modeling gas markets with endogenous long term contracts since its initial development long term contracts have been associated with the gas industry in all regions of the world this was also the case in europe where natural gas trade was for a long time dominated by bilateral long term agreements between producers and midstreamers these contracts fixed a minimum volume to be exchanged take or pay and indexed the gas price using a price formula that usually referred to oil product prices these arrangements allowed market risk sharing between the producer who takes the price risk and the midstreamer who takes the volume risk they also offered risk hedging since oil is considered as a trusted commodity by investors the fall of the european natural gas demand combined with the increase of the oil price favored the emergence of a gas volume bubble that caused significant losses for most of the european midstreamers bound by long term agreements as a result the downstream part of the industry brought forward the idea of indexing contracts on gas sp

the globalization of steam coal markets and the role of logistics an empirical analysis abstract in this paper we provide a comprehensive multivariate cointegration analysis of three parts of the steam coal value chain export transport and import prices the analysis is based on a rich dataset of international coal prices in particular we combine data on steam coal prices with freight rates covering the period december 2001 until august 2009 at weekly frequency we then test whether the demand and supply side components of steam coal trade are consistently integrated with one another in addition export and import prices as well as freight rates for individual trading routes across regions and globally are combined we find evidence of significant yet incomplete integration we also find heterogeneous short term dynamics of individual markets furthermore we examine whether logistics enter coal price dynamics through transportation costs which are mainly determined by oil prices our results suggest that this is generally not the case

on the sources of aggregate fluctuations in emerging economies recent research on macroeconomic fluctuations in emerging economies has advocated introducing a stochastic productivity trend or allowing for interest rate shocks and financial frictions we estimate a model that encompasses these two approaches shedding light on their relative merits and on how financial frictions affect the transmission of shocks the model accounts for aggregate fluctuations by assigning a dominant role to financial frictions in amplifying conventional temporary productivity shocks whereas trend shocks play a minor role a link between spreads and expected future productivity emerges as essential for a reasonable approximation to the data

how would the gas exporting countries forum influence gas trade the cleanest burning fossil fuel today is natural gas while many businesses have gone global it has remained an exception an impending challenge facing the industry however is the evolution of a cartel from the 5 year old gas exporting countries forum how would this new organization influence the trade of gas globally does its existence imply a threat to the development of gas trade the paper reviews this fairly new organization within the context of the above questions it is mainly a comparative study of the body in relation to opec s historical political and economic development subsequently the author proposes probable influence options available to the forum and the impending consequence of such actions on the market the outcome of this study calls for further analysis and research on new issues and questions of interest

when do long run identifying restrictions give reliable results many recent articles have identified behavioral disturbances in vector autoregressions by imposing restrictions on the long run effects of shocks this article demonstrates that this approach will be unreliable unless the underlying economy satisfies three types of strong restrictions although many aspects of these issues have been raised before this article draws out and illustrates the implications for inferences under the long run scheme furthermore it provides strategies for dealing with the problems

testing for common features in north american energy markets abstract using recent advances in the field of applied econometrics we explore the strength of shared trends and shared cycles between north american natural gas and crude oil markets in doing so we use daily data from january 1991 to april 2001 on spot u s henry hub natural gas and wti crude oil prices the results show that there has been decoupling of the prices of these two sources of energy as a result of oil and gas deregulation in the united states we also investigate the interconnectedness of north american natural gas markets and find that north american natural gas prices are largely defined by the u s henry hub price trends

understanding the macroeconomic impact of illiquidity shocks in the united states in this paper we empirically investigate the role of stock market illiquidity shocks stemming from amihud s illiquidity measure in explaining u s macroeconomic fluctuations from 1973 to 2018 we find that the impact of illiquidity shocks on economic activity is substantial and historical decomposition analysis shows that cumulative illiquidity shocks were an essential contributor to the prolonged economic slump of the great recession moreover our identified illiquidity shocks represent a distinct source of macroeconomic instability this suggests that illiquidity shocks measured by the stock price impacts may contain more information than other types of shocks in recent studies such as financial shocks and uncertainty shocks jel c32 e32

identification of technology shocks using misspecified vars studies that evaluate the effects of technology shocks often employ structural vars identified with long run restrictions in the presence of a mismatch between the lag structures of the true data generating process and the adopted var estimates based on long run restrictions can be biased this paper offers a method that can reduce this bias substantially using artificial data i assess the performance of the proposed method and find that it can outperform a range of alternative procedures applying the procedure to the us data i find that per capita hours exhibit a positive hump shaped response profile in response to a technology shock resume identification des chocs technologiques a l aide de vecteurs autoregressifs mal specifies des etudes pour evaluer les effets de chocs technologiques emploient souvent des modeles de vecteurs autoregressifs var structurels avec des restrictions a long terme quand il n y a pas d arrimage entre les structures de delais du processus generant les vraies donnees et celles qui emergent des modeles var adoptes les estimes bases sur les restrictions a long terme peuvent etre biaises ce texte propose une methode qui peut reduire ce biais de maniere substantielle a partir de donnees artificielles on evalue la methode proposee et on montre qu elle performe mieux que les procedures de rechange en appliquant cette methode aux donnees americaines on decouvre un profil positif en forme de bosse dans les heures de travail per capita en reponse a un choc technologique

forward curves scarcity and price volatility in oil and natural gas markets the role of inventory in explaining the shape of the forward curve and spot price volatility in commodity markets is central in the theory of storage developed by kaldor kaldor n 1939 speculation and economic stability the review of economic studies 7 1 27 and working working h 1949 the theory of the price of storage american economic review 39 1254 1262 and has since been documented in a vast body of financial literature including the reference paper by fama and french fama e f and k r french 1987 commodity futures prices some evidence on forecast power premiums and the theory of storage journal of business 60 55 73 on metals the goal of this paper is twofold i validate in the case of oil and natural gas the use of the slope of the forward curve as a proxy for inventory the slope being defined in a way that filters out seasonality ii analyze directly for these two major commodities the relationship between inventory and price volatility in agreement with the theory of storage we find that i the negative correlation between price volatility and inventory is globally significant for crude oil ii this negative correlation prevails only during those periods of scarcity when the inventory is below the historical average and increases importantly during the winter periods for natural gas our results are illustrated by the analysis of a 15 year database of us oil and natural gas prices and inventory

