the phillips curve macroeconomic policy and the welfare of canadians a review of the two competing paradigms explaining inflation and unemployment fluctuations singles out the keynesian phillips curve as the clear empirical winner over its classic competitors reestimation of the canadian phillips curve for 1957 90 identifies a sharp structural shift toward a high degree of unemployment hysteresis after 1972 the recent attempt of macropolicy to flatten the aggregate demand curve and limit supply side shock accommodation which aims at lower and more stable inflation is then shown to make unemployment higher and more unstable on average to an extent that is an increasing function of the degree of hysteresis understanding and reducing hysteresis and developing a consensus based incomes policy that has a chance of alleviating the dismal trade off should therefore to top research and policy priorities

cross hedging and forward contract pricing of electricity we consider the problem of an electric power marketer offering a fixed price forward contract to provide electricity that it purchases from a potentially volatile and unpredictable fledgling spot energy market one option for the risk averse marketer who wants to hedge against the spot price volatility is to engage in cross hedging to reduce the contract s profit variance and to determine the forward contract price as a risk adjusted price the sum of a baseline price and a risk premium we show how the marketer can estimate the spot price relationship between two wholesale energy markets for the purpose of cross hedging as well as the optimal hedge and the forward contract s baseline price and risk premium

real sectoral spillovers a dynamic factor analysis of the great recession abstract dynamic factor methods are used to identify the impact of common and idiosyncratic shocks on sixteen u s nonfarm business sectors this paper then studies changes in the transmission of these shocks across sectors during the great recession and evaluates the cross sectoral spillovers the great recession is found to be largely a time of heightened impact of common shocks which accounts for 3 4 of aggregate volatility and large spillovers of negative finance related shocks in addition prior to the recession aggregate fluctuations are mainly driven by sector specific shocks in contrast with findings from previous studies

propensity to consume farm family disposable income from separate sources farm family disposable income is generated from farm operations off farm sources and government payments if these three income components are fungible a dollar from one source is a perfect substitute for a dollar from another source then the propensities to consume each should be the same this study examines the farm family propensity to consume from separate income sources results indicate that the propensity to consume off farm income and government payments is higher than the propensity to consume farm income

sensitivity of optimal programs with respect to changes in target stocks the case of irreversible investment abstract consider an aggregative model of economic growth with changing technology and tastes in which investment is irreversible it is shown that initial decisions in finite horizon optimal programs are insensitive to changes in terminal stocks provided the horizon is long enough this generalizes brock s result which was proved assuming investment to be reversible the irreversibility constraint does not allow one to follow brock s method of proof using the dual shadow price properties of optimal programs an alternative method of proof is developed using a primal approach and exploiting dynamic programming arguments

eductive stability in real business cycle models we reexamine issues of coordination in the standard rbc model is the unique rational expectations equilibrium attainable by rational agents who contemplate the possibility of small deviations from equilibrium surprisingly we nd that coordination cannot be expected even with strong common knowledge assumptions rational agents anticipating small but persistent deviations are led to take actions that eventually contradict the common knowledge assumption this impossibility theorem for eductive learning is not fully overcome when adaptive learning is incorporated into the framework

energy price shocks and medium term business cycles abstract energy price shocks pose sudden challenges to economies this paper examines how oil price shocks have influenced the u s economy over the last decades and especially focuses on the productivity slowdown in the years following an oil price shock we extend the existing literature by considering medium term business cycles which consist of high frequency components conventional business cycles up to 8 years and medium frequency components 8 50 years we find that the medium frequency consequences of energy price shocks are considerable and explain a significant part of the productivity slowdown

the varying impacts of agricultural support programs on u s farm household consumption farm households are economic agents whose income is derived from farm off farm and government sources this article uses farm level data from the agricultural resource management survey arms and recent advances in the econometric theory of dynamic pseudo panels to show that farm households consume various sources of income differently at the margin particular attention is given to a specific type of lump sum government transfer payment intended to be decoupled from independent of farm production decisions the results suggest that relatively decoupled government subsidies have a greater marginal effect on farm household consumption than subsidies that are tied to market conditions farm households often receive income from off farm employment and government support payments in addition to farm production revenues if income is fungible then marginal consumption should not vary by income source however carriker et al 1993 show that farm household consumption does vary at the margin by income source they find that off farm income and income from government subsidies are consumed at a higher marginal rate than income from farm production revenues if farm household consumption varies at the margin by income source different types of government payments may affect consumption differently closely following carriker et al 1993 this analysis further disaggregates sources of farm household income and compares how different types of government payments affect farm household consumption it is shown that government payments that are relatively decoupled from farm production decisions are consumed at a much higher marginal rate than government payments that

a feasible reform for the electricity supply industry in hong kong with the current scheme of control regulation for the hong kong electricity supply industry expiring in 2008 the government has sent out a consultation paper seeking views from the general public on its reform and possible future development this paper investigates the characteristics of the current agreement and the rationale for feasible reform of the hong kong esi it leads to a discussion on a proposed feasible reform using performance based regulation approach modeling and the associated implementation issues related to price capping risk analysis performance indices quality monitoring and governance

the british model in britain failing slowly in 1990 britain reorganised its electricity industry to run on competitive lines the british reforms are widely regarded as successful and the model used provides the basis for reforms of electricity industries worldwide the main reason for this perception of success is major reductions in the real price of electricity with no reduction in service quality this paper examines whether the reputation of the british reforms is justified it concludes that the reputation is not justified and that serious fundamental problems are beginning to emerge the central question is have the british reforms resulted in the creation of efficient wholesale and retail markets on this criterion the reforms have failed the wholesale market is dominated by obscure long term contracts privileged access to the market and self dealing within integrated generator retailers leaving the spot markets with minimal liquidity and unreliable prices the failure to develop an efficient wholesale market places the onus on consumers to impose competitive forces on electricity companies by switching regularly small consumers will not do this and they are paying too much for their power for the future there is a serious risk that the electricity industry will become a weakly regulated oligopoly with a veneer of competition

