tax distortions and global climate policy abstract we consider the efficiency implications of policies to reduce global carbon emissions in a world with pre existing tax distortions we first note that the weak double dividend the proposition that the welfare improvement from a tax reform where environmental taxes are used to lower distorting taxes must be greater than the welfare improvement from a reform where the environmental taxes are returned in a lump sum fashion need not hold in a world with multiple distortions we then present a large scale computable general equilibrium model of the world economy with distortionary taxation we use this model to evaluate a number of policies to reduce carbon emissions we find that the weak double dividend is not obtained in a number of european countries results also demonstrate the point that the interplay between carbon policies and pre existing taxes can differ markedly across countries thus one must be cautious in extrapolating the results from a country specific analysis to other countries

economic culture and foreign policy the cognitive analysis of economic policy making political scientists researching economic foreign policy have generally taken one of two analytic approaches the first is based on realpolitik the traditional application of high politics to the low politics of economics this approach considers economics subordinate to politics the concept of the national interest dominates the pursuit of power what enables the state to achieve its goals of security welfare and other societal values is seen to underlie most actions the study of foreign economic policy is thus an analysis of the distribution of power among states within the international system by understanding a state s sources of strength and areas of vulnerability in relation to other states the analyst will better understand the creation of foreign policy hans morgenthau notes that while states may sometimes pursue economic policies for their own sake in which case they should take little interest in their success the more important economic policies they will favor are instruments of political power stephen krasner views the state as an autonomously motivated actor able to guide policy in pursuit of state priorities while resisting interest groups and ideologies according to this power theory the state tries to increase its economic competitiveness ensure security of material needs and promote its broad foreign policy objectives economic policy is for the most part subordinate to and best explained by state priorities and prerogatives robert tucker klaus knorr robert gilpin and others have also adopted this framework

asset prices and risk sharing in open economies this paper proposes a two good two country general equilibrium model with external habits and home biased preferences that addresses a number of international nance puzzles speci cally the model reconciles the high degree of international risk sharing implied by relatively smooth exchange rates with the modest cross country consumption growth correlations seen in the data resolving the brandt cochrane and santa clara 2006 puzzle furthermore the model matches the empirically observed low correlation between exchange

the effects of environmental fiscal reform in germany a simulation study this paper presents the first comprehensive model based impact analysis of the german environmental fiscal reform addressing the effects on co2 emissions economic growth employment and personal income distribution both an econometric input output model and a dynamic computable general equilibrium model are applied in order to enhance the credibility of our results the macroeconomic results are linked with a micro simulation model of the household sector so that detailed household data can be used to determine the effect of the environmental fiscal reform on personal income distribution we find a small double dividend in that energy consumption and co2 emissions decrease while employment rises the impact on economic growth is found to be minimal the fear that the environmental fiscal reform might interfere with the goals of social and income distribution policy is found to be largely unjustified

interest rates and currency prices in a two country world abstract this paper is a theoretical study of the determination of prices interest rates and currency exchange rates set in an infinitely lived two country world which is subject both to stochastic endowment shocks and to monetary instability formulas are obtained for pricing all equity claims nominally denominated bonds and currencies and these formulas are related to earlier closely related results in the theories of money finance international trade

international portfolio nondiversification and exchange rate variability abstract incomplete international portfolio diversification is implied by an equilibrium models of exchange rates with nontraded goods the model can also explain the greater correlation between consumption and income within a country than between consumption across countries nontraded goods make more stringent the elasticity conditions required to explain exchange rate variability resulting from current productivity disturbances though not from disturbances to fiscal policies or the prospective return to investment the model is also consistent with international real interest rate differentials changes over time in the current account and relative wealth across nations and observed time series properties of exchange rates

environmental taxation and unemployment some evidence on the double dividend hypothesis in europe abstract the employment double dividend hypothesis suggests that an appropriately designed fiscal reform in which emission charges are used to subsidize employers social security contributions may realize at least two relevant policy goals a better quality of the environment and at the same time an increase in employment levels this paper uses a newly developed econometric general equilibrium model for the european union as well as for each member country and presents simulation results up to the year 2010 of the effects of a european carbon tax the revenues from which are recycled to reduce employers social security contributions the results show that recycling carbon tax revenues may provide an employment double dividend only in the short run