soybean inventory and forward curve dynamics we present two results concerning soybean prices first we exhibit a simple relationship between stocks and price volatility the observation of an increasing price volatility with decreasing inventory is often mentioned in the literature but has so far been documented using a proxy for inventory see fama and french 1987 1988 litzenberger and rabinowitz 1995 instead we reconstruct a yearly quarterly and monthly database of worldwide soybean inventories using aggregate data from the united states brazil and argentina we show that under all time scales price volatility is an increasing linear function of inverse inventory which we term scarcity second we show how the addition of the factor scarcity in a state variable approach to the dynamics of the term structure of soybean forward prices improves the quality of the fit we document this property on a 25 year database of cbot futures contracts and show that the superior accuracy also affects long maturity futures contracts an important property for the valuation of long term origination contracts between producing countries and the agrifood industry

revisions in utilization adjusted tfp and robust identification of news shocks this paper documents large revisions in a widely used series of utilization adjusted total factor productivity tfp by fernald 2014 and shows that these revisions can materially affect empirical

european market integration for gas volume flexibility and political risk this is a copy of an article originally published by elsevier in energy economics see http www sciencedirect com science journal 03014215 2002 elsevier science b v

sharing a ride on the commodities roller coaster common factors in business cycles of emerging economies fluctuations in commodity prices are an important driver of business cycles in small emerging market economies emes this paper documents how these fluctuations correlate strongly with the business cycle in emes a commodity sector is then embedded into a multi country emes business cycle model where exogenous fluctuations in commodity prices follow a common dynamic factor structure and coexist with other driving forces the estimated model assigns to commodity shocks 42 percent of the variance in income of which a considerable part is linked to the common factor a further amplification mechanism is a spillover effect from commodity prices to risk premia

tfp news and sentiments the international transmission of business cycles we propose a novel identification scheme for a non technology business cycle shock that we label sentiment this is a shock orthogonal to identified surprise and news tfp shocks that maximizes the short run forecast error variance of an expectational variable alternatively a gdp forecast or a consumer confidence index we then estimate the international transmission of three identified shocks surprise tfp news of future tfp and sentiment from the us to canada the us sentiment shock produces a business cycle in the us with output hours and consumption rising following a positive shock and accounts for the bulk of short run business cycle fluctuations in the us the sentiment shock also has a significant impact on canadian macro aggregates in the short run it is more important than either the surprise or the news tfp shocks in generating business cycle comovement between the us and canada accounting for up to 50 of the forecast error variance of canadian gdp and about one third of canadian hours imports and exports the news shock is responsible for some comovement at 5 10 years and surprise tfp innovations do not generate synchronization

a flexible finite horizon alternative to long run restrictions with an application to technology shocks abstract recent studies using long run restrictions question the validity of the technology driven real business cycle hypothesis we propose an alternative identification that maximizes the contribution of technology shocks to the forecast error variance of labor productivity at a long but finite horizon in small sample monte carlo experiments our identification outperforms standard long run restrictions by significantly reducing the bias in the short run impulse responses and raising their estimation precision unlike its long run restriction counterpart when our max share identification technique is applied to u s data it delivers the robust result that hours worked responds negatively to positive technology shocks

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

what can be learned from the free destination option in the lng imbroglio we examine the profitability of flexible routing by lng cargoes for a single supplier taking into account uncertainty in the medium term dynamics of gas markets first we model the trajectory of natural gas prices in asia northern america and europe using a threshold vector autoregression representation tvar in which the system s dynamics switches back and forth between high and low regimes of oil price volatility we then use the generalized impulse response functions girf obtained from the estimated threshold model to analyze the effects of volatility shocks on the regional gas markets dynamics lastly the valuation of destination flexibility in lng supplies is conducted using a real option approach we generate a sample of possible future regional price trajectories using monte carlo simulations of our empirical model and determine for each trajectory the optimal shipping decisions and their profitability our results portend a substantial source of profit for the industry and reveal future movements of vessels we discuss the conditional impact of destination flexibility on the globalization of natural gas markets

limits of floating exchange rates the role of foreign currency debt and import structure abstract a traditional argument in favor of flexible exchange rates is that they insulate output better from real shocks because the exchange rate can adjust and stabilize demand for domestic goods through expenditure switching this argument is weakened in models with high foreign currency debt and low exchange rate pass through to import prices the present study evaluates the empirical relevance of these two factors we analyze the transmission of real external shocks to the domestic economy under fixed and flexible exchange rate regimes for a broad sample of countries in a panel var and let the responses vary with foreign currency debt and import structure we find that flexible exchange rates do not insulate output better from external shocks if the country imports mainly low pass through goods and foreign indebtedness is high

what drives volatility in natural gas prices abstract we examine the primary drivers of u s natural gas price volatility to do so we apply a structural heterogeneous autoregressive var shvar model accommodating structural breaks in both the coefficient and volatility to monthly time series data on natural gas supply demand and price between january 1978 and july 2018 we detect several structural changes in coefficients and shock volatility in the natural gas market our findings indicate that the response of natural gas prices differs significantly depending on the regime and type of shock in the natural gas market while demand shocks specific to the natural gas market are the primary drivers of natural gas price volatility structural supply shocks also play a significant role in explaining movements in natural gas prices our results suggest that failure to consider structural breaks in the coefficient and volatility may result in biased estimates and distorted impulse responses of the impact of shocks on natural gas price volatility