explaining output volatility the case of taxation this paper presents strong empirical evidence that the observed heterogeneity of output volatility across countries and over time is partly endogenous in particular based on a closed form solution we obtain a long run equilibrium relationship between taxes and output volatility in the stochastic neoclassical growth model by showing that asymptotically the variance of output growth rates is affected by the level of taxes without affecting the mean we estimate the tax semi elasticities on output volatility and provide convincing empirical evidence that taxes are important to understand differences in output volatility among oecd countries

the economic consequences of productivity changes a computable general equilibrium cge analysis cutler h and davies s the economic consequences of productivity changes a computable general equilibrium cge analysis regional studies this paper uses a data intensive cge model to examine sector specific impacts of increases in total factor productivity and labour and capital productivity it focuses on the importance of a sector s output in household consumption and firms intermediate input demand the importance of labour and capital in value added and the impact on the city s consumer price index cpi as factors influencing the transmission mechanism the general equilibrium effects result in unambiguous increases in household migration for total factor productivity and capital productivity but not for the labour case this analysis emphasizes the impact on household income and tax revenue per new household cutler h et davies s les consequences economiques des changements de productivite une analyse egc regional studies cet article utilise un modele d equilibre general calculable egc

dynamics of a rural land market experiencing farmland conversion to acreages the case of saunders county nebraska this study analyzes an urban influenced real estate market that is experiencing land use transitions evaluating a three year period of unimproved real estate sales in saunders county nebraska has identified components that contribute to farmland values applying these components illustrates that buyers having special motivations often pay premiums to obtain agricultural land a model based on farmland productivity determines a crossover point where it becomes economically justifiable to convert farmland into acreage tracts illustrating productivity levels where concerns over development hold merit areas experiencing farmland development will obtain valuable information for land use and planning decisions from applying this research

stochastic dynamic models with stock dependent rewards abstract we examine the behavior of optimal consumption and investment policies in aggregate stochastic growth models when utility depends on both consumption and the stock level such models arise in the study of renewable resources monetary growth and growth with public capital conditions are given which guarantee that optimal policies are monotonic the limiting behavior of the optimal consumption investment and output processes is characterized

merging electricity and environment politics of hong kong identifying the barriers from the ways that sustainability is defined abstract the present paper presents a study of the electricity policy of hong kong in an environmental political context through a critical review of the policy structure and rationale it identifies the barriers to developing a truly sustainable electricity policy system and is expected to shed light on the forthcoming electricity market reform in the territory the barriers stem from the path dependent institutional set ups that restrict a timely transformation of the roles of the actors and this is coupled with the government s treatment that does not look beyond these structural constraints overly appreciating scientific and economic rationalities than communicative actions the author is of the view that these are intensified by the sharp changes in the local political economy positive signs of change are dampened by the minimal progress in democratic development in the near future and the extension of the power companies monopolist status that will ruin the trust between the stakeholders compounding the guilt of those rigid regulatory constraints

evaluating unemployment policies what do the underlying theories tell us the paper surveys unemployment policies for advanced market economies and evaluates them by examining the predictions of the underlying macroeconomic theories the basic idea is that for the most part different unemployment policy prescriptions rest on different macroeconomic theories and our confidence in the prescriptions should depend at least in part on theories ability to predict some salient stylized facts about unemployment behavior the paper considers four types of policies laissez faire demand management policies supply side policies and structural policies copyright 1995 by oxford university press

real business cycles and labor markets with imperfectly flexible wages abstract one of the principal criticisms of real business cycle models is that the assumptions made about labor markets do not accord with the actual structure of these markets this paper replaces the standard spot labor market with a market characterized by imperfectly flexible wages which corresponds to impressions of contractual labor relations it is found that the behavior of the model in terms of the predicted variances and correlations is similar to that of the standard real business cycle model but that the variability of hours worked and the correlation of hours worked with wages will depend on the structure of the labor market

estimating the demand for a new technology bt cotton and insecticide policies this article examines the potential demand for bt cotton in the southeast from information gathered in the first year of commercialization we combine revealed preference rp data on adoption of bt cotton varieties with stated preference sp data on willingness to adopt to estimate demand using a double bounded maximum likelihood procedure using estimated demand equations we simulate the costs of reducing conventional insecticide applications through subsidization of bt cotton results indicate that reducing cotton insecticide applications by 40 in the southeast would require a 21 acre subsidy with total annual program costs between 53 million and 60 million

money and the business cycle with one period nominal contracts a modified version of the nominal contract developed by j a gray 1976 and s fischer 1977 is introduced in a general equilibrium model with money which has been used in the real business cycle literature money is introduced in the model through cash in advance constraint two kinds of contracts are examined namely a nominal wage contract and a nominal price contract the nominal wage contract improves the fit of the model in many respects the nominal price contract increases the output volatility enormously but it has some unrealistic features

on some computational aspects of equilibrium business cycle theory abstract this paper evaluates the accuracy of quadratic approximate methods in the context of a simple real business cycle model the level of accuracy is found to be very high on the face of the results reported here we are confident that the different computation methods proposed to date in this literature can be employed interchangeably

how well do linear approximation methods work abstract in this paper we investigate the accuracy of approximating policy functions for three different approximation methods in the context of a neoclassical model with a production tax we find that a variant of the king plosser and rebelo procedure yields the best approximations overall but that in certain instances researchers may be better off using a discrete state space solution to the euler equations of the model

