to scale production functions in which firms were assumed to be competitive hall had two important conclusions first he showed that productivity shocks i e solow residuals were correlated with aggregate demand variables implying that the former are not exogenous impulses second his results implied that firms persistently charge prices above marginal costs making inappropriate the constant returns to scale competitive production function assumed in many theoretical frameworks because of the importance of hall s findings the article has led to many extensions evans 1992 confirms the empirical finding of significant correlations between productivity shocks and aggregate demand variables burnside eichenbaum and rebelo 1993 show that this correlation can be explained by introducing labor hoarding into a theoretical model with competitive firms and constant returns to scale production functions the markups above marginal cost are explained by eden and griliches 1991 and galeotti and schiantarelli 1991 by modifying the theoretical production function caballero and lyons 1992 using the hall data and methodology examine the possibility of external economies in the aggregate manufacturing production finally waldmann 199 1 argues in this journal that the

why does the combination of the european union emissions trading scheme and a renewable energy target makes economic sense abstract the european climate and energy mix of targets and policies has been criticised by many economists in particular it is often argued that the renewable energy targets do not make economic sense because they represent an expensive option to reduce co2 emissions within a cap and trade scheme such as the european union emissions trading scheme eu ets in addition it has also been claimed that support for renewable electricity deployment negatively interacts with the eu ets having a dampening effect on the co2 price which favours the dirtiest technologies and is detrimental for the greener ones in this article we argue that this mainstream economic view is short sighted and that a multidisciplinary economic analysis of the climate and energy policy mix is required mainstream economic analysis is based on a narrow approach for the assessment of instrument combinations and neglects relevant insights from several economic disciplines including innovation economics and political economy approaches in reality economic theory supports the combination of an ets and renewable energy targets the existence of different policy goals and market failures the demand pull influence of renewable energy policies on innovation a political economy approach and the different risk exposure of renewable energy technologies call for a policy mix although policy combinations are not a panacea and bring problems on their own the aforementioned negative interaction between renewable energy deployment and the carbon price in the eu ets can be mitigated through appropriate coordination and or instrument choice and design

predicting early data revisions to u s gdp and the effects of releases on equity markets the effects of data uncertainty on real time decision making can be reduced by predicting data revisions to u s gdp growth we show that survey forecasts efficiently predict the revision implicit in the second estimate of gdp growth but that forecasting models incorporating monthly economic indicators and daily equity returns provide superior forecasts of the data revision implied by the release of the third estimate we use forecasting models to measure the impact of surprises in gdp announcements on equity markets and to analyze the effects of anticipated future revisions on announcement day returns we show that the publication of better than expected third release gdp figures provides a boost to equity markets and if future upward revisions are expected the effects are enhanced during recessions

pricing in a customer market in standard pricing models movements in demand are partially offset by price responses in a customer market however price markups may decrease with high demand thus price may magnify rather than stabilize demand movements i consider a monopolist selling a good of which first time consumers are uncertain repeat customers know that the product works the monopolist trades the objectives of exploiting past customers and attracting new ones in a period with many new potential customers the monopolist gives more weight to attracting and lowers its markup last i examine some evidence on whether expansions are periods with disproportionately many new customers

interactions of factors impacting implementation and sustainability of renewable energy sourced electricity abstract two renewable energy sourced electricity res e technologies are at the forefront of the current energy transition away from fossil fuels wind and solar photovoltaic however res e must overcome implementation and sustainability challenges from factors identified in economic policy societal technological and environmental dimensions res e diffusion is also a complex problem and this critical review suggests that outcomes depend on interdependencies between factors within a single or across multiple dimensions four categories of interactivity have been identified higher capital costs or market inequalities associated with the economic dimension of res e drive supportive policies or incentives in the policy dimension in the policy policy category interactions between res e demand or supply side incentives influence electricity pricing energy market mixes or greenhouse gases emissions the society technology category examines societal technological interactions at both micro and macro scales the environment technology category details interactions between res e and the environment the technology technology category examines synergies between res e when collocated with conventional electricity generation technologies this review identified several knowledge gaps first research on res e implementation lacks system level analyses on the impact of interactions on project outcomes a well developed line of research examines interactions between multiple simultaneous supportive policies on res e implementation in developed nations however a second gap exists on the understanding of these interactions in developing nations a third gap exists on evaluating the impact of technological lock in this includes the impact on res e implementation rates when the complex economic policy governance and societal factors implicated in lock in are removed

inventory behavior with permanent sales shocks abstract empirically adf tests fail to reject the null hypothesis that sales are i 1 we build a model of inventory behavior that incorporates permanent sales shocks analytically the model with i 1 sales implies that the variance ratio of log production to log sales is one in the long run regardless of the strength of production smoothing stockout avoidance or cost shocks but that at business cycle horizons the conditional variance ratio conditional on past production and sales is greater than one we explain analytically using our model and intuitively four traditional inventory puzzles and three puzzles about inventories and monetary policy

