uniqueness of market equilibrium on a network a peak load pricing approach abstract in this paper we establish conditions under which uniqueness of market equilibrium is obtained in a setup where prior to trading of electricity transmission capacities between different market regions are fixed in our setup firms facing fluctuating demand decide on the size and location of production facilities they make production decisions constrained by the invested capacities taking into account that market prices partially reflect scarce transmission capacities between the different market zones for this type of peak load pricing model on a network we state general conditions for existence and uniqueness of the market equilibrium and provide a characterization of equilibrium investment and production the presented analysis covers the cases of perfect competition and monopoly the case of strategic firms is approximated by a conjectural variations approach our result is a prerequisite for analyzing regulatory policy options with computational multilevel equilibrium models since uniqueness of the equilibrium at lower levels is of key importance when solving these models thus our paper contributes to an evolving strand of literature that analyzes regulatory policy based on computational multilevel equilibrium models and aims at taking into account individual objectives of various agents among them not only generators and customers but also e g the regulator deciding on network expansion

alternative models of restructured electricity systems part 1 no market power different equilibrium concepts have been proposed by various authors schweppe et al hogan et al chao and peck wu et al to analyse competitive electricity systems we establish correspondences between these different models through a single framework and provide additional interpretations of these equilibrium concepts this unifying conceptual view also provides a computationally feasible approach to simulate the market it also opens the way to the modeling of some imperfect markets

on the long run effects of market splitting why more price zones might decrease welfare in liberalized electricity markets we observe different approaches to congestion management while nodal pricing is implemented in canada and some markets in the united states european markets are split up into a limited number of price zones with uniform prices in order to at least partially realize the benefits of regional price differentiation zonal boundaries often coincide with national borders but some countries are also split into multiple zones in this paper we shed light on possible negative welfare effects of market splitting that arise in a model where investment incentives in new generation capacity are taken into account if zones are misspecified we show that standard approaches to configure price zones on the basis of projected nodal price differences or congested transmission capacity may fail to suggest reasonable zone specifications also an adjustment of available transfer capacities atcs between zones or a switch to flow based market splitting does not ensure positive welfare effects our analysis suggests that a careful and detailed evaluation of the system is needed to ensure a reasonable zone configuration

where does price discovery occur for stocks traded in multiple markets evidence from hong kong and london using a sample of hong kong listed stocks that are also traded on the london stock exchange we document the following results first london market makers use hong kong s closing prices as the benchmark for setting the opening prices in london second trading in the london market plays only a limited role in price discovery in the hong kong market third the stock returns from london trading are closely correlated with those of the hong kong market the above findings are consistent with the explanation that london trading is predominantly liquidity driven but not information driven

welfare effects of expansions in equilibrium models of an electricity market with fuel network the welfare of electricity producers and consumers depends on congestion in the transmission grid generation costs that consist mainly of fuel costs and strategic behavior we formulate a game theoretic model of an oligopolistic electricity market where generation costs are derived from a fuel supply network the game consists of a fuel dispatcher that transports fuels at minimum cost to meet generator demands generators that maximize profit in cournot competition and an independent system operator iso that sets nodal prices to balance electricity supply with linear demand functions we prove the existence of an equilibrium if fuel supplies are unlimited the same equilibria hold in a simplified version of the game in which each generator optimizes its fuel acquisition from the network in some very simple examples under different assumptions about the rationality of generators with respect to iso decisions paradoxical effects on total welfare can occur from expanding either electricity transmission capacity or the transportation capacity of low cost fuel we find some instances in which the paradox occurs only under bounded rationality of the generators others where it occurs only if the generators are fully rational and still others where it occurs to different degrees under the two rationality assumptions

bi level game approaches for coordination of generation and transmission expansion planning within a market environment the main purpose of this paper is to develop methodologies for simultaneous generation and transmission expansion planning problem of power networks while investigating interactions between these two important sections in the proposed methodologies a transmission operator to operating under different incentives decides about investment in transmission network while anticipating the outcome of a purely competitive electricity market where several rival generation firms complete with each other to determine operating level of their generators amount of their sales and amount of their investment in generation capacity the proposed methodologies rely on bi level programming models whose upper level model represent the problem of investment in transmission by to and the lower level problems represent market outcomes obtained from clearing the market these bi level models are reduced to mixed integer linear and nonlinear programming using the duality theory and karush kuhn tucker kkt optimality conditions the results of the proposed models are analyzed and compared using two illustrative examples

how smooth is price discovery evidence from cross listed stock trading abstract the adjustment to parity can be nonlinear for a cross listed pair convergence may be quicker when the price deviation is sufficiently profitable we propose a threshold error correction model ecm to gauge the market respective information shares of canadian listings traded on the toronto stock exchange tsx and the new york stock exchange nyse since dynamics may alternatively be gradual we further generalize the threshold framework to a smooth transition ecm the empirical implications are as follows first the tsx and the nyse appear to have integrated over time second parity convergence accelerates upon discounts on the cross listings on the nyse third we find a larger feedback from the nyse if the price gap exceeds the threshold required arbitrage return fourth informed traders tend to cluster on the nyse upon discounts on the cross listings fifth information share and threshold are affected by the relative degree of private information market friction and liquidity measures firm level characteristics and aggregate risks