the irony of state strength comparative responses to the oil shocks in the 1970s like two gigantic waves the oil shocks crested over the advanced industrial world during the 1970s the relatively stable postwar petroleum regime managed by the large oil firms and protected by american diplomatic and military strength collapsed in seven years crude oil prices adjusted for inflation increased more than 500 percent a multitude of national security economic and political challenges confronted the advanced industrial states but unlike war where the threat is observable and lines of conflict quickly become apparent the oil shocks cast up problems that were more insidious problems of energy security economic adjustment and industrial competitiveness these international dilemmas could be defined in various ways and a host of policy responses could be brought to bear upon them

the macro economic rebound effect and the uk economy abstract this paper examines the macroeconomic rebound effect for the uk economy arising from energy efficiency policies 2000 2010 using the macroeconomic model mdm e3 the literature distinguishes between three types of rebound effect direct indirect and economy wide the macroeconomic rebound effect considered here is the combination of the indirect and economy wide effects policies for the domestic business commercial and public and transport sectors of the economy are analysed for 2000 2010 overall the policies lead to a saving of about 8 of the energy which would otherwise have been used and a reduction in co2 emissions of 10 or 14 mtc by 2010 there are also favourable macroeconomic effects lower inflation and higher growth we find that the macroeconomic rebound effect arising from uk energy efficiency policies for the period 2000 2010 is around 11 by 2010 averaged across sectors of the economy when this is added to the assumed direct rebound effect of around 15 this gives a total rebound effect of around 26 arising from these policies thus the findings of the study support the argument that energy efficiency improvements for both consumers and producers stimulated by policy incentives will lead to significant reductions in energy demand and hence in greenhouse gas emissions

endogenous technological change and emissions the case of the german steel industry abstract the paper starts from the observation that innovation and technical progress are only portrayed superficially in the predominant environmental economic top down models and that the assumption of perfect factor substitution does not correctly mirror actual production conditions in many energy intensive production sectors bottom up models on the other hand neglect macroeconomic interdependencies between the modelled sector and the general economy this paper presents a new modelling approach in an integrated bottom up top down approach based on the example of crude steel production in germany it is demonstrated how technological progress can be portrayed as process related and policy induced and how the technology choice between limitational processes can be explicitly modelled and implemented in the econometric input output model panta rhei the new modelling approach presented permits a process specific analysis of the impacts of changed frame conditions the effects of which on the choice of technology on the one hand and the technological progress on the other can be described endogenous to the model these features are demonstrated in a co2 tax simulation results show that policy induced technological change is besides a switch in production processes the major source of co2 reduction for the steel sector

carbon leakage from unilateral environmental tax reforms in europe 1995 2005 abstract studies of the effects of the kyoto protocol have shown carbon leakage typically from tax and permit schemes with lump sum revenues recycling to be in the range of 5 20 using static computable general equilibrium models however in practice researchers have found that carbon leakage from the implementation of the eu ets is unlikely to be substantial because transport costs local market conditions product variety and incomplete information all tend to favour local production this study investigates potential carbon leakage from six eu member states mss that implemented environmental tax reform etrs unilaterally over the period 1995 2005 the study uses the large scale multisectoral integrated energy environment economy e3 model of 27 european countries energy environment economy model of europe e3me to undertake a dynamic comparative analysis to assess any carbon leakage effects over the longer term 1995 2012 a counterfactual reference case is constructed assuming that the six countries did not introduce etrs then alternative scenarios are developed to assess the effects of the etrs including effects on co2 emissions for the eu25 economies most mss recorded a reduction in co2 emissions when comparing the baseline case to the reference case the results show that carbon leakage is very small and in some cases negative due to technological spillover effects

the effect of the german and british environmental taxation reforms a simple assessment abstract this article implements a simple econometric approach to assess the effect of the environmental tax reforms introduced in germany and the uk despite the very simple econometric approach adopted in this paper in the case of the energy demand our results do not differ markedly from those obtained from complicated multi sectoral econometric models in the case of the labour demand our results differ from the estimates obtained from econometric models where the employment level is not directly influenced by the energy price on the other hand our results are more similar to those obtained from models where the level of employment is directly influenced by the energy price confirming the findings of bosquet 2000 environmental tax reform does it work a survey of the empirical evidence ecological economics 34 19 32 and oecd 2004 environment and employment an assessment working party on national environmental policy oecd paris we conclude that environmental tax reforms can deliver substantial reductions in energy consumption while having small effects on the level of employment effect which can be positive depending on the size of the reduction in the labour costs and the value of cross price elasticities