markups aggregation and inventory adjustment in this paper i suggest a unified explanation for two puzzles in the inventory literature first estimates of inventory speeds of adjustment in aggregate data are very small relative to the apparent rapid reaction of stocks to unanticipated variations in sales second estimates of inventory speeds of adjustment in firm level data are significantly higher than in aggregate data the paper develops a multisector model where inventories are held to avoid stockouts and price markups vary along the business cycle the omission of countercyclical markup variations from inventory targets introduces a downward bias in estimates of adjustment speeds obtained from partial adjustment models when the cyclicality of markups differs across sectors this downward bias is shown to be more severe with aggregate rather than firm level data similar results apply not only to inventories but also to labor and prices montercarlo simulations of a calibrated version of the model suggest that these biases are quantitatively significant

improving real time estimates of output and inflation gaps with multiple vintage models real time estimates of output gaps and inflation gaps differ from the values that are obtained using data available long after the event part of the problem is that the data on which the real time estimates are based is subsequently revised we show that vector autoregressive models of data vintages provide forecasts of post revision values of future observations and of already released observations capable of improving estimates of output and inflation gaps in real time our findings indicate that annual revisions to output and inflation data are in part predictable based on their past vintages this article has online supplementary materials

gains from an integrated market for tradable renewable energy credits abstract decoupling the environmental attributes of renewable energy re generation from the physical unit of energy is an innovative mechanism for marketing green or renewable power the introduction of tradable renewable energy credits trecs allows the green power attributes of energy to be sold or traded separately from the physical unit of energy since the green power certificate system removes potential locational and physical bottlenecks both suppliers and consumers gain flexibility in the marketplace the trec is also an efficient tool to meet renewable portfolio standard rps required by different states in the us this paper discusses the rps requirements for different states and examines the implications of an integrated trec market it offers a competitive setting to the consumers to pay for renewable energy and a cost effective tool to support renewable energy generation grace and wiser 2002 this paper also highlights some practical difficulties that should be addressed in order to establish an efficient integrated trec market

understanding the inventory cycle abstract careful examination of aggregate data from the u s and other oecd countries reveals that production and inventory behavior exhibit paradoxical features 1 inventory investment is strongly countercyclical at very high frequencies e g 2 3 quarters per cycle it is procyclical only at relatively low cyclical frequencies such as the business cycle frequencies e g 8 40 quarters per cycle 2 production is less volatile than sales around the high frequencies it is more volatile than sales only around business cycle or lower frequencies 3 unlike capital investment or gdp the bulk of the variance of inventory investment is concentrated around high frequencies rather than around business cycle frequencies these features of production and inventory behavior at the low and high frequencies provide a litmus test for inventory theories this paper shows that the stockout avoidance theory kahn j 1987 inventories and the volatility of production american economic review 77 667 679 has much better potential than other competing theories for explaining the seemingly paradoxical features of inventory fluctuations observed at different cyclical frequencies my analysis suggests that demand shocks are the main source of the business cycle

simulating the inventory cycle abstract simulations of the inventory cycle utilizing a model based on 84 interacting firms in 21 industries reveals that the ratio of the variance of sales to the variance of output is an unreliable indicator of how seriously firms attempt to smooth production or whether such efforts in the aggregate even out economic fluctuations it is also shown that the two slow estimates of the speed of adjustment reported in many econometric studies of united states data may result in part from aggregation bias rather than from limitations of the flexible accelerator model itself

input and output inventories in the uk what is the role of inventories in uk manufacturing we present and estimate a model of inventories that considers separately finished goods and input i e the sum of raw materials and work in process inventories our results suggest that both types of inventories are used for production level and production cost smoothing we identify a small but significant negative relationship between inventories and the real interest rate thus providing support for one of the textbook channels of the monetary policy transmission mechanism variance decompositions indicate that technology shocks are the dominant driving factor behind cyclical changes in inventories

redefining recs part 2 untangling certificates and emission markets abstract renewable energy and greenhouse gas emissions markets are currently in a state of confusion regarding the treatment of renewable energy certificate recs how should emission trading schemes treat recs how can emission mitigation policies provide real incentives for renewable generation the objective of rec markets should be to promote additional renewable energy investments the author asserts that defining recs in terms of attributes especially off site attributes does not further this goal ambiguous language such as environmental attribute or environmental benefit creates confusion in the marketplace while failing to address the relevant coordination issues with renewable portfolio standard compliance markets voluntary emission offset markets or emission cap and trade markets specifically defining recs in terms of off site attributes creates a number of problems including that once an emissions cap and trade scheme is in place such definitions of a rec can become indefensible the author proposes to redefine recs in terms of on site attributes which resolves the aforementioned problems and allows compliance and voluntary renewable energy and emission markets to function without conflicts ideally environmental commodities should be homogeneous first best measures of the relevant environmental good as well as easily measured and verified the author proposes tradable environmental commodities that achieve these characteristics

redistribution effects of energy and climate policy the electricity market abstract energy and climate policies are usually seen as measures to internalize externalities however as a side effect the introduction of these policies redistributes wealth between consumers and producers and within these groups while redistribution is seldom the focus of the academic literature in energy economics it plays a central role in public debates and policy decisions this paper compares the distributional effects of two major electricity policies support schemes for renewable energy sources and co2 pricing we find that the redistribution effects of both policies are large and they work in opposed directions while renewables support transfers wealth from producers to consumers carbon pricing does the opposite more specifically we show that moderate amounts of wind subsidies can increase consumer surplus even if consumers bear the subsidy costs co2 pricing in contrast increases aggregated producer surplus even without free allocation of emission allowances however not all types of producers benefit these findings are derived from an analytical model of electricity markets and a calibrated numerical model of northwestern europe our findings imply that if policy makers want to avoid large redistribution they might prefer a mix of policies even if co2 pricing alone is the first best climate policy in terms of allocative efficiency