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

productivity growth consumer confidence and the business cycle abstract the objective of this paper is to provide in the context of a dynamic general equilibrium model an answer to the following five questions 1 to what extent does an economy subject to regular variations in labor productivity growth differ from one where labor productivity is constant 2 what is the impact on major macro indicators of a one time change in labor productivity growth 3 what are the business cycle implications of autonomous non falsifiable changes in growth expectations 4 what is the potential of such expectation changes for explaining the volatility of consumption to output ratio 5 can autonomous changes in growth expectations help us understand recent business cycle episodes

a toolbox for the numerical study of linear dynamic rational expectations models espanolse presenta una guia para resolver y estudiar modelos de expectativas racionales dinamicas lineales ldre luego de codificar el modelo se aplica una function simple para log linealizarlo simular los efectos de series exogenas de shocks calcular condiciones de momentos muestrales y poblacionales y obtener funciones de impulso respuesta se resuelven y estudian detalladamente tres modelos clasicos en la literatura de real business cycles brock and mirman ldre toolbox of matlab functionsoptimal growth and uncertainty the discounted case journal of economic theory 4 3 479 513 1972 king plosser and rebelo production growth and business cycles i the basic neoclassical model journal of monetary economics 21 195 232 1988 y mendoza real business cycles in a small open economy american economic review 81 4 797 818 1991 englishby simplifying the computational tasks and by providing step by step explanations of the procedures required to study a linear dynamic rational expectations ldre model this paper and the accompanying ldre toolbox of matlab functions guide a researcher with almost no experience in computational work to resolve and study his own model after coding the model following specific guidelines a single function call is all that is needed to log linearize the model simulate it under exogenous sequences of shocks compute sample and population moment conditional models in the real business cycles literature are solved and studied throughout to give detailed examples of the steps involved in solving and studying ldre models using the ldre toolbox namely the economies in brock and mirman optimal growth and uncertainty the discounted case journal of economic theory 4 3 479 513 1972 king plosser and rebelo production growth and business cycles i the basic neoclassical model journal of monetary economics 21 195 232 1988 and mendoza real business cycles in a small open economy american economic review 81 4 797 818 1991

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

cost benefit analysis of reforming israel s electricity industry abstract in june 2003 the israeli government decided to reform the israeli electricity industry which is currently dominated by israel electric corporation iec a government owned vertically integrated electric utility the first step of the planned reform will be taken in 2006 when iec will be functionally separated into generation transmission local distribution and customer services immediately thereafter will be the second step which by 2012 will result in the deregulation and privatization of the wholesale generation and customer services transmission and distribution t and d services will remain regulated but will be available to all t and d users under mandatory open access this paper summarizes a cost benefit analysis of the government s reform plan relative to a regulated regime the government s plan even if carried out flawlessly may only yield a small net benefit however it entails a large increase in electricity producer profit and government tax receipt at the expense of electricity consumers a less than perfect transition to competition can easily wipe out the potential gain of the government plan market reform experience to date shows that electricity market reform can easily fail and the factors for success do not exist in israel since the outcome of a failing reform can be disastrous it will be imprudent to implement the government s plan in 2006 when the current electricity law expires hence we recommend performance based regulation for the period of 2006 2010 subject to an updated cost benefit analysis possible decentralization privatization and competition may follow

international debt and world business fluctuations abstract the international transmission of real productivity disturbances is examined in an optimizing model with two countries each inhabited by an infinitely lived representative consumer producer we analyze the dynamics of output consumption investment interest rates and net external debt foreign productivity shocks can have positive or negative impacts on domestic output and international debt depending on the intertemporal distribution of the shocks transient foreign shocks are shown to be positively transmitted and lead to increased domestic indebtedness while permanent foreign shocks are negatively transmitted and lead to a decline in domestic indebtedness

lumpiness capital adjustment costs and investment dynamics aggregate investment in the us economy displays a hump shaped pattern in response to shocks and the autocorrelation of aggregate investment growth is positive for the first few quarters turning negative for the later quarters this paper shows that this feature of the data is the natural outcome of a two sector consumption investment model designed and calibrated to reproduce plant level evidence on capital accumulation

some consequences of temporal aggregation in empirical analysis i derive the generating mechanism of a temporally aggregated process when the disaggregated one belongs to the vector autoregressive integrated moving average class i then study the effects of temporal aggregation on a set of characteristics of usual interest such as exogeneity causality cointegration and common features an empirical example with canadian interest rates illustrates the main issues

a complete characterization of optimal growth paths in an aggregated model with a non concave production function the convexity of technology has played a crucial role in economic analyses of optimal one sector growth problems for example two of the key results on the traditional model of ramsey 1928 that have relied on the convexity of the technology are that optimal intertemporal growth involves moving monotonically towards a unique steady state as in cass 1965 koopmans 1965 and that the value function is a concave differentiable function of the initial capital stock as in benveniste and scheinkman 1979

asymmetric phase shifts in u s industrial production cycles abstract we identify cyclical turning points for 74 u s manufacturing industries and uncover new empirical regularities a industries tend to comove between expansion and contraction phases over the business cycle b clusters of industry turning points are highly asymmetric between peaks and troughs troughs are much more concentrated and sharper than peaks c the temporal pattern of phase shifts across industries supports the spillovers through input output linkages and d macroeconomic shocks such as unanticipated changes in monetary policy government spending oil prices and financial conditions are significant drivers of industrial phase shifts

threshold behavior and aggregate fluctuation this paper concerns a propagation mechanism in an economy where many individuals follow a threshold rule and interact with a positive feedback we derive an asymptotic distribution of the propagation size when the number of the agents tends to infinity the propagation distribution exhibits a slower convergence to a deterministic value than it would if the agents followed a smooth adjustment policy this gives rise to significant aggregate fluctuations in a finite lumpy adjusting economy even when the agents are hit by small independent shocks