convergence of european natural gas prices abstract over the period 2015 2050 the consumption of natural gas of european oecd countries is expected to grow more than the consumption of any other energy source although these countries are interconnected and in most cases share a common currency their wholesale national gas markets are highly heterogeneous we study the determinants of cross country convergence of natural gas prices for industrial consumers in fourteen european countries our empirical analysis is based on the notions of pairwise relative and convergence we show that there is evidence of pairwise price convergence and that some key characteristics of gas markets such as the existence of trading hubs and the degree of interconnection are positively associated with the existence of a convergence process this result carries over to the notion of convergence and is robust to a number of changes in the implementation of the statistical tests the analysis of relative convergence points to the existence of price growth convergence while price level convergence is not supported by the data lastly we assess the short run implications of price convergence focusing on the speed of reversion to equilibrium after a system wide shock hits the cointegrating relation

monetary news shocks we pursue an empirical strategy to identify a monetary news shock in the u s economy we use a monetary policy residual along with other variables in a vector autoregression var and identify a monetary news shock as the linear combination of reduced form innovations that is orthogonal to the current residual and that maximizes the sum of contributions to its forecast error variance over a finite horizon real gdp declines in a persistent manner after a positive monetary news shock this contraction in economic activity is accompanied by a fall in inflation and a rapid increase in the nominal interest rate

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

investment specific news shocks and u s business cycles we provide robust evidence that news shocks about future investment specific technology ist constitute a significant force behind u s business cycles positive ist news shocks induce comovement that is raise output consumption investment and hours these shocks account for 70 of the business cycle variation in output hours and consumption and 60 of the variation in investment and have played an important role in 9 of the last 10 u s recessions our findings provide strong support for shifting focus to ist news shocks when investigating the role of news in driving u s business cycles

cross border constraints institutional changes and integration of the dutch german gas market we evaluate the contribution of nine institutional changes to the integration of the dutch and german gas markets we analyse this contribution through the impact of bottlenecks in the cross border infrastructure on the absolute value of cross border price differences in the period 2007 2013 the absolute value of the differences in price levels between the dutch and the german ncg market decreased indicating more integration we find evidence that the improved connections within the german networks as well as between the dutch and the german network contributed to this the strengthening of the connections with the uk market and the russian supply however had a negative effect on market integration between the dutch and the german ncg market the liquidity enhancing changes within the dutch market had a negligible effect

modeling global and local dependence in a pair of commodity forward curves with an application to the us natural gas and heating oil markets abstract the goal of this paper is to present a model for the joint evolution of correlated commodity forward curves each forward curve is directed by two state variables namely slope and level and the model is meant to capture both the local and global dependence structures between slopes and levels our framework can be interpreted as an extension of the concept of cointegration to forward curves the model is applied to a us database of heating oil and natural gas futures prices over the period february 2000 february 2009 we find the long run slope and level relationships between natural gas and heating oil markets analyze the lead and lag properties between the two energy commodities the volatilities and correlations between their daily co movements and evaluate the robustness of these observations to the turmoil experienced by energy markets since 2003

sectoral tfp news shocks abstract we document a strong similarity in the macroeconomic effects of consumption specific and investment specific tfp news shocks this co linearity suggests a diffusion channel of technological innovations from the investment to the consumption sector that forecast future changes in aggregate tfp this finding connects two views of the literature on news shocks aggregate tfp news and investment specific news

cotton market integration and the impact of china s new exchange rate regime this article studies the integration of china s cotton market with the international market especially the u s market investigating the futures prices from the intercontinental exchange ice in the u s and the zhengzhou commodity exchange zce in china with several time series models we find that a long run cointegration relationship exists between these two series the two markets share price transmissions and based on results from an autoregressive conditional heteroskedasticity arch model we find their price volatilities are similar we argue that china s recent exchange rate reform and its gradual liberalization in bilateral cotton trade since it joined world trade organization have had important impacts on these futures markets based on these findings several important economic and policy implications are derived

are predictable improvements in tfp contractionary or expansionary implications from sectoral tfp we investigate the effects of predictable changes in tfp at the sectoral level our findings can reconcile the seemingly contradictory findings in the literature shocks to predictable changes in investment sector tfp are also found important for us business cycle fluctuations

information transmission and market interactions across the atlantic an empirical study on the natural gas market abstract this paper studies the international information transmission and market interactions in the u s and u k natural gas markets three well documented approaches are used to measure the relative importance on the process of price discovery under a quadvariate system after adjusting the effects of nonsynchronous trading prices robust results indicate our system that includes spot and futures prices within the two countries are driven by one common factor information disseminates efficiently among the four markets concerned the u s futures market dominates as the center for price discovery the u k futures market comes as the second the spot markets in the u s and u k are less efficient than their corresponding futures market where the u k spot market contributes the least and almost zero to the price discovery process asymmetric volatility spillovers are found in three of the four markets volatility in the u s futures market increases with positive returns which illustrates the inverse leverage effect in most of the commodity market volatilities in the spot markets are negatively related to returns which is analogous to the traditional leverage effect prevailing in most of the equity stock markets

short term variations and long term dynamics in commodity prices in this article we develop a two factor model of commodity prices that allows meanreversion in short term prices and uncertainty in the equilibrium level to which prices revert although these two factors are not directly observable they may be estimated from spot and futures prices intuitively movements in prices for long maturity futures contracts provide information about the equilibrium price level and differences between the prices for the short and long term contracts provide information about short term variations in prices we show that although this model does not explicitly consider changes in convenience yields over time this short term long term model is equivalent to the stochastic convenience yield model developed in gibson and schwartz 1990 we estimate the parameters of the model using prices for oil futures contracts and apply the model to some hypothetical oil linked assets to demonstrate its use and some of its advantages over the gibson schwartz model