taking stock a critical assessment of recent research on inventories empirical and theoretical aspects of inventory behavior became hot topics in the 1950s and early 1960s no one seemed to notice the tension that was developing between the emerging macroeconomic and microeconomic views of inventories macroeconomists routinely thought of inventories as a destabilizing factor yet the prevailing micro theory viewed inventories as a stabilizing factor it was a fascinating question that was barely explored instead somewhat inexplicably interest in inventories dried up as if inventories were of minor economic significance and little intrinsic interest by the early 1980s then economists once again knew something they had known in the 1950s that inventory investment is of first order importance in business cycles but they were also beginning to realize that the standard production smoothing buffer stock model of inventories was in deep trouble this paper focuses on developments since that realization

why is production more volatile than sales theory and evidence on the stockout avoidance motive for inventory holding this paper argues that the macroeconomically interesting features of inventory behavior are well captured by a model in which firms face only demand uncertainty with a nonnegativity constraint on inventories empirical implications of the stockout avoidance model of inventory behavior are derived and then tested on disaggregated automobile industry data the results largely support the model though they suggest a small role for production smoothing as well subsidiary evidence on the relative variance of demand and cost shocks suggests that demand shocks are indeed more important

oligopoly supergames some empirical evidence on prices and margins this paper is a panel data study on the behavior of prices and margins of oligopolies involved in repeated games the authors examine two supergame models which generate very different predictions about the cyclical behavior of prices and margins evidence on the levels of price cost margins indicates that oligopolies achieve equilibria that more closely resemble a one shot cournot nash outcome than monopoly the authors find however that industries with high price cost margins exhibit cyclical price behavior which is quite different from that of unconcentrated industries little evidence of price wars during either recessions or booms is found copyright 1987 by blackwell publishing ltd

data revisions are not well behaved we document the empirical properties of revisions to major macroeconomic variables in the united states our findings suggest that they do not satisfy simple desirable statistical properties in particular we find that these revisions do not have a zero mean which indicates that the initial announcements by statistical agencies are biased we also find that the revisions are quite large compared to the original variables and they are predictable using the information set at the time of the initial announcement which means that the initial announcements of statistical agencies are not rational forecasts

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

implications of carbon cap and trade for us voluntary renewable energy markets many consumers today are purchasing renewable energy in large part for the greenhouse gas ghg emissions benefits that they provide emerging carbon regulation in the us has the potential to affect existing markets for renewable energy carbon cap and trade programs are now under development in the northeast under the regional greenhouse gas initiative rggi and in early stages of development in the west and midwest there is increasing discussion about carbon regulation at the national level as well while renewable energy will likely benefit from carbon cap and trade programs because compliance with the cap will increase the costs of fossil fuel generation cap and trade programs can also impact the ability of renewable energy generation to affect overall co2 emissions levels and obtain value for those emissions benefits this paper summarizes key issues for renewable energy markets that are emerging with carbon regulation such as the implications for emissions benefits claims and voluntary market demand and the use of renewable energy certificates recs in multiple markets it also explores policy options under consideration for designing carbon policies to enable carbon markets and renewable energy markets to work together published by elsevier ltd

some empirical evidence on the production level and production cost smoothing models of inventory investment the production smoothing model of inventories has long been the basic paradigm within which empirical research on inventories has been conducted the basic hypothesis embedded in this model is that inventories of finished goods serve primarily to smooth production levels in the face of fluctuating demand and convex cost functions however once we allow for shocks to technology and the costs of producing output firms will also use inventories to shift production from periods in which production costs are relatively high to periods in which production costs are relatively low in this sense inventories can serve to smooth production costs rather production levels in this paper we examine the empirical plausibility of the production level and production cost smoothing models of inventories our basic strategy is to derive and contrast a set of unconditional moment restrictions implied by these models in a way that minimizes the role of auxiliary assumptions regarding market structure and industry demand we find overwhelming evidence against the production level smoothing model and very little evidence against the production cost smoothing mode1 we conclude that the variance of production exceeds the variance of sales in most manufacturing industries because the production cost smoothing role of inventories is quantitatively more important than the production level smoothing role of inventories this abstract was borrowed from another version of this item

are preliminary announcements of the money stock rational forecasts abstract we develop a theoretical framework of analyzing preliminary announcements of economic data and then apply this framework to the money stock we find that preliminary announcements of the money stock are best characterized as measured with classical errors in variables that is the revision is not correlated with the true value of the series the revision is however forecastable using information available at the time of the preliminary announcement our ability to forecast the revision implies that preliminary announcements are not rational estimates of the true money stock