how are stock prices affected by the location of trade abstract we examine pairs of large siamese twin companies whose stocks are traded around the world but have different trading and ownership habitats twins pool their cash flows so with integrated markets twin stocks should move together however the difference between the prices of twin stocks appears to be correlated with the markets on which they are traded most i e a twin s relative price rises when the market on which it is traded relatively intensively rises we examine several explanations of this phenomenon including the discretionary use of dividend income by parent companies differences in parent expenditures voting rights currency fluctuations ex dividend date timing issues and tax induced investor heterogeneity only the last hypothesis can explain some but not all of the empirical facts we conjecture that a country specific sentiment shocks might affect share intensity b investors are rational but markets are segmented by frictions other than international transactions costs such as agency problems

common stochastic trends in international stock markets abstract this paper presents evidence concerning the number of common stochastic trends in the equity markets of the u s japan england germany and canada monthly and quarterly data from january 1974 through august 1990 on morgan stanley s capital international indices are used to compute johansen 1990 tests for common trends the results indicate the presence of a single common trend driving these countries stock markets estimates of the factor loadings suggest that this trend is most important in the japanese market and least important in the canadian market to interpret this evidence the paper demonstrates that under weak conditions the unit root and cointegration structure of stock prices should mirror the unit root and cointegration structure of their dividend payments the paper tests this prediction by constructing national dividend series from capital international s dividend yield data as well as by using gnp data as with stock prices the evidence points to a single common trend although the stochastic properties and relative importance of this trend differs somewhat from the trend in stock prices

the impact of swaps on health aid displacement of domestic health expenditure recent research suggests that an additional 1 of health aid would displace or crowd out nearly the same amount in a recipient government s own health expenditure implementing a sector wide ap

optimal transmission planning under the mexican new electricity market abstract this paper addresses electricity transmission planning under the new industry and institutional structure of the mexican electricity market which has engaged in a deep reform process after decades of a state owned vertically integrated non competitive closed industry under this new structure characterized by a nodal pricing system and an independent system operator iso we analyze welfare optimal network expansion with two modeling strategies in a first model we propose the use of an incentive price cap mechanism to promote the expansion of mexican networks in a second model we study centrally planned grid expansion in mexico by an iso within a power flow model we carry out comparisons of these models which provide us with hints to evaluate the actual transmission planning process proposed by mexican authorities prodesen we obtain that the prodesen plan appears to be a convergent welfare optimal planning process

the economics of planning electricity transmission to accommodate renewables using two stage optimisation to evaluate flexibility and the cost of disregarding uncertainty abstract aggressive development of renewable electricity sources will require significant expansions in transmission infrastructure we present a stochastic two stage optimisation model that captures the multistage nature of transmission planning under uncertainty and use it to evaluate interregional grid reinforcements in great britain gb in our model a proactive transmission planner makes investment decisions in two time periods each time followed by a market response uncertainty is represented by economic technology and regulatory scenarios and first stage investments must be made before it is known which scenario will occur the model allows us to identify expected cost minimising first stage investments as well as estimate the value of information the cost of ignoring uncertainty and the value of flexibility our results show that ignoring risk in planning transmission for renewables has quantifiable economic consequences and that considering uncertainty can yield decisions that have lower expected costs than traditional deterministic planning methods in the gb case the value of information and cost of disregarding uncertainty in transmission planning were of the same order of magnitude approximately 100 m in present worth terms further the best plan under a risk neutral decision criterion can differ from the best under risk aversion finally a traditional sensitivity analysis based robustness analysis also yields different results than the stochastic model although the former s expected cost is not much higher

quantitative implications of a debt deflation theory of sudden stops and asset prices abstract this paper shows that the quantitative predictions of an equilibrium asset pricing model with financial frictions are consistent with key features of the sudden stop phenomenon foreign traders incur costs in trading assets with domestic agents and a collateral constraint limits external debt to a fraction of the market value of domestic equity holdings when this constraint does not bind standard productivity shocks cause typical real business cycle effects when it binds the same shocks cause strikingly different effects depending on the leverage ratio and asset market liquidity with high leverage and a liquid market the shocks force fire sales of assets and fisher s debt deflation mechanism amplifies the responses of asset prices consumption and the current account precautionary saving makes these sudden stops infrequent in the long run

market based generation and transmission planning with uncertainties this paper presents a stochastic coordination of generation and transmission expansion planning model in a competitive electricity market the monte carlo simulation method is applied to consider random outages of generating units and transmission lines as well as inaccuracies in the long term load forecasting the scenario reduction technique is introduced for reducing the computational burden of a large number of planning scenarios the proposed model assumes a capacity payment mechanism and a joint energy and transmission market for investors costs recovery the proposed approach simulates the decision making behavior of individual market participants and the iso it is an iterative process for simulating the interactions among gencos transcos and iso the iterative process might be terminated by the iso based on a pre specified stopping criterion the case studies illustrate the applications of proposed stochastic method in a coordinated generation and transmission planning problem when considering uncertainties