measures of per capita hours and their implications for the technology hours debate structural vector autoregressions give conflicting results on the effects of technology shocks on hours the results depend crucially on the assumed data generating process for hours per capita we show that the standard measure of hours per capita and productivity have significant low frequency movements that are the source of the conflicting results hodrick prescott hp filtered hours per capita produce results consistent with those obtained when hours are assumed to have a unit root we show that important sources of the low frequency movements in the standard measure are sectoral shifts in hours and the changing age composition of the working age population when we control for these low frequency components to determine the effect of technology shocks on hours using long run restrictions we get one consistent answer hours decline in the short run in response to a positive technology shock we further extend the analysis by examining the effects of demographic controls on the impulse responses to investment specific technology shocks our results are less conclusive

reaching out access to and use of banking services across countries the authors 1 present new indicators of banking sector penetration across 99 countries based on a survey of bank regulatory authorities 2 show that these indicators predict household and firm use of banking services 3 explore the association between the outreach indicators and measures of financial institutional and infrastructure development across countries and 4 relate these banking outreach indicators to measures of firms financing constraints in particular they find that greater outreach is correlated with standard measures of financial development as well as with economic activity controlling for these factors the authors find that better communication and transport infrastructure and better governance are also associated with greater outreach government ownership of financial institutions translates into lower access while more concentrated banking systems are associated with greater outreach finally firms in countries with higher branch and atm penetration and higher use of loan services report lower financing obstacles thus linking banking sector outreach to the alleviation of firms financing constraints

risk transmission mechanism between energy markets a var for var approach abstract the global financial crisis gfc of 2007 2009 that originated in the us has revealed the need for measuring and monitoring the transmission of extreme downside market risk this paper investigates the risk transmission mechanism between the oil and natural gas markets we apply the recently introduced test statistics based on cross quantilogram function and the multivariate quantile regression model var for var to the us oil and natural gas prices which are independently formed our results show two asymmetric patterns first the shocks in the oil market substantially increase the value at risk var in the natural gas market but the reverse impact does not exist second we highlight the significant asymmetric response of gains and losses transmission in energy markets cautioning about the underlying weakness of adopting volatility to measure risk in the energy market moreover an extreme market risk is more easily transmitted across markets than moderate risks our results are in general robust in application to other regional energy markets such as europe and asia but the heterogeneities in responses are underpinned by the different role of natural gas in regions the findings in this paper have important implications for academic researchers policy makers in gas dependent economies and business practitioners in light of projected increases in the use of natural gas worldwide as well as the development of independent gas on gas competitive hub prices in asia and europe

can long run restrictions identify technology shocks gali s innovative approach of imposing long run restrictions on a vector autoregression var to identify the effects of a technology shock has become widely utilized in this paper we investigate its reliability through monte carlo simulations using calibrated business cycle models overall gali s methodology appears to be fruitful the impulse responses derived from the artificial data generally have the same sign and qualitative pattern as the true responses and the approach can be informative in discriminating between alternative models however our results reveal some important quantitative shortcomings including considerable estimation uncertainty about the impact of technology shocks on macroeconomic variables more generally the conditions under which the methodology performs well appear considerably more restrictive than implied by the key identifying assumption this underscores the importance of using economic models to guide in the implementation of the approach in interpreting the results and in assessing its limitations jel c32 e32 o33

business cycle implications of rising household credit market participation in emerging countries abstract a small open emerging economy model is extended with a household sector financial constraint to investigate business cycle implications of a rise in household access and use of financial services estimating the model on mexican data and consistent with empirical findings this paper finds that a rise in household credit market participation 1 yields larger aggregate consumption volatility and 2 amplifies the effects of shocks in the domestic economy particularly those transmitted through the interest rate channel the estimated model also highlights that 3 the lesser financial frictions are the lower is the increase of consumption growth and trade balance volatility driven by a rise in household credit market participation and 4 trend productivity shocks become a more relevant source of business cycle fluctuations finally standard measures of predictive accuracy suggest that the extended model outperforms the baseline emerging market model

is china s natural gas market globally connected abstract the rise of the shale gas industry and the need for clean low carbon energy transformation in china has meant that the relationship between domestic and foreign natural gas markets has become closer therefore identifying the changing relationships between the major global natural gas markets and china s natural gas market has important practical value for the current chinese domestic natural gas pricing system this paper used the dcc garch nardl ardl ecm as the analytical framework to study these relationships from which it was found that there was no unified global natural gas market and that china s natural gas market was not yet aligned with this market it was shown that there was no significant asymmetry in the impact of international gas prices on china s gas prices as no flexible adjustment measures were found in china s imported natural gas pricing mechanism moreover while international natural gas prices were found to have a significant impact on china s natural gas prices over the long term there were obvious regional differences over the short term accordingly new pricing policies should be designed to promote market oriented natural gas pricing reforms in acknowledging features such as asymmetry the difference between imported gas sources and the periodicity of price adjustment

trade with endogenous transportation costs the case of liquefied natural gas abstract this paper investigates the relationship between lng shipping costs and regional natural gas price spreads we use data on natural gas prices and shipping costs to analyze the distribution of trade benefits within the lng value chain when shipping costs are endogenous to price spread developments our empirical analysis suggests that for the 2006 2014 period the lng shipping sector has had an implied scarcity rent on lng shipping capacity of 0 14 mmbtu for the eu us spread 0 32 mmbtu for the asia eu spread and 0 42 mmbtu for the asia us spread we highlight in a counter factual analysis that this distributional effect is not economically negligible we investigate how including endogenous transportation costs affects the measured degree of price convergence between regional natural gas markets we find that price convergence is stronger when we control for variations in transportation costs rather than implicitly assuming fixed or exogenous costs