irreversibility and the behavior of aggregate stochastic growth models abstract this paper examines the effects of capital restrictions on aggregate stochastic growth models in a one sector model irreversibility of investment reduces the response of investment to positive shocks to the economy in real business cycle models irreversibility lowers the variation of output investment and hours worked the magnitude of the effects depends on the variance and autocorrelation of productivity shocks in a two sector model constraints on the movement of capital across sectors are more important than depreciation constraints there is evidence that immobility of capital has a significant impact on the sectoral variability of production and hours worked

agricultural profits and farm household wealth recent decades especially since 1973 have been an era of decreasing production profits that threaten the survival of many midand small sized american farms blank 2003 normally the survival of a firm depends on its profitability both in absolute and relative terms to remain viable a firm must offer returns that are both sufficient to cover the owner s financial obligations and competitive with returns from alternative investments if a firm is profitable the wealth of its owners can increase over time an unprofitable firm on the other hand reduces owners wealth yet american agriculture is full of firms that routinely earn low or negative returns on equity from production operations blank 2002 thus complicating the evaluation of the industry s economic health and prospects this suggests that macro level forecasts of american agriculture s future structure and performance require a micro level understanding of the relationship between farm profits and owner wealth this paper addresses that relationship

macroeconomic policy and output comovement the formal and informal sectors in india abstract is the informal sector different from the formal sector we present an aggregative analysis of the formal and informal sectors in india to investigate the extent to which the two can be viewed as broadly homogeneous using a macroeconometric framework the paper analyzes over past three decades the behavior of the two sectors with respect to each other and several government related policy variables it is found that the formal and informal sectors display markedly different attributes in terms of their relationship to policy variables furthermore the informal sector appears to be decoupled from the rest of the economy

the production and inventory behavior of the american automobile industry understanding inventory movements is central to an understanding of business cycles this paper presents an empirical study of the behavior of inventories in the automobile industry it finds that inventory behavior is well explained by the assumption of intertemporal optimization with rational expectations the underlying cost structure appears to have substantial costs of changing production as well as substantial costs of being away from target inventory thelatter being a function of current sales given this cost structure whether inventory behavior is stabilizing or destabilizing depends on the characteristics of the demand process in the automobile industry inventory behavior is destabilizing the variance of production is larger than the variance of sales

an estimate of a sectoral model of labor mobility this paper develops a model of sectoral labor mobility and tests its main implications the model nests two distinct hypotheses on the origin of mobility a sectoral shocks and b worker employer mismatch we estimate the relative importance of each hypothesis and find that the bulk of labor mobility is caused by mismatch rather than by sectoral shift we then try to put a value on society s match specific information that is we ask to what extent the availability of the option to change jobs raises gnp we find that the mobility option raises expected earnings by roughly between 8 5 percent and 13 percent of labor earnings which translates to an increase in gnp of between 6 percent and 9 percent

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

convergence endogenous growth and productivity disturbances abstract kelly 1992 has recently shown that evidence on convergence cannot be taken as evidence against endogenous growth in general this study uses a well known class of stochastic growth models to show other difficulties with traditional empirical studies of convergence key parameters typically cannot be estimated consistently in cross section regressions when the parameters are assumed known implications for convergence are unavailable except under restrictive and economically unmotivated assumptions those same assumptions that relate key parameters to cross country convergence render cross section regressions impossible to estimate consistently

electricity regulation and electricity market reforms in china the electricity industry of china has been in a process of reforms since the 1980s this paper gives a review on the three main stages of reforms in china so as to trace out key features of various reform measures including those for power investment financing the separation between government and power enterprises and the division between power generation firms and power grids the findings suggest that further regulatory change in china s electricity market reform is necessary when integration of the electricity markets and increased competition are paving the way ahead for a market oriented structure prospective electricity regulation in the form of a strong legal system and effective institutions that protect market competition and promote appropriate incentives for efficiency are suggested in the paper

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

the aggregate effects of sectoral reallocations abstract can a one time permanent change in the fundamentals behind the sectoral composition of the economy prompt an aggregate downturn can this downturn be non negligible even if one uses us data to determine the relative size of gross vs net job flows and the importance of job creation costs can one consider the military build down of the 1990s as a plausible cause for the 1990 1991 recession do sectoral reallocations generate responses that are qualitatively similar to productivity shocks we use a variant of the mortensen pissarides 1994 review of economic studies 61 397 415 job creation destruction model calibrate it to us labor market data and run experiments that suggest one can answer yes to all these questions

stochastic growth with irreversible investment abstract this paper provides a unified treatment of the theory of optimal growth when investment is irreversible and output from production is uncertain under a convex technology and fairly general assumptions on the random environment it is shown that optimal policies are monotonic and converge to a unique limiting distribution which is independent of the initial stock the paper concludes with a comparison of optimal policies in the presence and absence of irreversibility