the implications for households of environmental tax reform etr in europe abstract the paper discusses the distributional implications of environmental tax reform etr for households and presents new results from modelling the impacts of a major etr for the european union the distributional effects arise from the new environmental taxes any tax reductions made as part of the etr the wider macroeconomic impacts from the etr any special provisions in the etr and the environmental benefits from the etr the paper s literature review makes clear that while the impacts from taxes on the household use of energy are very often regressive transport taxes tend not to be although the impacts differ between urban and rural households moreover the net distributional impact is often less regressive or not at all once the wider distributional effects are taken into account residual regressive effects can in principle be removed by further adjustments in the tax or benefits system the modelling results suggest that an etr in europe will actually increase real incomes across the eu as a whole and will not be generally regressive although the results differ by country and for different socio economic groups the political acceptability of etr may depend on the worst effects on these groups being mitigated in some way

political parties world demand and unemployment domestic and international sources of economic activity this article replicates and extends earlier work on the politics of macroeconomic policy by considering political effects on unemployment in 14 western industrial nations between 1960 and 1983 changes of party control of government display broadly the expected effects namely that unemployment falls under left wing governments and rises under right wing governments however the principal conclusions of this article are that partisan effects on unemployment in open economies that is economies heavily dependent on trade with other countries can only be satisfactorily estimated relative to the constraint imposed by the level of world economic activity and that in addition to politicians strategic incentives political institutions and economic regime constraints also determine whether partisan effects on unemployment will be sustained transitory or absent with respect to the latter on the whole no effects are found where no such effects were promised by the new government before taking office where one party or dominant partner coalitions form the effect on unemployment is transitory whereas where broad coalitions form it is sustained or absent finally ceteris paribus any partisan effects are more likely where governments secure parliamentary majorities

competitiveness and exemptions from environmental taxes in europe a number of european countries have introduced a variety of environmental taxes a common characteristic of their implementation is the inclusion of exemptions and tax relief in particular for some sectors of manufacturing industry this paper analyses the pattern and motivation of exemptions as they have developed in western european countries making clear the difference between the nominal and effective tax rates once the exemptions have been taken into account the principal motivation for exemptions relates to concern about competitiveness while particular environmentally intensive sectors may have some grounds for concern even these might be able to achieve cost effective environmental improvements such that their competitive position is not over disadvantaged while for an economy structured like the uk s an environmental tax plus rebate scheme sometimes called an ecological tax reform would be likely to yield benefits in terms of competitiveness the exemptions usually run counter to the environmental economic logic of using environmental taxes to internalise social costs and give economic signals that are based on the full costs of production and they are likely to increase the costs of achieving a given level of emission reduction with little justification for them also on the grounds of competitiveness it would therefore be undesirable on both economic and environmental grounds for them to remain a feature of the implementation of environmental taxes in the future

macroeconomic effects of efficiency policies for energy intensive industries the case of the uk climate change agreements 2000 2010 abstract this paper reports a study modeling the uk climate change agreements ccas and related energy efficiency policies for energy intensive industrial sectors bottom up estimates of the effects of these policies are introduced into the energy demand equations of a top down dynamic econometric model of the uk economy with fifty industrial sectors mdm e3 this allowed estimation of the effects of the reduced energy use for the outputs from the sectors i e the reductions in unit costs of the energy intensive industries on the demand for their outputs both in the uk and in the export markets the model is solved as a counterfactual 2000 2005 and as a projection 2005 2010 in a series of scenarios to allow estimation of the effects of the policies on inflation and growth as well as on overall energy demand and co 2 emissions the system wide final energy reductions is estimated to be 4 2 mtoe or 2 6 of total final demand for energy by 2010 including a rebound effect of 19 with negligible effects on inflation and a slight increase in economic growth through improved international competitiveness