where do all the windmills go influence of the institutional setting on the spatial distribution of renewable energy installation abstract promoting renewable energy sources is one policy response to climate change not only is there currently a debate over the best policy instrument it is also discussed whether the renewable energy production should be expanded centralized at locations with the highest production potential or decentralized close to load it is yet not fully understood what influences the spatial distribution of renewable energy installation i assess the effect of subsidy scheme and market design on the spatial distribution of wind energy installations by comparing a feed in tariffs versus market premiums and b uniform versus nodal pricing the analysis is based on theoretical considerations and using a six node test model that reflects the consumption and renewable resource distribution in several countries and regions the institutional setting has great influence on the spatial distribution and resulting system costs with uniform pricing a market premium only leads to a more decentralized expansion of renewable energy production than a tariff when sites share similar wind conditions spatially more distributed expansion of wind power performs better in terms of total costs and share of wind power in final demand when networks are restricted

real exchange rate behavior the recent float from the perspective of the past two centuries using annual data spanning two centuries for dollar sterling and franc sterling real exchange rates we find strong evidence of mean reverting real exchange rate behavior using simple stationary autoregressive models estimated on prefloat data we easily outperform nonstationary real exchange rate models in dynamic forecasting exercises over the recent float such stationary univariate equations explain 60 80 percent of the in sample variation in real exchange rates although the degree of short run persistence may be high the econometric estimates imply a half life of shocks to the real exchange rate of about 6 years for dollar sterling and a little under 3 years for franc sterling

price transmission foreign exchange rate risks and global diversification of adrs the purposes of this article are to reinvestigate how returns of major american depository receipts adrs from different countries are related to the underlying stock returns and to identify the determinants of adr risk premiums we use different types of error correcting terms in vector error correction models to examine information flows between adrs and the underlying foreign stocks general method of moments estimation of conditional international asset pricing model of dumas and solnik 1995 is applied to investigate adr return premiums we find that stock returns are more affected by disequilibrium between adr and stock prices in an inefficient way for us investors foreign exchange rate risk premiums and world market risk premium beyond us index are priced in adrs returns ex ante surprisingly it is shown that the exchange rate of new taiwan dollar and the interest rates of brazil and taiwan play important roles in determining adr risk premiums across countries

central bank reactions to banking crises in fixed exchange rate regimes abstract until recently speculative attacks and banking crises have been largely treated as separate phenomena however the recent experiences of several southern cone countries indicates that banking difficulties can lead to a currency crises if in combatting them the central bank adopts policies which are inconsistent with the fixed exchange rate regime the paper illustrates how this can be the case and discusses what are the policy responses available to central banks that face banking crises in fixed exchange rate regimes

was china the first domino assessing links between china and other asian economies abstract several commentators have suggested that competition from china in particular its 1994 devaluation and strong export performance during 1994 95 may have contributed to the asian crisis of 1997 98 we provide evidence against this view we show that the devaluation was not important in economic terms and china s strong export performance in 1994 95 was matched by other asian economies we also show that the period 1993 and 1996 was marked by relative stability in the export shares of china and other asian economies in various geographical regions and industries the paper concludes by outlining channels through which the asian crisis could affect china

purchasing power parity in the long run a test of the dollar pound exchange rate 1890 1978 this paper tests the purchasing power parity ppp hypothesis by analyzing t he long run tendency of the dollar pound exchange rate using data sin ce 1890 two different models are considered 1 a na ive model and 2 a modified monetary model the conditions of propor tionality and symmetry cannot be rejected when using the naive model the final results using the monetary model however indicate that t he existence of permanent deviations from ppp cannot be ruled out copyright 1987 by ohio state university press

international transmission of stock market movements this paper investigates the international transmission mechanism of stock market movements by estimating a nine market vector autoregression var system using simulated responses of the estimated var system we i locate all the main channels of interactions among national stock markets and ii trace out the dynamic responses of one market to innovations in another generally speaking a substantial amount of multi lateral interaction is detected among national stock markets innovations in the u s are rapidly transmitted to other markets in a clearly recognizable fashion whereas no single foreign market can significantly explain the u s market movements also the dynamic response pattern is found to be generally consistent with the notion of informationally efficient international stock markets

a stock market boom during a financial crisis abstract the surprising argentine stock market boom during a financial crisis is explained as a result of investors using the stock market to circumvent cash withdrawal restrictions and capital controls and shift funds out of argentina and into the united states

transmission and wind power investment this paper jointly considers wind power investment and transmission reinforcement the proposed model is a mathematical program with equilibrium constraints mpec that seeks to identify the optimal wind projects to be developed and the required network reinforcements under the transmission system operator perspective this mpec seeks to minimize consumer payments and is constrained by investment conditions and the equilibria of the market under different operating conditions an array of subsidies is considered to promote independent wind power investment an example and two case studies illustrate the characteristics of the proposed model

anomalies foreign exchange most all behavior can be explained by assuming that agents have stable well defined preferences and make rational choices consistent with those preferences in markets that eventually clear an empirical result qualifies as an anomaly if it is difficult to rationalize or if implausible assumptions are necessary to explain it within the paradigm this column will present a series of such anomalies readers are invited to suggest topics for future columns by sending a note with some reference to or better yet copies of the relevant research comments on anomalies printed here are also welcome the address