lessons learned from brazilian natural gas industry reform over the past decades many countries have reformed their infrastructure industries although these reforms have been broadly similar for the most part aiming at introducing competition in potentially competitive segments the contexts in which they have been carried out differ this is due to the past regulatory experience in each country the maturity of the industry and or the number of agents when the reform process started the brazilian natural gas reform stands out due to the country s singular conditions the development of the natural gas industry in brazil was grounded on stepping up supplies through integration with neighboring nations particularly bolivia and establishing a competitive environment by lowering the barriers hampering the arrival of new investors however natural gas is located at the crossroads of two main energy chains oil and hydroelectricity this article analyzes the brazilian natural gas reform and extracts lessons from this process the low capillarity of transportation and distribution systems continues to be the main bottleneck of the country s natural gas industry the challenges of the new legal framework are to encourage investments in networks and guarantee supply to allow the industry to consolidate and mature against a backdrop of rapid changes in the world market

estimating the long run equilibrium relationship the case of city gate and residential natural gas prices this paper examines market cointegration of city gate and residential natural gas prices cointegration of gas prices across different segments of the industry provides evidence that deregulation has resulted into a more integrated competitive natural gas industry where gas prices converge into a long run equilibrium our results indicate prices further down the distribution line the final two points of consumption are cointegrated for a majority of the us states post open access and retail unbundling although we find little evidence of perfect market integration the two price series likewise converge to the long run equilibrium faster post open access and retail unbundling results relative to state level unbundling choice programs reveal mixed outcomes with a few states without retail unbundling exhibiting market integration while some states with full unbundling exhibiting non cointegration

price dynamics of crude oil and the regional ethylene markets abstract this paper is the first attempt to investigate i is the crude oil wti price significantly related to the regional ethylene prices in the naphtha intensive ethylene markets of the far east north west europe and the mediterranean ii what drives the regional ethylene prices the paper is motivated by the recent and growing debate on the lead lag relationship between crude oil and ethylene prices our findings based on the long run structural modelling approach of pesaran and shin and subject to the limitations of the study tend to suggest i crude oil wti price is cointegrated with the regional ethylene prices ii our within sample error correction model results tend to indicate that although the ethylene prices in north west europe and the mediterranean were weakly endogenous the far east ethylene price was weakly exogenous both in the short and long term these results are consistent during most of the period under review 2000 1 2006 4 with the surge in demand for ethylene throughout the far east particularly in china and south korea however during the post sample forecast period as evidenced in our variance decompositions analysis the emergence of wti as a leading player as well is consistent with the recent surge in wti price fuelled mainly among others by the strong hedging activities in the wti futures options and refining tightness reflecting the growing importance of input cost in determining the dynamic interactions of input and product prices

lng is linking regional natural gas markets evidence from the gravity model abstract evidence exists that global natural gas markets have become more integrated over time one possible explanation for this increased level of integration is that increased liquefied natural gas trade has increased the opportunity for price arbitrage by decreasing transport costs if this explanation is true then the natural gas market should become relatively more integrated because countries separated by large distances would be more willing to trade with each other we employ a gravity model to test whether trade in liquefied natural gas has helped to de regionalize the total natural gas market using trade in the compressed natural gas market as a comparison benchmark the results indicate that liquefied natural gas is indeed a global commodity whereas the compressed natural gas markets are more regional importantly we find that trade in liquefied natural gas has de regionalized the total natural gas market

trend breaks long run restrictions and contractionary technology improvements abstract structural vector autoregressions with long run restrictions are extraordinarily sensitive to low frequency correlations recent literature finds that the estimated effects of technology shocks are sensitive to how one treats hours per capita however after allowing for statistically and economically significant trend breaks in productivity results are much less sensitive hours fall when technology improves the issue is that the common high low high pattern of productivity growth and hours i e the low frequency correlation inevitably leads to a positive estimated response the trend breaks control for this correlation this example suggests a practical need for care in using long run restrictions

towards a worldwide integrated market new evidence on the dynamics of u s european and asian natural gas prices abstract has the integration of european north american and asian natural gas markets been fostered over the last few years by growing lng export capacities and an increasing market share of spot transactions this is the key question that this article sets out to answer for this purpose we develop bivariate error correction models with structural breaks and asymmetric responses among gas references prices oil prices and coal prices we use daily prices of all reference prices spanning from january 12 2004 to january 12 2018 for the north american asian and european areas we show that if european and u s gas prices are co integrated when multiple breaks are allowed their respective markets cannot be considered integrated however our results show that the degree of interdependence between european and american prices is increasing whereas the degree of interdependence between gas and crude oil prices is decreasing more surprisingly we also highlight that reversions to long term equilibria both between the henry hub hh and the national balancing point nbp and between the hh and the japan korean marker jkm are highly asymmetric a pattern that could be intuitively interpreted as the consequence of market arbitrage strategies by exporting countries in a context of oversupplied markets

the new keynesian transmission mechanism a heterogenous agent perspective we present a tractable heterogeneous agent version of the new keynesian model that allows us to study the interaction between inequality and monetary policy though formulated as a precautionary saving model a la huggett aiyagari its reduced form is a two agent model with a highly concentrated wealth distribution when prices are sticky and wages flexible as in the textbook representative agent model monetary policy affects the distribution of consumption but has no effect on output as workers choose not to change their hours worked in response to wage movements this highlights a transmission mechanism of the textbook model that we find implausible in response to a monetary stimulus the representative worker s labor supply is greatly affected by the profits she receives first the lower profits induced by higher wages raise labor supply through a wealth effect and secondly the mere presence of profits reduces the negative income effect of a wage rise when wages are rigid in contrast our model exhibits plausible responses of output and hours worked to monetary policy shocks

what does a technology shock do a var analysis with model based sign restrictions abstract this paper estimates the effects of technology shocks in var models of the u s identified by imposing restrictions on the sign of impulse responses these restrictions are consistent with the implications of a popular class of dsge models with both real and nominal frictions and with sufficiently wide ranges for their parameters this identification strategy thus substitutes theoretically motivated restrictions for the atheoretical assumptions on the time series properties of the data that are key to long run restrictions stochastic technology improvements persistently increase real wages consumption investment and output in the data hours worked are very likely to increase displaying a hump shaped pattern contrary to most of the related var evidence results are not sensitive to a number of specification assumptions including those on the stationarity properties of variables