monopolistic competition business cycles and the composition of aggregate demand abstract we develop a dynamic general equilibrium model with monopolistically competitive firms and endogenous markups and show the possibility of equilibria with persistent fluctuations driven by self fulfilling revisions of expectations for some parameter values such fluctuations are characterized by time series properties similar to those observed in u s postwar business cycles in contrast with the existing literature our results do not rely on the presence of increasing returns or nominal rigidities a key ingredient of the model is the link between markups and the composition of aggregate demand some econometric evidence on the latter is also reported journal of economic literature classification number d43 d58 e32

market perceptions and inventory price employment plans ordered probit analyses of national federation of independent business survey data show that individual firms generally conform to the stock adjustment model of inventory investment with the predicted response more likely when inventories are perceived as excessive than when deficient contrary to inferences about slow adjustment speeds from aggregate data inventory adjustments by individual firms do not tend to take more than three months to complete there is no evidence that price is used to achieve desired inventory targets but prices are sticky in that changes set in motion one quarter tend to continue into the next quarter copyright 1989 by mit press

a review on promoting share of renewable energy by green trading mechanisms in power system abstract in order to promote the development of renewable energy power generation many countries have issued corresponding policies meanwhile some green trading mechanisms have been implemented in power industry and this paper has mainly presented a review on promoting share of renewable energy by green trading mechanisms in power system with a focus on promotion effects of three mechanisms feed in tariff renewable portfolio standard and emission trading scheme apart from a review summaries comparisons and an outlook for future study are also presented our review suggests that feed in tariff and renewable portfolio standard can effectively increase the share of renewable energy power and lead to renewable resource diversity in addition emission trading also provides stimulus for development of renewable energy besides mitigation of carbon emission

decarbonizing europe s power sector by 2050 analyzing the economic implications of alternative decarbonization pathways abstract the european union aims to reduce greenhouse gas emissions by 80 95 in 2050 compared to 1990 levels the transition towards a low carbon economy implies the almost complete decarbonization of europe s power sector which could be achieved along various pathways in this paper we evaluate the economic implications of alternative energy policies for europe s power sector by applying a linear dynamic electricity system optimization model in over 36 scenarios we find that the costs of decarbonizing europe s power sector by 2050 vary between 139 and 633 bn 2010 which corresponds to an increase of between 11 and 44 compared to the total system costs when no co2 reduction targets are implemented in line with economic theory the decarbonization of europe s power sector is achieved at minimal costs under a stand alone co2 reduction target which ensures competition between all low carbon technologies if however renewable energies are exempted from competition via supplementary renewable energy res e targets or if investments in new nuclear and ccs power plants are politically restricted the costs of decarbonization significantly rise moreover we find that the excess costs of supplementary res e targets depend on the acceptance of alternative low carbon technologies for example given a complete nuclear phase out in europe by 2050 and politically implemented restrictions on the application of ccs to conventional power plants supplementary res e targets are redundant while in such a scenario the overall costs of decarbonization are comparatively high the excess costs of supplementary res e targets are close to zero

inventories as factors of production and economic fluctuations this paper presents a theory of inventory investment by stage of processing and uses it to examine the role of inventory investment in economic fluctuations the model in which inventories are treated as factors of production is estimated for four durable goods industries three conclusions emerge from the estimation first the estimates generally satisfy the theoretical restrictions second the elasticity of inventory demand with respect to output is high indicating an important accelerator effect finally the estimates suggest that shifts in the demand for inventories are an important source of economic fluctuations copyright 1989 by american economic association

some implications of investment cost reduction policies in energy markets employing green certificate systems around the world green certificate systems are widely employed as support mechanisms for the promotion of renewable energy production due to large initial capital costs for renewable energy projects investment cost reduction policies are often employed by policy makers as complementary support measures in this note we study some implications of the use of investment cost reduction policies in an energy market operated under a green certificate system we demonstrate that paradoxically use of or intensification of investment cost reduction policies results in increased emissions from fossil fuel black producers welfare effects depend on the distribution of costs and benefits to the relevant interest groups however if the policy objective requires maintaining a constant level of emissions investment cost mitigation must be accompanied by a simultaneous upward adjustment in the renewables target

nonconvex costs and the behavior of inventories this paper explores one possible explanation for the apparent excess volatility of production relative to sales nonconvexities in the technology facing firms it is shown that if firms operate in a region of declining marginal costs then small shifts in demand can cause production to jump substantially estimates for six production to stock industries as well as the automobile industry suggest that all these industries behave as if they were operating in the region of nonconvex costs the results have important implications not only for inventory investment but also for the cyclical behavior of productivity and prices

rational expectations and the smoothing properties of inventories of finished goods abstract this paper formulates and estimates a dynamic rational expectations equilibrium model of inventories of finished goods and employment of labor the view that the primary role of inventories of finished goods is to act as a buffer stock in the face of fluctuating demand is examined both the model and estimation results indicate that this is the case because of differences in the costs involved for firms in changing their inventory stocks and labor force in addition to providing some new evidence on the behavior of inventories of finished goods and employment the paper illustrates a technology for maximum likelihood estimation of structural parameters under the hypothesis of rational expectations