market based coordination of transmission and generation capacity planning we propose an iso model for coordinating transmission expansion planning with competitive generation capacity planning in electricity markets the purpose of the model is a holistic simulation of generation and transmission capacity expansion in the market environment the solution represents an iterative process for simulating the interactions among gencos transcos and the iso which might be terminated by the iso based on a pre specified stopping criterion the proposed model adopts a joint energy and transmission auction market and a capacity mechanism the joint auction market enables competition to occur among generation and transmission resources the capacity mechanism offers incentives for market participant investments that reflect the locational values of additional capacity transmission capacity expansion decisions are made by merchant transmission lines that recover their capacity investments through transmission marginal pricing and capacity payments transmission network security is reflected in the proposed competitive resource planning model the examples illustrate a coordinated planning of generation and transmission in restructured power systems

investment incentives for flexible demand options under different market designs abstract this paper analyzes investment incentives for flexible manufacturing facilities under different market designs we propose a multi stage equilibrium model incorporating endogenous determination of generation capacity investment network expansion and redispatch based on the model introduced by grimm et al 2016 including flexibilization of industrial electricity consumption the model allows to investigate incentives for flexibilization and the impact of flexible industrial electricity consumers on the system an application to the german electricity market reveals that flexible industrial electricity consumption can be profitable for firms if the share of flexible electricity consumers is high price fluctuations are mitigated which lowers the individual cost savings from demand flexibility comparing different market designs positive impacts of flexible electricity demand on the system are observed in both the system optimum and the market equilibrium in scenarios with flexible industrial electricity consumption welfare is considerably higher than in those without this is due to lower electricity costs of industrial consumers but more importantly due to less investment in conventional power generation as well as a reduced transmission network expansion however a comparison of nodal and uniform pricing underlines the importance of regional price signals with respect to an efficient allocation of flexible industrial demand

regime switching analysis of adr home market pass through abstract we model and estimate adrs home market pass through and pricing to market using a regime switching approach which nests the two regimes in a conditional capital asset pricing model and treats any changes in these two regimes probabilistically our results from the 1998 to 2006 data show that the pricing to market regime dominates adrs from china and japan whereas the home market pass through regime dominates adrs from argentina and germany when their respective home markets are volatile

price transmission dynamics between adrs and their underlying foreign securities abstract this paper extends previous research by considering three pricing factors for american depository receipts adrs the price of the underlying shares in the local currency the relevant exchange rate and the us market index using both a vector autoregressive var model with a cointegration constraint and a seemingly unrelated regression sur approach we examine the relative importance of and the speed of adjustment of adr prices to these underlying factors our results show that while the price of the underlying shares is most important the exchange rate and the us market also have an impact on adr prices while the bulk of the shocks to the pricing factors are reflected in the adrs within the same calendar day there are indications that the adjustments are not completed until the following day curiously the adrs appear to initially overreact to the us market index but underreact to changes in underlying share prices and exchange rates

evolution in dynamic linkages across daily national stock indexes abstract this article investigates how dynamic linkages among the daily rates of return of eight national stock indexes have evolved since 1972 a dynamic simultaneous equations model is estimated to describe the contemporaneous and lead lag relationships across national equity markets over three different years 1972 1980 and 1987 results reveal growing market interdependence within the same geographical region over time while there are many significant intermarket relationships within the same 24 hour period there are few significant lagged responses across markets beyond 24 hours this suggests a high degree of international market efficiency furthermore japan s market influence has been growing to rival that of the usa

cross border trading as a mechanism for implicit capital flight adrs and the argentine crisis abstract cross listed shares may confound government efforts to control capital outflows by providing a legal means through which investors can transfer their wealth outside the country we study the recent experience of investors who while subject to capital controls were able to purchase cross listed shares using local currency convert them into dollar denominated shares re sell them abroad and deposit the dollar proceeds in foreign bank accounts capital controls drive a wedge between the price of local shares and their corresponding cross listed shares this wedge provides an implicit devaluation forecast and the market s valuation of capital control circumvention

endogenous price zones and investment incentives in electricity markets an application of multilevel optimization with graph partitioning in the course of the energy transition load and supply centers are growing apart in electricity markets worldwide rendering regional price signals even more important to provide adequate locational investment incentives this paper focuses on electricity markets that operate under a zonal pricing market design for a fixed number of zones we endogenously derive the optimal configuration of price zones and available transfer capacities on a network in order to optimally govern investment and production decisions in the long run in a multilevel mixed integer nonlinear model that contains a graph partitioning problem on the first level we determine welfare maximizing price zones and available transfer capacities for a given electricity market and analyze their impact on market outcomes using a generalized benders decomposition approach developed in grimm et al 2019 and a problem tailored scenario clustering for reducing the input data size we are able to solve the model to global optimality even for large instances we apply the approach to the german electricity market as an example to examine the impact of optimal zoning on key performance indicators such as welfare generation mix and locations or electricity prices it turns out that even for a small number of price zones an optimal configuration of zones induces a welfare level that almost approaches the first best