why did the price of solar pv si feedstock fluctuate so wildly in 2004 2009 abstract great attention has been paid to the origin of observed wild price fluctuations of solar pv si feedstock in both contract and spot markets during 2004 2009 this paper sheds light on this issue and tries to resolve it by addressing the following questions what kind of structural shock is underlying the price fluctuations of pv si feedstock how can we quantify the magnitude timing and relative importance of these shocks what are their dynamic effects on the real price of pv si feedstock by carefully studying development conditions the structural decomposition of the real price of pv si feedstock is proposed exchange rate shocks production cost shocks aggregate demand shocks and demand shocks specific to feedstock markets with a structural vector autoregression model the paper quantifies and verifies the impact of structural shocks on pv si feedstock real price changes based on national data an analysis is further taken to confirm the essential role of demand shocks specific to feedstock markets in determining sharper price fluctuations during 2004 2009 the results of this study have important implications for national solar pv development which can be better promoted and administrated if structural shocks in feedstock markets can be carefully evaluated and understood

asset market participation monetary policy rules and the great inflation this paper argues that limited asset market participation is crucial in explaining u s macroeconomic performance and monetary policy before the 1980s and their changes thereafter in an otherwise conventional sticky price model standard aggregate demand logic is inverted at low enough asset market participation interest rate increases become expansionary passive monetary policy ensures equilibrium determinacy and maximizes welfare this suggests that federal reserve policy in the pre volcker era was better than conventional wisdom implies we provide empirical evidence consistent with this hypothesis and study the relative merits of changes in structure and shocks for reproducing the conquest of the great inflation and the great moderation

world shocks world prices and business cycles an empirical investigation abstract svar models that include a single world price such as the terms of trade predict that world shocks explain a small fraction of movements in domestic output typically less than 10 this paper presents an empirical framework in which multiple commodity prices transmit world disturbances estimates on a panel of 138 countries over the period 1960 2015 indicate that world shocks explain on average 33 of output fluctuations in individual economies this figure doubles when the model is estimated on post 2000 data the findings reported here suggest that one world price specifications significantly underestimate the importance of world shocks for domestic business cycles

how does government spending news affect interest rates evidence from the united states abstract this study analyzes the effects of news shocks to u s government spending on interest rates especially long term interest rates and investigates the role of agents expectations in the propagation of government spending to interest rates using large bayesian vector autoregressive models with sufficient information we find that news about increases in government spending induce significant increases in both short and long term interest rates while the effects of government spending surprise shocks on interest rates are mixed and ambiguous government spending news shocks in the baseline model account for around 10 of the variance in forecast errors in long term interest rates which is much more important than government spending itself using empirical dynamic term structural models we further decompose increases in long term interest rates into changes in expectations of future monetary policy and changes in term premiums we find that an increase in the long term interest rate after a positive government spending news shock mainly reflects higher expected future short term interest rates which demonstrates the importance of the coordination between fiscal and monetary policy communication

news driven business cycles insights and challenges there is a widespread belief that changes in expectations may be an important independent driver of economic fluctuations the news view of business cycles offers a formalization of this perspective in this paper we discuss mechanisms by which changes in agents information due to the arrival of news can cause business cycle fluctuations driven by expectational change and we review the empirical evidence aimed at evaluating their relevance in particular we highlight how the literature on news and business cycles offers a coherent way of thinking about aggregate fluctuations while at the same time we emphasize the many challenges that must be addressed before a proper assessment of the role of news in business cycles can be established jel d83 d84 e13 e32 o33

international money supply and real estate risk premium the case of the london office market abstract the main purpose of this study is to deeply investigate the determinants of the risk premium for the central london market between q2 2002 and q3 2015 using a vector autoregression var model we shed new light on the role of central banks in the historical level of the commercial real estate risk premium indeed since the global financial crisis gfc central banks have used unconventional monetary policies increasing the quantity of money available in the economy and creating structural changes therefore we have described the link between monetary policies and real estate using a theoretical is lm mundell fleming framework for a small open economy with a flexible exchange rate to empirically explore this phenomenon we have constructed a monetary index adapted to the office market we find that throughout the whole period 2002 2015 the vacancy rate the employment in services the ftse 100 the new monetary index and the autoregressive parameter are the main determinants of the historical risk premium however this result hides the complex realities of different sub periods finally we study the structural changes introduced by the monetary policy using a structural var model and impulse response function

what drives natural gas prices a structural var approach abstract in this study we develop a structural vector autoregressive model var for the german natural gas market our setup allows us to analyze the determinants of the natural gas price in a comprehensive framework in particular we illustrate the usefulness of our approach by disentangling the effects of different fundamental influences on gas prices during three recent supply interruptions the russian ukrainian gas dispute of january 2009 the libyan civil war in 2011 and the withheld russian exports in february 2012 our results show that the natural gas price is affected by temperature storage and supply shortfalls in the short term while the long term development is closely tied to both crude oil and coal prices capturing the economic climate and the substitution relationship between the different energy commodities

how policies affect international biofuel price linkages abstract we estimate the role of biofuel policies in determining which country is the price leader in world biofuel markets using a cointegration analysis and a vector error correction vec model weekly prices are analyzed for the eu us and brazilian ethanol and biodiesel markets in the 2002 2010 and 2005 2010 time periods respectively the us blender s tax credit and brazil s consumer tax exemption are found to play a role in determining the ethanol prices in other countries for biodiesel our results demonstrate that eu policies the consumer tax exemption and blending target tend to determine the world biodiesel price

eu emission allowances and the stock market evidence from the electricity industry this paper constitutes to our best knowledge the first econometric analysis on stock market effects of the eu emission trading scheme eu ets our results suggest that eu emission allowance eua price developments matter to the stock performance of electricity firms eua price changes and stock returns of the most important european electricity corporations are shown to be positively related this effect does not work asymmetrically so that stock markets do not seem to react differently to eua appreciations in comparison to depreciations the carbon market effect is shown to be both time and country specific it is particularly strong for the period of eua market shock in early 2006 and differs with respect to the countries where the electricity corporations analysed are headquartered stock market reactions to eua volatility could not be shown