interactions between the power and green certificate markets abstract the current trend of liberalising the power markets is combined with ambitious deployment plans for power production based on renewable energy supplies a new policy scheme to ensure this extension has been developed in the form of a green certificate system with a politically determined target of deployment in such a system producers of renewably based electricity receive tradable certificates in proportion to the electricity they produce the producer can thereby sell these certificates and receive additional revenue apart from the power price this paper studies the price and consumption effects of such a system with a simple model we show that the effects are ambiguous this ambiguity is caused by the interaction between the two markets therefore the green certificate system is difficult to manage if the state has parallel energy targets such as a desired deployment of renewably based energy and a stabilisation or reduction of the energy consumption in addition this complicates the regulation through a deployment target of renewably based power production as the regulator has to be aware of the different effects which follow a specific target until now these effects have not been considered in the analyses of the green certificate system when introducing the system even though it might have considerable consequences for the success of the system

impacts of a common green certificate market on electricity and co2 emission markets in the nordic countries abstract the purpose of this study is to analyze the effects of introducing a common nordic system for tradable green certificates tgcs on the electricity market and a future market for tradable co 2 emission permits teps in the analysis the energy system model generator markal was used to model the electricity and district heating supply systems in the four nordic countries sweden norway finland and denmark it is shown that the introduction of tgc quotas reduces wholesale electricity and tep prices the impact on the latter is very pronounced retail electricity prices may become lower or higher depending on the tgc quota than if obligations to fulfill tgc quotas were absent the tgc scheme s efficiency in reducing a specific amount of co 2 emissions is also compared to the corresponding efficiency of a tep scheme involving a broader range of technologies furthermore obligations to fulfill tgc quotas affect investment incentives for new non renewable electricity supply this seems especially true for gas fired power plants finally it is indicated that electricity supply based on biomass combustion dominates the tgc scheme at least in the short run

balancing power and variable renewables three links abstract balancing power is used to quickly restore the supply demand balance in power systems the need for this tends to be increased by the use of variable renewable energy sources vre such as wind and solar power this paper reviews three channels through which vre and balancing systems interact the impact of vre forecast errors on balancing reserve requirements the supply of balancing services by vre generators and the incentives to improve forecasting provided by imbalance charges the paper reviews the literature provides stylized facts from german market data and suggests policy options surprisingly while german wind and solar capacity has tripled since 2008 balancing reserves have been reduced by 15 and costs by 50

inventories and the volatility of production a stylized fact associated with inventory behavior is that the variance of production exceeds the variance of sales this paper presents a model of production decisions with demand uncertainty that incorporates no nnegativity constraints on inventories even with no productivity shocks optimal behavior by the firm is consistent with this stylized fact either if demand exhibits positive serial correlation or if the firm can backlog excess demand the reason is that a demand shock affects both the actual inventory level given unchanged production and the desired level production must replenish the stock and adjust to the new desired level copyright 1987 by american economic association

the relation between price and marginal cost in u s industry an examination of data on output and labor input reveals that some u s industries have marginal cost well below price the conclusion rests on the finding that cyclical variations in labor input are small compared with variations in output in booms firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs the paper documents the disparity between price and marginal cost where marginal cost is estimated from annual variations in cost it considers a variety of explanations of the findings that are consistent with competition but none is found to be completely plausible

on the effectiveness of tradable performance based standards abstract two types of emission trading programs are allowed under the us federal clean power plan cpp mass based cap and trade c t program and the performance based trading program while a c t sets a total emission cap for a region a performance based program under cpp relies on trading the emission rate credits ercs which represent an equivalent mwh of energy generated or saved with zero associated co 2 emissions to reduce emission costs this paper examines the theoretical properties of the tradable performance based policy and compares it to a c t program we distinguish two kinds of tradable performance based policy 1 a regional policy under which all states are subject to a regional performance based standard and 2 a state by state policy under which each state adopts its performance based policy within a regional power market while trading of ercs is allowed our findings indicate that under a state by state policy power prices across states could be different even without any transmission congestion reflecting varying stringency of tradable performance based standards among states within an interconnected market we also identify a counterintuitive result that even if ercs trading is allowed under the state by state performance policy the permit prices could diverge two models are simulated in our analysis three state and the pennsylvania jersey maryland pjm regional power market while the three state example allows us to illustrate the theoretical properties of the policies the pjm based simulation allows us to gauge the performance of the policies our pjm analysis shows that a c t policy is the most effective while the comparison between a regional and state by state tradable performance policy is ambiguous

comprehensive effectiveness assessment of renewable energy generation policy a partial equilibrium analysis in china abstract in order to stimulate renewable energy and control carbon dioxide emissions the chinese government has already introduced lots of renewable energy generation policies under this background it is of great significant to figure out the economic environmental and social effectiveness of these polices firstly this paper systematically studied the framework and content of renewable energy generation policies secondly this paper built a basic partial equilibrium model to calculate the equilibrium state of electricity market and carbon emissions on this base the effectiveness of seven renewable energy generation policies was analyzed by introducing policies into the basic model and comparing relevant indicators in different policy scenarios with that in basic scenario further an empirical analysis was made to estimate the actual benefits of these policies in china this paper proposed an analysis method for evaluating the mechanism effectiveness and efficiency of renewable energy generation policies all the results and discussions in this paper can provide specific suggestions for chinese government to shape a blueprint for implementing different kinds of policies