carbon taxation in russia prospects for a double dividend and improved energy efficiency russia is not only one of the world s major sources of carbon based energy coal oil and gas but is also one the most intensive users of energy furthermore russia accounts for a disproportionately large share of global carbon dioxide emissions some 5 to 6 of global carbon dioxide emissions eia 2011a it has been estimated world bank 2008 that russia could reduce its use of primary energy use by 45 with consequent economic and environmental benefits high energy and carbon intensity of the russia economy is inter alia explained by low energy prices due to high export taxes as well as administrative regulation of domestic prices of gas and electricity and low environmental taxes carbon taxes are one such pigouvian tax and they would address concerns on several fronts simultaneously in the short to medium term they would inter alia lead to lower ghg emissions and encourage the diffusion of more energy efficient technologies in the longer term the increased cost of energy inputs is expected to induce technological progress in this analysis the macroeconomic and sectoral effects of carbon taxes on the russia economy are examined this analysis addresses the following objectives i to test the double dividend hypothesis under perfect and imperfect competition in output markets to analyse ii the incidence of carbon taxes iii impacts on sectoral competitiveness iv effects on income equity and v interactions of carbon taxes with other taxes a computable single country multi sector comparative static cge model is employed russland verfugt nicht nur uber einen der grosten vorrate an kohlenstoffbasierter energie wie kohle rohol und gas sondern ist auch einer der grosten energieverbraucher daruber hinaus ist russland fur einen uberproportional grosen anteil von kohlendioxid emission etwa 5 bis 6 der weltweiten kohlendioxidemission verantwortlich mit der einfuhrung einer kohlendioxidsteuer konnten gleichzeitig unterschiedliche wirkungen erzielt werden kurz und mittelfristig wurden kohlenstoffsteuern sowohl zu einer reduzierung von treibhausgasemissionen als auch zur einfuhrung von energieeffizienteren technologien fuhren langfristig wird erwartet dass hohe energiekosten den anreiz zur entwicklung und zur investition in energiesparenden technischen fortschritt erhohen die vorliegende arbeit analysiert und bewertet die makrookonomischen und sektoralen auswirkungen einer einfuhrung von kohlenstoffsteuern auf die russische wirtschaft die ziele der arbeit bestehen darin die hypothese der doppelten dividende fur den fall des vollkommenen und des unvollkommenen wettbewerbs auf gutermarkten zu uberprufen und die inzidenz einer kohlenstoffsteuer ihre auswirkungen auf die sektorale wettbewerbsfahigkeit ihre auswirkungen auf die einkommensverteilung und die interaktion von kohlenstoffsteuern mit anderen steuern zu analysieren und zu bewerten als methodischer ansatz wurde ein single country und multi sektor model gewahlt

economic analysis of the climate pledges of the copenhagen accord for the eu and other major countries abstract this article uses the world gem e3 computable general equilibrium model to assess the economic consequences of the climate copenhagen accord the model allows analyzing the macroeconomic costs in terms of gdp the change in employment as well as the impacts on production of specific energy intensive sectors various 2020 climate scenarios are evaluated depending on the ghg mitigation pledges we find that the cost for the developed countries is around 0 5 of gdp in 2020 for the more ambitious pledges whereas the gdp effects are more heterogeneous across developing countries and russia reflecting the different pledges and the assumptions in the reference scenario across these countries further the article explores whether there is a form of double dividend in the eu when the revenues from auctioning or taxation of ghg emissions are used to reduce the social security contributions of employees we conclude that gdp and employment perform better compared to the free allocation of permits when more sectors are subject to auctioning or ghg taxes and the additional government revenues are used to reduce the cost of labour

energy taxation and the double dividend effect in taiwan s energy conservation policy an empirical study using a computable general equilibrium model abstract faced with pressure from greenhouse gas reductions and energy price hikes the taiwan government is in the process of developing an energy tax regime to reflect environmental external costs and effectively curb energy consumption as well as mitigate co2 emissions through an adequate pricing system this study utilizes a cge model to simulate and analyze the economic impacts of the draft energy tax bill and its complementary fiscal measures under the assumption of tax revenue neutrality the use of energy tax revenue generated for the purpose of reducing income tax is the best choice with double dividend effects since it will effectively stimulate domestic consumption and investment and consequently mitigate the negative impacts of the distortionary tax regime the double dividend effect is less significant however when the supplementary measures being used are for government expenditure nevertheless all supplementary measures have effectively reduced energy consumption which means they have delivered at least the first dividend in the sense of co2 emissions control it has been verified in this study that having adequate public finance policy measures is the key to realizing the double dividend effect

consequences of environmental tax reform for involuntary unemployment and welfare we investigate the welfare effects of environmental tax reform i e raising environmental taxes and using the proceeds to reduce distortionary taxes on labour the framework of analysis is a small open economy with involuntary unemployment due to a rigid consumer wage environmental tax reform boosts not only environmental quality but also employment if substitution between labour and resources is easy the production share of the fixed factor is large and the initial tax rates on resources and profits are small if the initial tax system is sub optimal with a negligible tax on resources profits rise as well