market failures of market coupling and counter trading in europe an illustrative model based discussion the horizontal integration of the energy market and the organization of transmission services remain two open issues in the restructured european electricity sector the coupling of the french belgian and dutch electricity markets the trilateral market in november 2006 was a real success the extension of the system to germany in november 2010 also proceeded smoothly and the intent is to continue with the same market architecture but market coupling is based on a zonal system which has often failed in meshed grids this may cast doubts on what will happen in the future when electricity demand picks up again and wind develops the nodal system has generally been more successful than zonal architectures but its implementation is not currently foreseen in the eu this paper analyzes versions of market coupling that differ by the organization of counter trading while underplayed in current discussions counter trading could become a key element of market coupling as its geographic coverage expands and wind penetrates we simplify matters by assuming away strategic behavior between the energy and counter trading markets and conduct the analysis on a stylized six node example taken from the literature we simulate market coupling for different assumptions of zonal decomposition and coordination of transmission system operators tsos we show that these assumptions matter even in the absence of strategic behavior market coupling can be quite vulnerable to the particular situation on hand countertrading can work well or completely fail and it is not clear beforehand what will prevail our analysis relies on standard economic notions such as social welfare and generalized nash equilibrium but the use of these notions is probably novel the nodal organization is the reference first best scenario different zonal decompositions and degrees of coordination are then studied with respect to this first best solution

long run purchasing power parity in the 1920s abstract this paper presents an empirical analysis of long run purchasing power parity ppp during the 1920s float using recently developed methodology on the cointegration of economic time series our results are generally supportive of ppp as a long run equilibrium condition on which exchange rates tended to converge over the period for dollar sterling however there is some evidence of a non stationary drift away from fundamentals during the last year or so before britain s return to the gold standard perhaps due to speculation our results also appear to reconcile some apparently conflicting evidence in the literature

cross border listings and price discovery evidence from u s listed canadian stocks we examine the contribution of cross listings to price discovery for a sample of canadian stocks listed on both the toronto stock exchange tse and a u s exchange we nd that priceson the tse and u s exchange are cointegrated and mutually adjusting the u s share of price discovery ranges from 0 2 percent to 98 2 percent with an average of 38 1 percent the u s share is directly related to the u s share of trading and to the ratio of proportions of informative tradeson the u s exchange and the tse and inversely related to the ratio of bid ask spreads with the enhanced globalization of nancial markets the number of non u s rms cross listing shares on a u s exchange has substantially increased attracting non u s listings is now a top priority of the u s stock exchanges at the end of 2000 420 non u s rmswere listed on the new york stock exchange nyse the number of foreign rmslisted on nasdaq waseven higher the popularity of international cross listings has prompted many academic studies on the topic 1 most of these studies focus on the bene ts of international cross listings including the reduced cost of capital and the enhanced liquidity of a rm s stock studiessuch asalexander eun and janakiramanan 1987 1988 and foerster and karolyi 1993 suggest that the cost of capital declines because the portion of the risk premium that compensates for cross border investment barriers dissipates miller 1999 and foerster and karolyi 1999 propose increased investor recognition as another possible explanation several studies examine changes in trading volume and costs due to international cross listing foerster and karolyi 1998 nd that the bid ask spreads in canada decrease after the cross listing of canadian stocks in the united states domowitz glen and madhavan 1998 suggest that the impact of cross listing is complex and depends on the degree of quote transparency that is the extent to which price information is observable in the two markets smith and so anos 1997 examine if cross listing is a zerosum game with increased trading in the united states being oiset by reduced

competitive devaluations toward a welfare based approach abstract this paper revisits the international transmission of exchange rate shocks in a multicountry economy providing a choice theoretic framework for the policy analysis of competitive devaluations as opposed to the traditional view a devaluation by one country does not necessarily have an adverse beggar thy neighbor effect on its trading partners because they can benefit from an improvement in their terms of trade furthermore a retaliatory devaluation need not be the optimal strategy for the neighbor countries as the induced terms of trade deterioration can be large enough to offset the gains from defending their export market share the concern over competitive devaluations reflected in the fund s charter and the system wide implications of changes in exchange rates still motivate fund policy recommendations a major fund concern in the asian crisis has been the fear that asian currencies would become so undervalued and current account surpluses so large as to damage the economies of other countries developing countries included this is one reason the fund has stressed the need first to stabilize and then to strengthen exchange rates in the asian countries now in crisis and for this purpose not to cut interest rates until the currency stabilizes and begins to appreciate

is foreign aid fungible evidence from the education and health sectors this paper adopts a new approach to the issue of foreign aid fungibility in contrast to most existing empirical studies panel data are employed that contain information on the specific purposes for which aid is given this allows linking aid that is provided for education and health purposes to recipient public spending in these sectors in addition aid flows that are recorded on a recipient s budget are distinguished from those that are not recorded on budget and the previous failure to differentiate between on and off budget aid is shown to produce biased estimates of fungibility sector program aid is the measure of on budget aid whereas technical cooperation serves as a proxy for off budget aid the appropriate treatment of off budget aid leads to lower fungibility estimates than those reported in many previous studies specifically in both sectors and across a range of specifications technical cooperation which is the largest component of total education and health aid leads to at most a small displacement of recipient public expenditures