recessions and recoveries in real business cycle models i introduction do general equilibrium business cycle models generate business cycles that look like the business cycles observed in a modern industrial economy the early real business cycle literature as exemplified by kydland and prescott 1982 hansen 1985 and the papers in the march may 1988 issue of the journal of monetary economics evaluated the ability of dynamic general equilibrium models to generate business cycles by comparing selected second moments of the data generated by the models with those generated by actual detrended data specifically this literature considers the deviations of various macroeconomic aggregates from trend as the cyclical movement that needs to be explained by a model of the business cycle a model is judged to be successful if the second moments generated by the model are close in some informal sense to the second moments found in the data in this paper rather than examine whether real business cycle models can mimic the autocorrelation and cross correlation properties of the data we ask whether a representative model of this class is able to generate cyclical behavior consistent with the traditional nber conception of business cycles the traditional nber definition of a business cycle defines the cycle in terms of periods of absolute increases and decreases in economic activity rather than fluctuations about some trend below we examine whether a real business cycle model can produce business cycles in this more traditional sense that are of appropriate duration and shape there are several reasons for considering this alternative method of evaluating real business cycle models there is a large and old literature including among many others mitchell 1927 burns and mitchell 1946 eckstein and sinai 1986 and zarnowitz 1992 that examines fluctuations in economic activity in terms of a nber type chronology of business cycle peaks and troughs furthermore it is business cycles in the traditional nber sense that policymakers the press and the general public are typically concerned with while periods of sub par growth do receive attention and are a source of concern to policymakers it is nonetheless the case that the qualitative nature of policy deliberations seems to change when the economy experiences absolute declines in economic activity finally by examining the nature of business cycles in light of a nber type chronology one may be able to uncover relationships that otherwise would be undetected if only auto or cross correlations of the data were used using the concept of business cycle time introduced by burns and mitchell 1946 we divide recessions and expansions in calendar time into separate business cycle phases based on this framework we show that for real gnp expansions tend to be concave and recessions linear that is growth tends to be faster earlier in the expansion and slower later in the expansion while the rate of decline is not significantly different over the course of the recession furthermore output tends to have rounded peaks and pointed troughs in addition to aggregate output we consider the shape of consumption of nondurables and services fixed investment hours and real wages while not every variable displays concave expansions round peaks and pointed troughs are present in most of these variables a simple real business cycle model considered in king plosser and rebelo 1988a a variant of the hansen 1985 and rogerson 1988 models is used to generate artificial economic histories the algorithm developed by bry and boschan 1971 to mimic the business cycle dating procedure of the nber is used to date business cycle peaks and troughs in the artificial data we then compare the nature of business cycles implied by these simple real business cycle models to that of actual business cycles we find that while these models are adequate at capturing the duration and the amplitude of actual business cycles they do not capture the entire shape of the business cycle

electricity market reform failures uk norway alberta and california an analysis of electricity market reforms already taken place in the uk norway alberta canada and california usa leads to our overall conclusion that the introduction of a competitive generation market of itself has failed to deliver reliable service at low and stable prices the market reform failures are attributed to market power abuse by few dominant sellers especially at times of transmission congestion poor market design that invites strategic bidding by suppliers the lack of customer response to price spikes capacity shortage caused by demand growth not matched by new capacity and thin trading of forward and futures contracts that are critical for price discovery and risk management the paper then explains why an electricity market reform can easily fail to deliver the promised gains of better service at lower and more stable prices the policy implication is that an electric market reform can be extremely risky and may lead to a disastrous outcome thus it is imprudent to implement such a reform in countries with limited sites for newgeneration and no indigenous fuels e g israel and hong kong these countries should therefore consider introducing performance based regulation that can immediately benefit electricity consumers in terms of lower prices more stable prices improved reliability more choices while encouraging the electric sector to pursue efficient operation and investment r 2003 elsevier science ltd all rights reserved

service quality in the electricity industry the role of privatization and managerial behavior abstract this paper analyzes the relationship between privatization and service quality in the electricity industry and tests the hypothesis that managerial behavior is a significant intervening factor the sample includes 31 italian distributors over the period 1998 2004 their quality performance is represented by continuity of supply an aspect of quality that is both contractible and regulated results of the empirical analysis suggest that the transfer of shareholdings to private investors does not lead to quality degradation the results also suggest that managerial dominance translates into a reduction in supply quality this effect is likely to be particularly strong for public sector utilities

sticker shocks using vat changes to estimate upper level elasticities of substitution we estimate the upper level elasticity of substitution between goods and services of a nested aggregate ces preference specification we show how this elasticity can be derived from the long run response of the relative price of a good to a change in its vat rate we estimate this elasticity using new data on changes in vat rates across 74 goods and services for 25 european union countries from 1996 through 2015 depending on the level of aggregation we find a vat pass through rate between 0 4 and 0 7 this implies an upper level elasticity of 3 at the lowest level of aggregation with 74 categories and 1 cobb douglas preferences at a high level of aggregation that distinguishes 10 categories of goods and services

can world real interest rates explain business cycles in a small open economy abstract while the world real interest rate is potentially an important mechanism for transmitting international shocks to small open economies much of the recent quantitative research that studies this mechanism concludes that it has little effect on output investment and net exports we re examine the importance of world real interest rate shocks using an approach that reverses the standard real business cycle methodology we begin with a small open economy business cycle model but rather than specifying the stochastic processes for the shocks and then solving and simulating the model to evaluate how well these shocks explain business cycles we use the model to back out the shocks that are consistent with the model s observable endogenous variables then we use variance decompositions to examine the importance of each shock we apply this methodology to canada and find that world real interest rate shocks can play an important role in explaining the cyclical variation in a small open economy in particular they can explain up to one third of the fluctuations in output and more than half of the fluctuations in net exports and net foreign assets

plant level irreversible investment and equilibrium business cycles this paper evaluates the importance of microeconomic irreversibilities for aggregate dynamics using a real business cycle rbc model characterized by investment irreversibilities at the establishment level the main finding is that investment irreversibilities do not play a significant role in an otherwise standard realbusiness cycle model even though investment irreversibilities are crucial for establishment level dynamics aggregate fluctuations are basically the same under fully flexible or completely irreversible investment jel e22 e32

spillovers from foreign direct investment within or between industries this paper contributes an estimation framework to measure both technological and linkage externalities from foreign direct investment fdi empirical research dealt mainly with intra industry spillovers from fdi with restrictive treatment of inter industry effects until recently however as optimal organization of the multinational corporation mnc involves minimization of profit losses due to leakage of technical information to competitors host country firms within the mnc s sector experience limited productivity gains ensuing fdi host country producers in other sectors may benefit for example mncs transfer knowledge to local downstream clients or outsource to local upstream suppliers hence fdi substitutes within sector domestic investment but complements it across sectors the net impact on aggregate capital formation by host country producers hinges on the interaction between linkages and spillovers estimations based on the colombian manufacturing census yield the sectoral pattern of fdi spillovers displaying knowledge propagation between but not within industries the findings reveal outsourcing relationships of mncs with local upstream suppliers as the channel of diffusion