international stock market equilibrium with heterogenous tastes this paper considers a dynamic real exchange model of international trade in commodities and equities given generalized cobb douglas intraperiod tastes that differ across countries we find a closed form solution with properties that are noteworthy not because they reverse our presumptions but because they exceed them a consumption based model of international equity investment might be expected to have the following properties i the optimal portfolios should reflect the international pattern of commodity expenditure ii a country s portfolio should be biased toward equities in commodities that attract a large share of its expenditure iii a country would short some equities given an appropriate structure of equity returns iv short sales of equities would allow the international economy to move toward the situation that would prevail if risk markets were complete in our model solution these properties take strong forms

international interest rates exchange rates and the stochastic structure of supply in a dual currency flexible exchange rate model both nominal and real foreign exchange premia depend on investor risk attitudes consumption parameters and the stochastic structure of currency and commodity supplies when supplies are random their joint correlation structure determines the sign of the premia if the money supplies are identically distributed then all foreign exchange premia regardless of the currency of denomination are zero a positive correlation between the value of a country s currency and its nominal interest rate need not indicate real interest rate movements relative bond prices can be negatively correlated with the terms of trade recently there has been a great deal of interest in the construction and use of general equilibrium models of an international economy subject to random disturbances 1 however with the exceptions of stulz 1984 domowitz and hakkio 1985 hodrick and srivastava 1986 and stockman and svensson 1987 little effort has been devoted to expressing the relationships examined in these models in terms of parameters describing the underlying stochastic processes of the exogenous variables 2 stockman and svensson incorporated international capital flows into the model of svensson 1985 and calculated covariances between investment the current account the exchange rate and the terms of trade in terms of exogenous money and commodity supplies focusing more on financial market issues domowitz and hakkio and hodrick and srivastava simplified the case in advance model of lucas 1982 by assuming that the exogenous variables are independently lognormal and that investors have loglinear utility functions a procedure which allowed them to relate the premium required on forward exchange contracts to money supply variances stulz obtained similar results in a continuous time model where real money balances enter the utility function this paper employs a model similar to that developed by domowitz and hakkio 1985 and hodrick and srivastava 1986 but its emphasis and objectives are quite different those authors were concerned only with demonstrating that a time varying risk premium is a theoretical possibility prior to conducting a series of empirical tests only loosely related to the model itself consequently they did

carbon taxation and market structure a cge analysis for russia abstract russia is one of the world s major sources of carbon based energy as well as one its most intensive users introducing carbon taxes can lead to a reduction in emissions and encourage investment in energy efficiency we investigate the economic effects of carbon taxes on the russian economy under perfect competition and a cournot oligopoly in output markets the main findings are i substituting carbon taxes for labour taxes can yield a strong double dividend in russia however welfare gains strongly depend on the labour supply elasticity and elasticities of substitution between capital labour and energy ii under the assumption of a cournot oligopoly with homogenous products and symmetric firms in the markets for natural gas petroleum and chemical products metals and minerals welfare costs of the environmental tax reform can be higher than under perfect competition this is because introducing carbon taxes leads to a reduction in already sub optimal output thereby exacerbating pre existing distortions arising from imperfect competition iii furthermore increases in energy costs can result in higher mark ups in some markets because of less competition resulting from firms exit

modelling strategy and net employment effects of renewable energy and energy efficiency a meta regression by conducting a meta analysis of the empirical literature on the net employment effects of renewable energy we explore the extent to which the reported net employment effects are driven by the applied methodology we find that the reported conclusions on net employment effects are to a large extent driven by the methodology that is applied where computable general equilibrium cge and i o methods that include induced effects and studies that consider only the near future in their study period up to 2020 are generally less optimistic about net employment creation in the wake of the energy transition in addition we found that policy reports have a greater tendency to report a positive net employment effect than academic studies

the international economy as a constraint on u s macroeconomic policymaking international economic factors increasingly influence american trade and exchange policy and interdependence also circumscribes the autonomous choice of domestic policies but the growing concern of organization for economic cooperation and development oecd policymakers over the potential for macroeconomic policy coordination to enhance national as well as world welfare implies that international economic relations present opportunities rather than constraints under some circumstances this suggests that understanding domestic economic policy choice within its international context involves not only how policy choices are made within the bounds of international constraints but also when countries might cooperate to modify the constraints themselves this research looks to four important historical cases for information on these questions the first three are the series of cumulating crises in the international monetary system during the 1960s and early 1970s the fourth is the energy supply shock of 1973 and the recession that followed the article describes the process of policy selection in each of these cases contrasting domestic versus international premises for policy choice the economics literature has emphasized the magnitude of domestic welfare gains available from coordinated national economic policies although the cases considered here do not contradict the importance of payoffs they underline the corresponding role of political economic and strategic uncertainty in conditioning elites policy choices