real exchange rates under the gold standard purchasing power parity is one of the most important equilibrium conditions in international macroeconomics empirically it is also one of the most hotly contested numerous recent studies for example have sought to determine the validity of purchasing power parity using data from the post bretton woods float and have reached different conclusions we assert that most such studies are flawed for two reasons first the post 1973 data contain by definition only a very limited amount of the low frequency information relevant for examination of long run parity second the dynamic econometric techniques used to model deviations from parity are typically quite crude with respect to admissible low frequency dynamics both deficiencies are rectified in the present paper with dramatic results we construct a new data set of 16 real exchange rates covering more than a century of the classic gold standard period and we study deviations from parity using long memory models that allow for subtle forms of mean

the overvaluation of renminbi undervaluation we evaluate whether the renminbi rmb is misaligned relying upon conventional statistical methods of inference a framework built around the relationship between relative price and relative output levels is used we find that once sampling uncertainty and serial correlation are accounted for there is little statistical evidence that the rmb is undervalued even though the point estimates usually indicate economically significant misalignment the result is robust to various choices of country samples and sample periods as well as to the inclusion of control variables

currency crises are they all the same abstract the plethora of currency crises around the world has fueled many theories on the causes of speculative attacks the first generation models focus on fiscal problems while the second generation models emphasize countercyclical policies and self fulfilling crises in the 1990s models pinpoint to financial excesses with the crisis of argentina in 2001 models of sovereign default have become popular again while the theoretical literature has emphasized variety the empirical literature has supported the one size fits all models this paper contributes to the empirical literature by assessing whether the crises of the last 30 years are of different varieties

deviations from purchasing power parity under different exchange rate regimes do they revert and if so how abstract we propose an empirical model for deviations from long run purchasing power parity ppp that simultaneously accounts for three key features i adjustment toward ppp may occur via nominal exchange rates and relative prices at different speeds ii different exchange rate regimes may generate regime shifts in the structural dynamics of ppp deviations iii nonlinear reversion toward ppp in response to shocks this empirical framework encompasses and synthesizes much previous empirical research using over a century of data for the g5 countries we provide evidence that long run ppp holds the relative importance of nominal exchange rates and prices in restoring ppp varies over time and across different exchange rate regimes and reversion to ppp occurs nonlinearly at a speed that is fairly consistent with the nominal rigidities suggested by conventional open economy models

an empirical test of the efficiency of the adr market abstract this study examines the weak form efficiency of foreign equities american depository receipts traded in the u s the results of serial correlation and runs tests on a sample of listed and nasdaq adrs for the years 1974 1978 were consistent with weak form efficiency

the dynamic relationship between the prices of adrs and their underlying stocks evidence from the threshold vector error correction model this paper sets out to estimate the dynamic relationship that exists between the prices of adrs and their underlying stocks in both the short run and the long run using a number of recent developments of the threshold cointegration framework the empirical results support the notion of nonlinear mean reversion of the prices of adrs and their underlying stocks

contagion and trade why are currency crises regional abstract currency crises tend to be regional they affect countries in geographic proximity this suggests that patterns of international trade are important in understanding how currency crises spread above and beyond any macroeconomic phenomena we provide empirical support for this hypothesis using data for five different currency crises in 1971 1973 1992 1994 and 1997 we show that currency crises affect clusters of countries tied together by international trade by way of contrast macroeconomic and financial influences are not closely associated with the cross country incidence of speculative attacks

a welfare analysis of electricity transmission planning in germany we analyze the electricity transmission planning process in germany netzentwicklungsplan which separates transmission expansion decisions from generation dispatch we employ an economic modeling approach to analyze two different network planning settings in the first setting there is no trade off between transmission network development and generation dispatch as is currently the case in germany a second setting alternatively allows for such a trade off and thus represents a welfare superior way of transmission network planning applications with the two model variants are carried out for the german electricity system in 2035 the results illustrate overinvestment in transmission capacity and decreased welfare associated with the netzentwicklungsplan

high public debt in currency crises fundamentals versus signaling effects abstract this paper examines how public debt government credibility and external circumstances affect the probability of currency devaluations in a three period open economy version of the barro and gordon j polit economy 91 1983 589 model nominal public debt links current to future policy actions resisting a crisis may either enhance or undermine the sustainability of the exchange rate regime depending on whether what matters is the government s reputation or fundamentals i e the level of the debt the focus is on the impact of public debt debt maturity and the government s credibility on the expected devaluation in the current and future periods we can thus identify the factors that affect the short term interest rate and the forward rate hence derive predictions about the level and the slope of the yield curve

the dynamics of price discovery for cross listed shares evidence from australia and new zealand abstract this paper studies the dynamics of price discovery for markets with bilateral cross listings using a sample of four australian stocks cross listed in new zealand and five new zealand stocks cross listed in australia for the period january 2002 to december 2007 we assess hasbrouck 1995 information shares and grammig et al 2005 conditional information shares over time we observe that in both cases the home market is dominant in terms of price discovery however when studying price discovery over time we find that the importance of the australian market the larger of the two markets is increasing for both australian and new zealand domiciled firms finally using panel regression analysis we find that the growth in the importance of the australian market is positively related to the growth in the size of the firm and negatively related to the size of the percentage spread in the australian market implying that as firms grow larger and their cost of trading in australia declines the australian market becomes more informative