convergence in the oecd transitional dynamics or narrowing steady state differences i introduction research on growth and convergence has proceeded through several stages that can be described as a process of accommodating cross country heterogeneity into the convergence equation in the first stage the world could be described as countries approaching to equal absolute convergence or to different conditional convergence steady states in both cases see baumol 1986 barro and sala i martin 1992 or mankiw et al 1992 the assumption of parameter homogeneity of the underlying production function was assumed and not tested later some researchers knight et al 1993 islam 1995 durlauf and johnson 1995 or caselli et al 1996 among others began to challenge the view that the productivity shift parameter of the underlying production function is homogeneous across countries from an econometric point of view the transition from the first to the second stage made researchers resort to panel data methods that exploit the time dimension of data sets a natural extension to accommodate heterogeneity was developed in lee et al 1997 in this third stage the authors extended the use of panel data methods to allow for differences not only in the initial conditions the constant term but also in other coefficients of the production function and in the rate of technological progress itself if there is widespread heterogeneity there are substantial econometric difficulties in obtaining precise estimates of the speed of convergence in particular the estimated rate of convergence is biased downward in cross section regressions see lee et al 1997 or caselli et al 1996 suggesting a slower convergence rate than is actually the case 1 the pooled fixed effect estimator would partially solve the problem of accommodating level effects across countries through heterogeneous intercepts but in dynamic panels heterogeneity in speeds of convergence renders this estimator inconsistent too pesaran and smith 0995 show that the mean group estimator i e estimating the convergence equation separately for each country using annual data and averaging the coefficients is appropriate in this case nevertheless as recognized by these authors this procedure may also be subject to a small sample bias that can be important even for time dimensions as large as 30 years in this article we do not discuss further the advantages or shortcomings of these different econometric methods to estimate convergence equations 2 our aim is not presenting an alternative econometric method to estimate consistently the parameters in growth regressions rather we focus on some implications of the different econometric techniques that so far have been extensively used in the convergence literature and that have been largely unexplored to this end we present three well established estimation approaches as a benchmark of the way the literature has estimated convergence equations in some fundamental contributions and we explore the implications of parameter heterogeneity within the standard mankiw romer and weil theoretical framework cross section and fixed effects models lead us to conclude that the observed reduction in the dispersion of per capita incomes that has taken place among organisation for economic co operation and development oecd countries since the 1960s is mostly a process of transitional dynamics according to this interpretation the dispersion of the long run steady state features of oecd economies has remained fairly stable during the past 40 years if the dispersion of incomes has narrowed it is because these countries started from very different initial conditions and have been approaching their own steady state this is in accordance with the predictions of the standard exogenous growth model mean group estimates tell us a different story namely that the process of transitional dynamics has been negligible oecd countries have never been too far from their steady states and the reduction of dispersion is mostly explained in terms of convergence in steady states themselves that is in the long run determinants of per capita income savings rates human capital accumulation etc

a further assessment of the hong kong government s proposed post 2008 regulatory regime for local electricity utilities abstract the current regulatory contract between the hong kong government and the two local power suppliers will expire in 2008 to elicit constructive ways to refine this regulatory contract upon its expiration in two years the hong kong government recently issued a public consultation paper an earlier viewpoint by woo horowitz and tishler 2006 warns that if the proposals provided in this consultation paper are fully adopted it will do more harm than benefiting the industry while its concern is valid that viewpoint has not suggested specific improvements of the existing arrangement and how incumbent firms incentives to invest will not be harmed under the new arrangement hence this viewpoint contributes to hong kong electricity policy debate by filling this gap with the hope of aiding the regulator to better regulate the market in the years after the current contract s expiration

turnpike theorems in nonconvex nonstationary environments this paper provides a comprehensive development of turnpike theory in a stochastic aggregative model with time varying nonconvex technology a new approach to turnpike theorems is developed that exploits the monotonicity of optimal programs and utilizes a supermartingale process generated by stochastic euler equations this extends the classical turnpike theory to general nonconvex nonstationary environments copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

business cycles and labor market search the quantitative implications of labor market search for economic fluctuations are evaluated in the context of a real business cycle model incorporating labor market search into the model is found to improve its empirical performance along several dimensions in particular hours now fluctuate substantially more than wages and the contemporaneous correlation between hours and productivity falls in addition the model replicates the observation that output growth displays positive autocorrelation at short horizons overall the empirical results suggest that the labor market search environment embodies a quantitatively important propagation mechanism copyright 1996 by american economic association