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

news shocks and business cycles abstract this paper proposes and implements a novel structural var approach to the identification of news shocks about future technology the news shock is identified as the shock orthogonal to the innovation in current utilization adjusted tfp that best explains variation in future tfp a favorable news shock leads to an increase in consumption and decreases in output hours and investment on impact more suggestive of standard dsge models than of recent extensions designed to generate news driven business cycles though news shocks account for a significant fraction of output fluctuations at medium frequencies they contribute little to our understanding of recessions

international market integration for natural gas a cointegration analysis of prices in europe north america and japan this paper investigates the degree of integration of natural gas markets in europe north america and japan in the time period between the early 1990s and 2004 the relationship between international gas market prices and their relation to the oil price are explored through principal components analysis and johansen likelihood based cointegration procedure both of them show a high level of natural gas market integration within europe between the european and japanese markets as well as within the north american market at the same time the obtained results suggest that the european respectively japanese and the north american markets were not integrated

goods prices and exchange rates what have we learned import prices typically change by a smaller proportion than the exchange rate between the exporting and importing country recent research indicates that common currency relative prices for similar goods exported to different markets are highly correlated with exchange rates between those markets this evidence suggests that incomplete pass through is a consequence of third degree price discrimination while distance matters for market segmentation borders have independent effects the source of the border effect has not been clearly identified furthermore there is little evidence yet to suggest substantial market power is implied by the observed price discrimination

nonconvex equilibrium models for gas market analysis failure of standard techniques and alternative modeling approaches abstract this paper provides a first approach to assess gas market interaction on a network with nonconvex flow models in the simplest possible setup that adequately reflects gas transport and market interaction we elaborate on the relation of the solution of a simultaneous competitive gas market game its corresponding mixed nonlinear complementarity problem mncp and a first best benchmark we provide conditions under which the solution of the simultaneous game is also the solution of the corresponding mncp however equilibria cannot be determined by the mncp as the transmission system operator s tso s first order conditions are insufficient which goes back to nonconvexities of the gas flow model this also implies that the welfare maximization problem may have multiple solutions that sometimes do not even coincide with any of the market equilibria our analysis shows that even in the absence of strategic firms market interaction fails to implement desirable outcomes from a welfare perspective due to the tso s incentive structure we conclude that the technical environment calls for a market design that commits the tso to a welfare objective through regulation and propose a design where the market solution corresponds to a welfare maximum and vice versa

the effects of financial development in the short and long run theory and evidence from india abstract although many view financial access as a means of reducing poverty or increasing growth empirical studies have produced contradictory results one problem is that most studies cover only a short time frame and do not consider dynamic effects i show that introducing credit in a general model of intertemporal consumption creates a boom in consumption and reduces poverty initially but eventually reduces mean consumption because credit substitutes for precautionary wealth using new consistent consumption data that cover a much longer time period than most studies my empirical findings show that increased access to bank branches in rural india increased consumption initially and reduced poverty but consumption later fell and poverty rose the long term effect is still positive however suggesting that credit may have a beneficial role beyond consumption smoothing

do technology shocks lead to a fall in total hours worked this paper contributes to the debate initiated by gali in 1999 i provide a theory with capital income taxation labor hoarding as well as long run shifts in the social attitudes to the workplace modelled as leisure at the workplace to argue that there are other shocks that may influence labor productivity in the long run i introduce medium run identification and show it to be superior to long run identification or standard short run identification when applied to artificial data with u s data and medium run identification i find the robust result that technology shocks lead to a hump shaped response of total hours worked which is mildly positive following a near zero initial response jel e32 e24 c32 c15 copyright c 2004 the european economic association

integration reforms in the european natural gas market a rolling window spillover analysis abstract this paper revisits the topic of natural gas market integration across europe against the backdrop of three eu gas directives aimed at creating competition and strengthening market connections and the move towards hub trading and gas on gas pricing in the european markets we adopt and extend the spillovers index due to diebold and yilmaz 2009 to examine the path of market connectivity over the period between 2005 7 2018 12 an initial estimation uncovers what might be deemed a clunky evolution in the spillover index we identify the cause of this and devise a tilted importance weighting based re sampling rolling window estimation strategy which preserves the underlying evolutionary trend without overly weighting the importance of historic outliers our results show that although there are periods of deterioration the level of market connectivity recovers producing a generally increasing trend of market integration in our sample period the connectivity index peaks at around 65 i e a little above halfway through to full connectivity we conclude that the european natural gas market has achieved a non trivial albeit not full level of integration to date

external determinants for the adoption of stationary fuel cells infrastructure and policy issues this paper investigates the relevance of external determinants for the adoption of stationary fuel cells fcs by different user groups with respect to the marketability of this innovative technology fcs allow electricity and heat to be decentrally generated in an energy efficient and potentially environmentally friendly manner european energy policy is undertaking efforts to increase the proportion of combined heat and power chp plants a series of studies have spoken of their considerable market potential a qualitative study was conducted with six focus groups consisting of 49 commercial users and six focus groups with 54 private consumers the results of the study show that the specific infrastructure required for decentralisation and policy issues are highly relevant for the user adoption of fcs security of supply when energy generation is more strongly decentralised reliable maintenance of the system and clear political objectives are examples of factors that are considered essential prerequisites for the adoption of this technology