national strategic investment in european power transmission capacity abstract the transformation of the european electricity system requires substantial investment in transmission capacity to facilitate cross border trade and to efficiently integrate renewable energy sources however network planning in the eu is still mainly a national prerogative in contrast to other studies aiming to identify the pan european continental welfare optimal transmission expansion we investigate the impact of zonal planners deciding on network investment strategically with the aim of maximizing the sum of consumer surplus generator profits and congestion rents in their jurisdiction this reflects the inadequacy of current mechanisms to compensate for welfare re allocations across national boundaries arising from network upgrades we propose a three stage equilibrium model to describe the nash game between zonal planners i e national governments regulators or system operators each taking into account the impact of network expansion on the electricity spot market and the resulting welfare effects on the constituents within its jurisdiction we propose a novel way to solve the resulting gne epec type problem using a variation of a disjunctive constraints reformulation this allows to solve this problem without a priori assumptions on the relative valuation of shared constraints by each player using a four node sample network we identify several nash equilibria of the game between the zonal planners this example illustrates the failure to reach the first best welfare expansion in the absence of an effective framework for cross border cost benefit allocation

the fungibility of health aid reconsidering the reconsidered abstractlu et al found that health aid displaces domestically raised government health expenditure which renders health aid at least partially fungible these findings are questioned in the fungibility of health aid reconsidered van de sijpe s emphasis on disaggregating on and off budget aid is a valid contribution although his empirical conclusions are overstated we re evaluate the data he criticises and find they sufficiently capture on budget aid to re measure health aid fungibility we update the lu et al data adding 23 countries and four years of data despite the confidence we have in these data we employ two estimation specifications each of which addresses the measurement error discussed by van de sijpe the extended data and alternative methods show that development assistance for health channelled to governments remains significantly fungible

uncertain bidding zone configurations the role of expectations for transmission and generation capacity expansion abstract ongoing policy discussions on the reconfiguration of bidding zones in european electricity markets induce uncertainty about the future market design this paper deals with the question of how this uncertainty affects market participants and their long run investment decisions in generation and transmission capacity generalizing the literature on pro active network expansion planning we propose a stochastic multilevel model which incorporates generation capacity investment network expansion and market operation taking into account uncertainty about the future bidding zone configuration using a stylized two node network we disentangle different effects that uncertainty has on market outcomes if there is a possibility that future bidding zone configurations provide improved regional price signals welfare gains materialize even if the change does not actually take place as a consequence welfare gains of an actual change of the bidding zone configuration are substantially lower due to those anticipatory effects additionally we show substantial distributional effects in terms of both expected gains and risks between producers and consumers and between different generation technologies

the purchasing power parity debate originally propounded by the 16th century scholars of the university of salamanca the concept of purchasing power parity ppp was revived in the interwar period in the context of the debate concerning the appropriate level at which to re establish international exchange rate parities broadly accepted as a long run equilibrium condition in the post war period it first was advocated as a short run equilibrium by many international economists in the first few years following the breakdown of the bretton woods system in the early 1970s and then increasingly came under attack on both theoretical and empirical grounds from the late 1970s to the mid 1990s accordingly over the last three decades a large literature has built up that examines how much the data deviated from theory and the fruits of this research have provided a deeper understanding of how well ppp applies in both the short run and the long run since the mid 1990s larger datasets and nonlinear econometric methods in particular have improved estimation as deviations narrowed between real exchange rates and ppp so did the gap narrow between theory and data and some degree of confidence in long run ppp began to emerge again in this respect the idea of long run ppp now enjoys perhaps its strongest support in more than 30 years a distinct reversion in economic thought

transmission and generation investment in electricity markets the effects of market splitting and network fee regimes abstract we propose an equilibrium model that allows to analyze the long run impact of the electricity market design on transmission line expansion by the regulator and investment in generation capacity by private firms in liberalized electricity markets the model incorporates investment decisions of the transmission system operator and private firms in expectation of an energy only market and cost based redispatch in different specifications we consider the cases of one vs multiple price zones market splitting and analyze different approaches to recover network cost in particular lump sum generation capacity based and energy based fees in order to compare the outcomes of our multilevel market model with a first best benchmark we also solve the corresponding integrated planner problem using two test networks we illustrate that energy only markets can lead to suboptimal locational decisions for generation capacity and thus imply excessive network expansion market splitting heals these problems only partially these results are valid for all considered types of network tariffs although investment slightly differs across those regimes

aid illusion and public sector behaviour conventional treatments of fungibility such as in assessing aid are concerned with evidence that aid recipients do not increase sufficiently that is by the amount of aid expenditure on specific areas favoured by donors in other words fungibility implies that recipients divert aid to expenditure on areas donors do not wish to fund however there is evidence that aggregate expenditure and even spending on donor supported areas rises by more than the value of the aid inflow this contribution using insights from the public choice research on fiscal illusion provides a range of theoretical scenarios to explain this outcome included are scenarios where even where all the features of fungibility are present expenditure on areas favoured by the donor can increase by more than the value of the aid inflow the study concludes by suggesting new directions for research on aid policy and the impact of aid on the public sector in developing countries