understanding investment irreversibility in general equilibrium miquel faig i introduction many forms of investment are irreversible a growing body of literature 1 has shown that irreversibility is important for firms investment decisions under uncertainty however we still know little about the consequences of investment irreversibility for the economy as a whole that is in general equilibrium learning about these consequences is not only important for a better understanding of capital accumulation it is also important for an understanding of the information that asset returns provide about the business cycle in fact recent papers by boldrin christiano and fisher 1995 beaudry and guay 1996 and jermann 1998 convincingly argue that impediments to the reallocation of capital are crucial to generate realistic dynamics for asset returns thus understanding the general equilibrium consequences of investment irreversibility is important to the theories of economic growth the business cycle and asset pricing in this article i advance an analytically tractable model to explore the consequences of investment irreversibility in general equilibrium the main contribution of this model to the existing literature is analytical tractability analytical results from the literature dealing with investment irreversibility in general equilibrium are scarce and mainly limited to general properties such as existence of solutions as in sargent 1980 and olson 1989 fortunately thanks to numerical simulations we know some of the effects of investment irreversibility in general equilibrium for example using an extension to the neoclassical growth model coleman 1997 documents that irreversibility significantly affects interest rates and it may increase aggregate investment even when no constraints are binding 2 in contrast firms behavioral analyses and the related competitive equilibrium model by leahy 1993 show that irreversibility typically discourages capital creation the model advanced in this paper helps to understand and to formalize why such contrast exists the model of this article extends the endogenous growth model found in barro 1990 the four main assumptions of the model are the following all production processes yield the same output which can be consumed or invested in many types of capital all factors of production are a type of capital the aggregate production function yields constant returns to scale preferences are homothetic and modeled along the lines of epstein and zin 1989 these preferences include as a special case the standard isoelastic time additive preferences but they allow to distinguish between the inter temporal elasticity of substitution and the inverse of the coefficient of relative risk aversion these two parameters play important and distinct roles in the analysis to attain strong analytical results the model in this article has to adopt the restrictive assumption that all factors of production are a form of capital however the model remains quite flexible to capture important elements of reality the model allows for many types of capital so some of them can be interpreted as human capital also the model allows great flexibility on the stochastic shocks affecting the production possibilities of the economy finally the model allows for the coexistence of irreversible and flexible types of capital with or without complementarities between them this diversity of capital types is important to generate endogenous interest rates and endogenous marginal products of capital also capital diversity allows for strongly binding irreversibility constraints even with positive gross investment as it has always been the model reveals that in general equilibrium there are three effects of irreversibility on aggregate investment the first is the obvious direct effect of preventing capital destruction in periods one may wish to consume part of the capital stock

simon kuznets sectoral shares in labor force a different explanation of his i s a ratio in estimating intersectoral productivity differences kuznets concludes that per worker product in agriculture is significantly lower than in industry and services agriculture s productivity backlog is explained by labor market failure especially in developing countries structural dualism however by analyzing agriculture as an economic activity organized by farm households competing with off farm and household production efficient allocation of resources in agriculture can be demonstrated therefore productivity measurements based on the concept of the farm as a firm are misleading a model of the farm household and empirical evidence are presented in his seminal book economic growth of nations simon kuznets 1971 has systematically analyzed intersectoral productivity differences to be observed in almost all countries with respect to labor productivity in agriculture a as compared to industry and services i s he has found out that per worker product in the a sector is significantly lower than in the i s sector and intersectoral inequality in per worker product is greatest at the low per capita product levels and smallest at the high per capita product levels p 236 hollis chenery and moises syrquin 1975 p 53 have confirmed but somewhat modified kuznets findings by explaining that relative labor productivity in the primary sector falls from about 70 percent to 50 percent at an income level of 500 and then gradually rises as agricultural technology is modernized and the surplus agricultural labor is absorbed by the rest of the economy as far as developing countries are concerned kuznets p 156 illustrates this explanation by the most plausible combination of economic determinants affecting an absolute decline in per worker product in the a sector resulting from increased pressure of population on land under conditions of relatively stagnant agricultural technology and some rise in per worker product in the i s sector resulting from a growth of modern components in industry and services in discussing several explanations of intersectoral differentials in per worker product p 238 kuznets finally comes to the conclusion that whatever the formulation the discussion tended justifiably to emphasize various aspects of duality in structure in the less developed countries p 247 he thereby confirms the dogma of structural dualism as the main source of disguised unemployment in agriculture seen as the cornerstone of the theory of development of underdeveloped countries since the 1940s according to paul rosenstein rodan 1957 p 1 already in 1954 arthur lewis has generated a micro model of agriculture within economic development with unlimited supplies of labour 1954 which during following years has been extended and modified by various development economists 2 with respect to developed professor of agricultural economics university of gottingen federal republic of germany platz der gottinger sieben 5 d 3400 gottingen the author acknowledges helpful comments of two unknown referees to an earlier draft of this article wide ranging international differences in intersectoral productivity discrepancies have been already observed and discussed mainly with respect to agriculture by marc latil 1956 j r bellerby 1956 and colin clark 1957 but none of them has provided a consistent explanation therefore clark p 254 had to admit that no immediate deductions can be drawn from the data more recent information on far reaching sectoral productivity differences between oecd countries are provided by oecd see table 1 2various models of agriculture in a dual economy are discussed inter alia by hans bemd schafer 1983

productivity shocks and business cycles this note uses two measures of productivity growth the solow residual and the dual residual from the cost function to test competing theories of the cycle in a number of oecd countries the empirical results indicate that both demand and supply shocks play a role in driving economic cycles and therefore refute the stronger real business cycle hypothesis

a critical assessment of the hong kong government s proposed post 2008 regulatory regime for local electricity utilities abstract in december 2005 the hong kong government issued a consultation paper on future development of the electricity markets in hong kong stage ii consultation proposing a post 2008 regulatory regime upon the expiration of the existing regulatory contract between the hong kong government and each of the two local electricity utilities we assess the proposal using the criteria of safe reliable and environmentally friendly service at the lowest rates that will allow the utilities reasonable returns on their investments we caution that if fully adopted the highly risky proposal may lead to less reliable service without the compensating benefits to the environment

electricity tariffs in hong kong what went wrong and what can we do about it the hong kong economy has undergone radical changes over the past two decades and as a result profoundly affected the electricity supply industry the level of excess capacity maintained by the two vertically integrated utilities and the tariffs they charged are both one of the highest among all developed countries and they are the adverse results of the scheme of control regulation what happened in the local electricity market has drawn much criticism among researchers and consumer groups and major reform of the entire market is being suggested this paper outlines the structure of the electricity supply industry and its regulatory arrangement in hong kong and discusses the problems and inefficiencies caused by the specific type of regulation without compromising efficiency a number of policy alternatives are proposed with a view to rectify the current problems