material efficiency and economic environmental sustainability results of simulations for germany with the model panta rhei abstract based on empirical evidence the paper discusses the impact of a consulting and information program for the improvement of material productivity with regard to economic and environmental targets for germany the instrument used in the analysis is the integrated economic environmental model panta rhei which is parameterized econometrically the paper presents the model and shows in a baseline forecast that without policy changes sustainability will be violated in both the economic and the environmental dimensions this applies to the latter particularly with regard to land use and material consumption the alternative simulation that introduces a consulting and information program for the improvement of material productivity yields a win win result growth rates of gdp and employment are rising the public debt is reduced and material consumption is much lower than in the baseline and remains at the actual level which means that a decoupling of growth and material consumption is possible

presidential influence on the federal reserve in the 1970 s this research examined presidential influence on federal reserve monetary policy in the 1970s a reaction function for the change in the federal funds rate was estimated and then checked to determine whether that reaction function shifted at politically important points the two political influences studied were elections and administration the federal reserve did not appear to manipulate the money supply in 1972 to aid president nixon s reelection the reaction function shifted between the nixon and ford administrations it did not shift with the ascension of carter and it did not shift with the replacement of chairman arthur burns by chairman william miller

what does europe pay for clean energy review of macroeconomic simulation studies this paper analyses the macroeconomic costs of environmental regulation in european energy markets on the basis of existing macroeconomic simulation studies the analysis comprises the european emssion trading scheme energy taxes measures in the transport sector and the promotion of renewable energy sources we find that these instruments affect the european economy in particular the energy intensive industries and the industries that produce internationally tradeable goods from a macroeconomic point of view however the costs of environmental regulation appear to be modest the underlying environmental targets and the efficient design of regulation are key determinants for the cost burden

domestic adjustment to international shocks in japan and the united states economic interdependence complicates domestic policymaking by interposing the decisions of foreigners in the loop that links policy instrument settings to economic outcomes nowhere was this vulnerability to external decisions demonstrated more forcefully even for the world s major economies than by the energy supply shocks of 1973 and 1979 the oil shocks posed challenges that offer unusual insight into the way nations choose policies their severity forced a policy response their unpredictable timing and at least in 1973 unprecedented nature ruled out conventional formulas and brought to the fore explicit policy trade offs this article seeks to explain how policymakers in the world s two major economies responded to these external shocks the analysis successively employs three vantage points system society and state in tracing the sources of domestic adjustment policies it focuses specifically on the extent to which policies accommodated or extinguished each shock s inflationary impulses and on the coherence and consistency with which the executive in each government formulated and pursued particular policy goals a comparison of these four cases illustrates the strengths and weaknesses of increasingly detailed theoretical frameworks for explaining policy choice although the research does not contradict the depiction of the united states and japan in terms of state strength it does underscore the importance of looking beyond formal institutional arrangements to consider how elite policy preferences ambitions and capacities can define the way constraints influence policy

a general equilibrium model of international portfolio choice we investigate in a two country general equilibrium model whether a bias in consumption towards domestic goods will necessarily lead to a preference for domestic securities we develop a model where investors are constrained to consume only from their domestic capital stock and where it is costly to transfer capital across countries in this model investors less risk averse than an investor with log utility bias their portfolios towards domestic assets investors more risk averse than log however prefer foreign assets thus this model suggests that it is unlikely that the portfolios observed empirically can be explained by the high proportion of domestic goods in total consumption we investigate in a two country general equilbrium model whether a bias in consumption toward domestic goods will necessarily lead to a preference for domestic assets in an investor s optimal portfolio we constrain investors to consume only from their domestic capital stock and introduce a proportional cost for transferring goods from one country this cost gives rise to endogenous deviations from the law of one price lop thus the home and foreign investors do not hold identical portfolios we show that an investor s optimal portfolio is biased towards domestic equity only if she is less risk averse than an investor with log utility investors with relative risk aversion greater than one exhibit a preference for the foreign asset this is because the exchange rate derived endogenously is negatively correlated with the return on the foreign asset and therefore the translated return on the foreign stock is less risky than that on the domestic stock thus the results of this model suggest that it is unlikely that the preference for domestic assets that is observed empirically can be explained by the high proportion of domestic goods in total consumption there exists a considerable body of literature documenting the gains from international diversification grubel 1968 was the first to propose that international diversification allows investors to attain lower return variances than those achievable by diversifying domestically this proposition relies on the correlation between stock indices across countries being significantly less