the cyclical behavior of marginal cost and price the author examines the cyclical behavior of price marginal cost margins for u s manufac turing after 1956 short run marginal cost is markedly procyclical this is primarily due to procyclical overtime payments incurred beca use employment is not perfectly flexible in most industries output price fails to respond to the cyclical movement in marginal cost so price marginal cost margins are markedly countercyclical the res ults contradict business cycle theories that explain low production i n a recession by a high real cost of producing they support theories that explain low production in a recession by the inability of firms to sell their output copyright 1987 by american economic association

redefining recs part 1 untangling attributes and offsets abstract renewable energy and greenhouse gas emissions markets are currently in a state of confusion regarding the treatment of renewable energy certificates recs should consumers buy recs or emission offsets after examining this question the author concludes that recs are not equivalent to emission offset credits and as currently defined the retiring of a rec may have no impact on emissions from electric power generation consumers who purchase recs in voluntary green power markets are providing financial assistance to renewable generators in the form of a production subsidy generators that sell recs are not transferring emission reductions since they are unlikely to have ownership or the ability to quantify reductions using a commonly accepted standard more importantly recs currently sold in voluntary markets do not pass credible additionality tests and can at best be expected to have a market demand effect which will be less than the supply of recs on the market rec definitions that use the term environmental attributes or environmental benefits are almost universally ambiguous providing the mistaken impression that consumers are purchasing a good instead of subsidizing a public good

investment in finished goods inventories an analysis of adjustment speeds it is well known that fluctuations in inventory investment are a major source of fluctuations in gross national product this has stimulated numerous empirical studies designed to understand the causes of changes in inventory investment these studies include those for example michael lovell that utilize a flexible accelerator model of inventory behavior as well as those for example david belsley that utilize the linear decision rule approach to optimal inventory holding the latter approach however can be interpreted in terms of a flexible accelerator model see j c r rowley and p k trivedi for a survey of the literature recently several authors for example martin feldstein and alan auerbach observed that these studies yield very implausible empirical results the basic difficulty is that the estimates of the speed with which firms close gaps between desired and actual inventory stocks are very low often the estimated speed of adjustment is less than 10 percent per quarter as feldstein and auerbach stress this is extremely implausible when even the largest swings in inventories in a given quarter amount to less than one day s production the purpose of this paper is to undertake an analysis of adjustment speeds for finished goods inventory investment in our empirical work we utilize a modified flexible accelerator model of inventory investment 1 like the conventional flexible accelerator the model permits firms to close a fraction of the gap between desired and actual inventories in any period the relevant fraction is of course the adjustment coefficient and it may vary in principle between zero and unity our model differs from the conventional model in assuming that the desired stock of finished goods inventories depends on the normal levels of exogenous variables that firms must forecast to make decisions on inventory holdings these include not only the normal level or orders or demand which is a standard explanatory variable in the empirical literature but also the normal levels of real factor input prices and real interest rates in addition we permit the normal levels to change relatively slowly in response to changes in past levels of orders real factor input prices and real interest rates our objective is to investigate whether the slow adjustment speeds that have been estimated in the literature are due to the use of models which contain an incomplete menu of exogenous variables to determine desired inventories and pay inadequate attention to lags in the adjustment of normal levels of exogenous variables

carbon mitigation in the electric power sector under cap and trade and renewables policies in europe co2 emissions from the electric power sector and energy intensive industries are capped under a cap and trade system i e the eu ets when other indirect measures are taken to impact emissions in a specific sector under the cap such as a push for renewables in the electric power sector this has implications on the overall allowance price and on co2 emissions both from this specific sector and the other sectors under the cap the central contribution of this paper is the derivation of impact curves which describe these interactions i e the impact on allowance price and the shift of emissions across sectors from a set of detailed simulations of the electric power system operation a so called emission plane is obtained from which impact curves can be derived focus is on interactions between co2 abatement through fuel switching and measures affecting the residual electricity demand such as deployment of renewables in the electric power sector as well as on interactions with other sectors both in a short term framework a case study for central western europe is presented the analysis reveals a substantial impact of renewables on co2 emissions and hence on emissions shifts across sectors and or on the co2 price

an oligopolistic power market model with tradable no sub x permits models formulated as complementarity problems have been applied previously to assess the potential for market power in transmission constrained electricity markets here we use the complementarity approach to simulate the interaction of pollution permit markets with electricity markets considering forward contracts and the operating reserve market because some power producers are relatively large consumers of permits there could be interaction between market power in the permits and energy markets market power in the energy market is modeled using a cournot game while a conjectured price response model is used in the permits market an illustrative application is made to pennsylvania new jersey maryland interconnection pjm which we represent by a 14 node dc load flow model and the usepa ozone transport commission no sub x budget program the results show that forward contracts effectively mitigate market power in pjm energy market and both simulated solutions of perfect and cournot oligopoly competition are a good approximation to actual prices in 2000 except that the cournot model yielded higher peak prices the no sub x market influences the cournot energy market in several ways one is that cournot competition lowers the price of no sub x permits which in turn affects on low and high emission producers differently in general because pollution permits are an important cost high concentration in the market for such permits can exacerbate the effects of market power in energy markets