the long run effect of aid on health evidence from panel cointegration analysis abstractalthough a major objective of aid donors is to improve health outcomes in recipient countries there is relatively little research on whether aid to the health sector leads to improved heal

exchange rate expectations and the pricing of chinese cross listed stocks abstract i show that the price discounts of chinese cross listed stocks american depositary receipts adrs and h shares to their underlying a shares indicate the expected yuan us dollar exchange rate the forecasting models reveal that adr and h share discounts predict exchange rate changes more accurately than the random walk and forward exchange rates particularly at long forecast horizons using panel estimations i find that adr and h share investors form their exchange rate expectations according to standard exchange rate theories such as the harrod balassa samuelson effect the risk of competitive devaluations relative purchasing power parity uncovered interest rate parity and the risk of currency crisis

market design and investment incentives the purpose of this study was to understand how market design affects market performance through its impact on investment incentives for this purpose we model capacity choices by two ex ante identical firms which compete in the product market we analyse a number of different market design elements including i two commonly used auction formats the uniform price and discriminatory auctions ii price caps and iii bid duration we find that although the discriminatory auction tends to lower prices this does not imply that investment incentives at the margin are poorer indeed aggregate capacity is the same under both auction formats

do generation firms in restructured electricity markets have incentives to support social welfare improving transmission investments this paper examines the incentives that generation firms have in restructured electricity markets for supporting long term transmission investments in particular we study whether generation firms which arguably play a dominant role in the restructured electricity markets have the incentives to fund or support incremental social welfare improving transmission investments we examine this question in a two node network and explore how such incentives are affected by the ownership of financial transmission rights ftrs by generation firms in the analyzed two node network we show both i that the net exporter generation firm has the correct incentives to increase the transmission capacity incrementally up to a certain level and ii that although a policy that allocates ftrs to the net exporter generation firm can be desirable from a social point of view such a policy would dilute the net importer generation firm s incentives to support transmission expansion moreover if all ftrs were allocated or auctioned off to the net exporter generation firm then it is possible to increase both consumer surplus and social welfare while keeping the net exporter generation firm revenue neutral

information asymmetry and asset prices evidence from the china foreign share discount we examine the effect of information asymmetry on equity prices in the local a and foreign b share market in china we construct measures of information asymmetry based on market microstructure models and find that they explain a significant portion of cross sectional variation in b share discounts even after controlling for other factors on a univariate basis the price impact measure and the adverse selection component of the bid ask spread in the a and b share markets explains 44 and 46 of the variation in b share discounts on a multivariate basis both measures are far more statistically significant than any of the control variables the extent of information asymmetry in the international equity market has become a very important topic the question of whether domestic investors have better information than foreign investors has also become increasingly controversial for instance a few papers argue that domestic investors have a linguistic and cultural advantage brennan and cao 1997 choe kho and stulz 2001 and hau 2001 others argue that foreign investors have an informational advantage because they possess a significant amount of investment experience and expertise seasholes 2000 grinblatt and keloharju 2000

aid and government fiscal behavior assessing recent evidence this paper reviews evidence published in the last 10 years that has added to our understanding of the effects of aid on government spending and tax effort in recipient countries with a discussion of when general budget support is a fiscally efficient aid modality three generalizations are permitted by the evidence aid finances government spending the extent to which aid is fungible is over stated and even where it is fungible this does not appear to make the aid less effective and there is no systematic effect of aid on tax effort beyond these conclusions effects are country specific

some new filter rule tests methods and results mechanical trading rules seem to have more potential than previous tests found fama and blume 1966 looking at the dow 30 of the late 1950s found no profits for the best vipercent rule after adjusting for transactions costs fifteen of these stocks looked profitable in their sample however for the same rule the surviving fourteen show statistically significant profits for 1970 1982 for transactions costs obtainable by floor traders the test used here assumes constant risk premia or more generally that risk premia are on average approximately the same on days in as for the total period

the eu regulation on cross border trade of electricity a two stage equilibrium model the regulation on cross border exchanges of electricity in the european union is meant to enhance the trade of electricity between member states by facilitating access to the network and improving the management of congestion at the interconnections this paper presents a computational model that embeds these two features the problem is cast in the form of a two stage equilibrium between regional regulators in the first stage they decide on the allocation of their regional network costs between generators and customers either they maximise their regional welfare non cooperatively nash equilibrium or they centralise the decision as a super regulator leading to a cooperative equilibrium in the second stage equilibrium the consequences of first stage s decisions are assessed by modelling the energy market as the result of imperfect competition equilibrium on competitive market coupled with regulated pricing on the domestic less competitive markets the rules that come out of the first stage game largely influence the final equilibrium we illustrate this on an extensive numerical example showing that the model behaves properly and identifying policy issues worth of further investigations c 2006 elsevier b v all rights reserved

the fungibility of health aid reconsidered a rejoinder i am delighted that my comments on lu et al 2010 have stimulated such an extensive response from dieleman graves and hanlon 2013 henceforth dgh and i welcome the data clarifications and new