financial innovation price smoothing and monetary policy financial innovation price smoothing and monetary policy i introduction in a monetary economy the volume of nominal transactions fluctuates with the level of economic activity empirical evidence suggests that the supply of nominal transaction assets such as currency and bank deposits also fluctuates with the level of economic activity some researchers have attributed these observations to the phenomenon of money endogeneity 1 one explanation for this endogenous supply response is a systematic monetary policy as described by black 1972 under which the central bank passively adjusts the money supply to accommodate the changes in money demand alternatively king and plosser 1984 and saving 1979 stress the role of the private banking system in producing this endogenous response they argue that exogenous changes in real activity elicit sympathetic changes in the demand for transaction services that may be partially or fully accommodated by the banking system through its supply of inside money in either case this endogenous supply response tends to mitigate the price adjustment that accompanies a real supply shock 2 in the long run however the price level is ultimately determined by the central bank in the market for the nominal quantity that it controls e g currency bank reserves when deposit accounts are subject to reserve requirements or the monetary base 3 this suggests that if the private banking system does not fully accommodate the real shock and if the shock exhibits a well defined persistence then endogenous price adjustments that are fully anticipated may be further damped by a passive supply response by the central bank in addition if price expectations affect real interest rates then current period price level smoothing via a passive monetary policy may also be possible 4 in addition to employing transaction assets currency and checkable bank deposit accounts to meet their transaction requirements agents may purchase non deposit transaction services directly for firms these services include the tools available to the modern corporate cash manager such as lockbox collection systems repurchase agreements and zero balance accounts in the household sector they take the form of atms debit and credit cards and overdraft privilages on checkable accounts among others these non deposit transaction services represent an increasingly important medium of exchange their supply by the banking system is not directly controlled by the central bank and also offers another avenue by which the economy may respond endogenously to fluctuating transaction requirements associated with real shocks thereby further mitigating the price adjustment 5 the production of non deposit transaction services is subject to technology shocks in the form of financial innovations these innovations alter the economy wide demand for currency and checkable bank deposit accounts and prices adjust as with the introduction of new technology into the production of goods financial innovations are not fully adopted immediately due to the fixed costs of adjusting individual cash management practices but are instead assimilated over time this implies that their effects on transaction asset demands persist if the rate of adoption has a forecastable component the central bank can smooth expected prices by passively accommodating these innovations as with aggregate productivity shocks this persistence may also enable the central bank to damp the disturbances to the current period price level that these innovations create through the impact of price expectations on real interest rates this paper examines a non deposit transaction services market in a model economy that is developed in section ii it has the following features transactors can meet their transaction requirements by allocating wealth to currency or to bank deposit accounts that pay a market determined interest rate or by purchasing non deposit transaction services directly at a market determined price

aggregate fluctuations and the industry structure of the us economy abstract in a two sector economy changes in intermediate input trade as reflected in cost share fluctuations are key to determining the amplification properties of investment specific and neutral shocks i document that the cost shares of intermediate inputs produced by the investment sector correlate positively with gdp whereas those of inputs produced by the consumption sector correlate negatively with gdp the two sector model of greenwood et al 1988 is extended to allow for trade of intermediate goods and to show that the documented correlations discipline heterogeneous elasticities of substitution in intermediate inputs across sectors shock amplification that is the effect of a sectorial shock on aggregate value added depends on the degree of heterogeneity in these elasticities of substitution for a calibrated economy to that of the united states i find that shock amplification is stronger than in a unitary elasticity economy it is also stronger than in an economy with a common non unitary elasticity that is either inferred from data via reduced form estimates or calibrated to match the same targets as our benchmark economy

the workweek of capital and its cyclical implications abstract the neoclassical growth model studied in the kydland and prescott time to build paper is modified to permit the capital utilization rate to vary the effect of this modification is to increase the amplitude of the aggregate fluctuations predicted by theory as the equilibrium response to technological shocks if following solow the changes in output not accounted for by changes in the labor and tangible capital inputs are interpreted as being the technology shocks the statistical properties of the fluctuations in the postwar united states economy are close in magnitude and nature to those predicted by theory

performance based regulation of the electricity supply industry in hong kong an empirical efficiency analysis approach this paper presents an empirical efficiency analysis approach to analyze the efficiency and performance of utilities and its effects on prices under the price cap performance based regulation pbr model a data envelopment analysis dea like frontier based method is used to compute the total factor productivity with the malmquist productivity index results of case studies support the use of the approach to account for the relation of the x factor and the pbr model on the two power utilities in hong kong s electricity supply industry

disaggregate stochastic trends in industrial production abstract several industries appear cointegrated at a highly disaggregated level but the cointegration is not sufficient to reduce the system to a single common trend instead the results indicate that ten common trends are present in the industrial production aggregate

technical progress and aggregate fluctuations abstract we compare the cyclical fluctuations exhibited by a stochastic growth model under various stochastic processes governing technical change all of which are highly autocorrelated the results obtained are quite sensitive to the precise form of this stochastic process in particular the results depend on whether growth is deterministic or stochastic and in each case are quite sensitive to the persistence of an innovation the model does a relatively poor job of accounting for features of observed business cycles when technical change is difference stationary and does a better job when technical change is trend stationary but highly autocorrelated

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

sustaining china s electricity market development abstract china s 12th five year plan addresses new challenges and sets new goals in the country s power sector the structure of power generation development is to be optimised to properly balance coal transportation and power transmission the controversy over the direction of grid transmission and distribution is also to be reconciled the plan puts forward specific requirements for energy conservation developing clean energy optimising the production of coal fired electricity rationalising the allocation of peak power developing distributed energy and constructing a strong smart grid it also strongly advocates renewable and other forms of clean energy resources considering all the above goals and requirements it is necessary for china to adjust its blueprint for electricity market development by fine tuning the original market oriented reform momentum this paper aims to design a policy framework for this and discusses how china should develop policies and strategies to meet these requirements and achieve these goals examples of compatible international experiences illustrate how china can secure a sustainable energy future