home asset preference and productivity shocks abstract this paper presents sufficient conditions for the domestic investor consumer to hold in equilibrium a disproportionate share of domestic assets the analysis is carried out in a general equilibrium framework of products and assets markets when the source of the uncertainty is productivity shocks in the nontraded goods industries in the asset markets we allow trade in instruments with a payoff which is not necessarily positively correlated with the price of the consumption good as the instruments considered in the existing literature consequently in our analysis in contrast to the existing literature hedging against price uncertainty is neither necessary nor sufficient for home asset preference

the energy efficiency gap what does it mean abstract as renewed attention has been given by policy makers to energy conservation issues it has frequently been asserted that an energy efficiency gap exists between actual and optimal energy use the critical questions is how to define the optimal level of energy efficiency this paper seeks to disentangle some confusing strands of argument that are frequently brought to bear on this question by identifying the major conceptual issues that determine the set of feasible answers we identify five separate and distinct notions of optimality the economists economic potential the technologists economic potential hypothetical potential the narrow social optimum and the true social optimum each of these has associated with it a corresponding definition of the energy efficiency gap our analysis demonstrates that necessary preconditions for identifying the right measure of the energy efficiency gap include understanding and disentangling market failure and non market failure explanations for the gradual diffusion of energy efficient technologies

price inertia and policy ineffectiveness in the united states 1890 1980 this paper introduces a new approach to the empirical testing of the lucas sargent wallace lsw policy ineffectiveness proposition which compares the lsw hypothesis with an alternative that states that prices respond fully in the long run but only gradually in the short run to nominal aggregate demand disturbances the empirical equations estimated for a new set of quarterly data extending back to 1890 exhibit uniformly high responses of real output and low responses of price changes to anticipated changes in nominal gnp the paper compares and tests three alternative methods of introducing persistence effects into the lsw framework

breaking with orthodoxy the politics of economic policy responses to the depression of the 1930s under the same systemic shock the collapse of the international economy in 1929 different countries formulated different policy responses britain germany the united states france and sweden all began by attempting the orthodoxy of deflation soon after they abandoned deflation devalued their currencies erected tariff barriers and set up corporatistic production and marketing arrangements a few countries went further and began experimenting with demand stimulus fiscal policy the most successful was nazi germany the swedish and u s efforts were much more limited and less effective the french attempt crumbled in less than a year and britain never tried demand stimulus why this divergence in policy the politics of policy response the societal basis of different policy coalitions and the way in which they were expressed through different political formulations suggests an answer in all countries labor agriculture and certain elements of business became available for revolts against policy orthodoxy what differed across countries was the specific balance of forces among these interest groups and the political factors that shaped their combinations the effect of political leadership institutions and other variables on outcomes depended critically on the way specific social forces in each society used and worked through them

carbon taxes with exemptions in an open economy a general equilibrium analysis of the german tax initiative abstract sectoral exemptions from environmental regulation are applied in many countries to avoid adverse adjustment effects in specific industries the problem with exemptions is that they can make environmental policy more costly our paper analyzes the welfare costs of exemptions in environmental policy together with the issue of unilateral carbon taxes in an open economy several countries within the eu have introduced or contemplated unilateral taxes to reduce anthropogenic co2emissions taxes which are unilaterally imposed in an open economy can have significant impacts on production and employment of energy and export intensive industries to save jobs by maintaining international competitiveness most co2taxation schemes include exemptions for energy and export intensive industries as a compromise between environmental objectives and employment in these sectors this paper shows that such compromises are costly as the tax base narrows the dead weight loss increases our calculations illustrate this point in the framework of a static general equilibrium model for west germany calibrated to 1990 data we evaluate the excess costs of exemptions as a means of saving jobs in specific industries relative to an alternative instrument a uniform carbon tax cum wage subsidy which achieves an identical level of national emissions and employment at a fraction of the cost