estimating the linear quadratic inventory model maximum likelihood versus generalized method of moments abstract we compare generalized method of moments gmm and maximum likelihood ml estimators of the parameters of a linear quadratic inventory model using nondurable manufacturing data and monte carlo simulations data based gmm estimates for five normalizations vary widely generally rejecting the model the ml estimate generally supports the model monte carlo experiments reveal that the gmm estimates are often biased apparently due to poor instruments statistically insignificant economically implausible and dynamically unstable the ml estimates are generally unbiased even in misspecified models statistically significant economically plausible and dynamically stable asymptotic standard errors for ml are 3 to 15 times smaller than for gmm

the on the run liquidity phenomenon abstract we test the implications of a model of multi asset speculative trading in which liquidity differentials between on the run and off the run u s treasury bonds ensue from endowment shocks in the presence of two realistic market frictions information heterogeneity and imperfect competition among informed traders and a public signal our evidence suggests that i off on the run liquidity differentials are economically and statistically significant even after controlling for several of the bonds intrinsic characteristics such as duration convexity repo rates or term premiums and ii off on the run liquidity differentials are smaller immediately following bond auction dates and larger when the uncertainty surrounding the ensuing auction allocations is high when the dispersion of beliefs across informed traders is high and when macroeconomic announcements are noisy consistent with our model

more on the speed of adjustment in inventory models when empirical stock adjustment models of manufacturers inventories of finished goods are estimated there appear to be two local minima in the sum of squared residuals functions at one local minimum the estimated adjustment speed is typically quite high at the other it is typically quite low furthermore finding two sets of estimates that fit the data almost equally well does not appear to be a quirk of this particular application rather it stems from a fundamental identification problem that afflicts partial adjustment models of all kinds in the specific context of manufacturers inventories of finished goods the estimation procedure employed by maccini and rossana seems to pick out the solution with rapid adjustment and high serial correlation in the disturbances whereas the solution with slow adjustment and little serial correlation is more often the global minimum this abstract was borrowed from another version of this item

market power in renewable portfolio standards abstract renewable portfolio standard rps which requires a certain percentage of electricity production from renewables has received considerable attention one emerging issue is the possibility of strategic behavior in the renewable energy certificate credit rec market and its spillover effects on the electricity market this paper develops dominant firm competitive fringe models that account for market power we show that market power could have significant impacts on the rec and power prices in particular when a nonrenewable generator is a dominant firm and a renewable generator is a competitive fringe the nonrenewable firm has a strong incentive to lower the rec price even to zero for avoiding rec costs the zero rec price would negate price impacts in the power market thereby mitigating market power of the dominant firm however this could lead to an underinvestment in renewables in the long run as subsidies received by renewables in form of recs vanish therefore regulatory agencies need to carefully oversee the market performance to ensure a healthy development of renewable industries under the rps policies

inventories layoffs and the short run demand for labor this paper presents a theoretical and empirical analysis of the short run employment layoff and inventory strategies of firms on average more than two thirds of all layoffs in american manufacturing end in a rehire by the employer of origin martin feldstein 1975 david lilien 1980 these temporary layoffs have recently accounted for about half of all ongoing employer initiated spells of unemployment in that sector see table 1 and have led to a revised interpretation both of the involuntary nature of these separations costas azariadis 1975 feldstein 1976 martin baily 1977 and of the durability of employment relationships evidently a significant proportion of unemployed workers know that the conditions that generated their separations are temporary and so they expect to be recalled within some reasonable time the point of departure for this paper is in interpreting these findings as evidence of a privately and socially efficient stock of excess capacity held against contingent future demands that is as an inventory of a productive input this view leads to empirically refutable hypotheses regarding both the role of temporary layoffs and the circumstances under which they will be important in particular both excess capacity idle resources and inventories are devices by which firms may economize on the costs of rapid adjustments when faced with unstable market conditions george stigler 1939 in such an environment the demands for layoffs and for other buffer stocks are jointly determined elements of long run technology the choice among alternative stocks will depend on relative profitabilities and firms may choose to hold stocks of inputs as a substitute for inventory accumulation especially if the costs of varying capacity or of storage are important this reasoning implies that i the structure of short run employment and layoff decisions will vary across firms and industries and ii differences in these structures will be systematically related to the role of inventories in firms dynamic strategies some perspective is warranted at least since charles holt et al 1960 economists have recognized the production smoothing role of inventories and the necessity of predicting future demand in making current decisions david belsley 1969 gerald childs 1967 michael ward 1978 similarly one of the contributions of recent work on implicit labor contracts is in viewing the exchange of labor services as a bilateral and durable commitment both these lines of analysis are concerned with the methods firms use to respond to fluctuating demand yet the underlying interrelated nature of employment and inventory decisions has rarely been recognized roger miller 1968 m ishaq nadiri and sherwin rosen 1973 r g crawford 1979 robert hall 1972 this paper aims to provide a framework for evaluating these decisions and in so doing to explain some interesting features of observed labor markets the notion of substitution between inventories of human and physical capital suggests a more disaggregated look at the data table 2 shows the importance of temporary layoffs in the distribution of unemployment among manufacturing industries it reports layoff and total unemployment rates for twelve representative industries over the period 197376 and average layoff rates and recall frequencies for 1958 76 among all 21 twodigit manufacturing industries the correlation between layoff and rehire rates is 6 and the table illustrates this evidently industries with larger than normal layoff rates also tend to have larger rehire frequencies from firm initiated spells of unemployment this university of chicago i am indebted to gary becker robert cotterman sherwin rosen jose scheinkman michael ward finis welch the managing editor and an anonymous referee for discussions and comments at various stages the usual disclaimer applies

markups in u s and japanese manufacturing a short run econometric analysis in this article a production theory based model of firms markup behavior is constructed the theoretical structure is based on variants of generalized leontief cost and expenditure functions this framework yields a specification of behavior from which the impacts of both supply and demand shocks on firms markup behavior can be assessed through elasticities adjustment costs on both labor and capital and economies of scale are incorporated estimation is carried out using manufacturing data for the united states and japan from 1960 through 1981 the empirical results suggest that markups for manufacturing firms in both the united states and japan have increased over time but have somewhat different cyclical characteristics stemming primarily from differential investment behavior in addition capacity utilization and especially returns to scale tend to counteract the short run profit potential from markup behavior so that markups measured assuming constant returns are typically biased downward finally

input and output inventories in general equilibrium we build and estimate a two sector goods and services dynamic stochastic general equilibrium model with two types of inventories materials input inventories facilitate the production of nished goods while nished goods output inventories yield utility services the model is estimated using bayesian methods the estimated model replicates the volatility and cyclicality of inventory investment and inventory to target ratios although inventories are an important element of the model s propagation mechanism shocks to inventory e ciency or management are not an important source of business cycles when the model is estimated over two subperiods pre and post 1984 changes in the volatility of inventory shocks or in structural parameters associated with inventories such as the input inventory to output ratio play a small role in reducing the volatility of output

forecastable money growth revisions a closer look at the data the data for preliminary and revised u s money growth data are reexamined the findings contrast with those of the previous literature which has concluded that the data revisions behave like classical measurement errors this paper finds that the revisions are forecastable which contradicts the random measurement hypothesis as well as the efficient forecast hypothesis although ill behaved in this manner it is possible that the announcements represent observations rather than forecasts however the evidence suggests that they are a mixture of the two this finding offers a potential explanation for the failure of the data to show significant real effects of money growth revisions

news and noise in g 7 gdp announcements revisions to gdp announcements are known to be quite large in all g 7 countries quarterly growth rate revisions are regularly more than a full percentage point at an annualized rate we examine the predictability of these revisions using standard statistical tests of whether the preliminary announcement is a rational forecast of the subsequently revised data previous work suggests that u s gdp revisions are largely unpredictable as would be the case if the revisions reflect news not available at the time that the preliminary number is produced we find that the degree of predictability varies throughout the g 7 although we find little predictability in u s revisions the data revisions for several foreign countries are highly predictable we also perform a simple real time forecasting exercise showing that for several countries the predictability of data revision could be used to generate improved preliminary data

can the production smoothing model of inventory behavior be saved the production smoothing model of inventory behavior has a long and venerable history and theoretical foundations that seem very strong yet certain overwhelming facts seem not only to defy explanation within the production smoothing framework but actually to argue that the basic idea of production smoothing is all wrong most prominent among these is the fact that the variance of detrended production exceeds the variance of detrended sales this paper first documents the stylized facts then it derives the production smoothing model rigorously and explains how the model can be amended to make it consistent with the facts finally it reviews the theoretical and empirical evidence and tries to draw some tentative conclusions

when renewable portfolio standards meet cap and trade regulations in the electricity sector market interactions profits implications and policy redundancy emission trading programs c t and renewable portfolio standards rps are two common tools used by policymakers to control ghg emissions in the energy and other energy intensive sectors little is known however as to the policy implications resulting from these concurrent regulations especially given that their underlying policy goals and regulatory schemes are distinct this paper applies both an analytical model and a computational model to examine the short run implications of market interactions and policy redundancy the analytical model is used to generate contestable hypotheses while the numerical model is applied to consider more realistic market conditions we have two central findings first lowering the co2 c t cap might penalize renewable units and increasing the rps level could sometimes benefit coal and oil and make natural gas units worse off second making one policy more stringent would weaken the market incentive which the other policy relies upon to attain its intended policy target

does california s co2 price affect wholesale electricity prices in the western u s a abstract using a sample of daily market data we quantify the effect of california s co 2 cap and trade program on the wholesale electricity prices of four interconnected market hubs in the western u s a north of path 15 np15 and south of path 15 sp15 in california mid columbia mid c in the pacific northwest and palo verde pv in the desert southwest a 1 metric ton increase in california s co 2 price is estimated to have increased the electricity prices by 0 41 mwh p value p value p value 0 0056 for mid c and 0 15 mwh p value 0 0925 for pv these estimates reflect a the np15 and sp15 sellers pricing behavior of fully including the co 2 price in their intra state transactions b the mid c price s 100 pass through of the co 2 price in the pacific northwest s hydro export to california and c the statutory obligation of paying the co 2 emissions cost by california s buyers of the electricity imported from the desert southwest the policy implication is that internalization of co 2 s externality in the western u s a requires a cap and trade program with a regional scope that encompasses all four hubs thereby remedying the california program s limited geographic coverage which introduces distortions in neighboring markets