natural gas in asia trade markets and regional institutions natural gas trade in asia has been dominated by long established market structures under which liquefied natural gas lng has remained indexed based on the price of crude oil high transaction costs in the region in recent years imply that the regional market is sub optimally organized since 2010 the continued prevalence of oil indexation has had the most adverse effect on japan the world s largest lng importer in response japan implemented several strategies to challenge traditional lng pricing mechanisms in the region and ultimately reduce transaction costs japan s efforts include an increase in the share of spot and short term purchases sourcing new supplies from the united states under alternative pricing arrangements and driving regional buyer cooperation this paper evaluates the potential effect of japan s lng strategy on regional pricing in the broader institutional context arguing that lng pricing in the region will only partially shift away from oil indexation by the end of the decade while recent cooperation among regional lng importers indicates that there may be scope for change in the regional institutional setting the degree of cooperation is insufficient to have a profound effect on regional pricing

information animal spirits and the meaning of innovations in consumer confidence we show that unexplained innovations in several variables representing survey responses to forwardlooking questions on the michigan survey of consumers have powerful prognostic implications for the future paths of macroeconomic variables we attempt to distinguish the hypothesis that these impulse responses indicate a causal channel from autonomous movements in sentiment to economic outcomes the animal spirits view from the alternative interpretation that the surprise confidence movements summarize information about future economic prospects the information view in natural rate models animal spirits shocks are associated with overshooting of among other variables consumption that attenuates when agents come to grips with their overreaction while information shocks about the long future are followed by gradual movements in macroeconomic variables that are not subsequently reversed in a baseline vector autoregression involving consumption income and confidence the data come down sharply in favor of the information view the impulse responses of consumption and gdp show no tendency to attenuate even after a number of years further confidence innovations have strong implications for labor productivity many quarters into the future in somewhat larger vars with an information block that includes inflation and or stock prices the impulse responses to confidence innovations continue to have the permanent shape that defines information shocks but they are smaller in magnitude we demonstrate that this is due to the fact that both inflation and stock price innovations have prognostic implications for future productivity that are very similar to the implications of innovations in confidence addition of unemployment to the system induces a transitory component that changes the shape of the impulse responses and somewhat weakens the previously airtight case against animal spirits but it does not provide constructive evidence of such effects

downstream integration of natural gas prices across u s states evidence from deregulation regime shifts abstract this study examines the cointegration between city gate and residential retail natural gas prices at the u s state level using monthly data from 1989 1 to 2012 12 both price series are tested for unit roots using the harris 2009 procedure to endogenously identify structural breaks related to deregulation associated with ferc order no 636 the endogenously determined structural breaks are then used in the saikkonen and lutkepohl 2000a 2000b 2000c maximum likelihood approach to test cointegration of the series tests show cointegration of the two price series for all 50 states estimates of the long run relationship in the pre and post structural break periods result in mixed evidence about the degree of perfect market integration induced by deregulation although the magnitude and variation of parameters indicate increased integration a vector error correction model is used to infer causality in the short and long run dynamics for the pre and post structural break periods for each state the post break period exhibits bidirectional causality in both short and long run dynamics for all states an indication of greater downstream integration of the natural gas market

what drives natural gas prices in the united states a directed acyclic graph approach abstract this study investigates the impacts of driving factors for natural gas prices during the period from 1999 to 2017 a data driven approach namely the directed acyclic graph dag is first employed to disclose the contemporaneous relations among natural gas crude oil and various factors the main results indicate that there is a stable contemporaneous causal flow from crude oil to natural gas unlike most of the previous research we found a long term equilibrium relationship between crude oil and natural gas returns when additional factors were taken into account however the impact of oil price returns on natural gas price volatility has decreased after the 2008 global financial crisis finally storage and seasonality factors can never be ignored when analysing natural gas prices while the impact of speculative activity on natural gas volatility is relatively weak

modelling general dependence between commodity forward curves abstract this study proposes a novel framework for the joint modelling of commodity forward curves its key contribution is twofold first we introduce a family of dynamic conditional correlation models based on hierarchical archimedean copulae hac dcc which are flexible but parsimonious instruments that capture a wide range of dynamic dependencies second we apply these models in the context of commodity forward curves as part of the framework an extensive value at risk analysis shows that certain hac dcc models consistently outperform other introduced benchmarks in terms of the preciseness of their out of sample distribution forecasts of the returns of various commodity futures portfolios this shows that the proposed modelling framework as one of its possible applications can be a useful and convenient risk management tool

commodity booms and busts in emerging economies abstract emerging economies particularly those dependent on commodity exports are prone to highly disruptive economic cycles this paper proposes a small open economy model for a net commodity exporter to quantitatively study the triggers of these cycles the economy consists of two sectors one of which produces commodities with prices subject to exogenous international fluctuations these fluctuations affect both the competitiveness of the economy and its borrowing terms as higher commodity prices are associated with lower spreads between the country s borrowing rate and world interest rates both effects jointly result in strongly positive effects of commodity price increases on gdp consumption and investment and a negative effect on the total trade balance furthermore they generate excess volatility of consumption over output and a large volatility of investment besides explicitly incorporating a double role of commodity prices the model structure nests the various candidate sources of shocks proposed in previous work on emerging economy business cycles estimating the model on argentine data we find that the contribution of commodity price shocks to fluctuations in post 1950 output growth is in the order of 38 in addition commodity prices account for around 42 and 61 of the variation in consumption and investment growth respectively we find transitory productivity shocks to be an important driver of output fluctuations exceeding the contribution of shocks to the trend which though smaller is not negligible

gas versus oil prices the impact of shale gas abstract what significance will developments in shale gas production have for european gas prices some commentators paint a gloomy picture of the future gas markets but most forecasts for the oil market are positive consequently a view appears to prevail that price trends will differ sharply between oil and gas markets this article looks at developments in us shale gas production and discusses their impact on the movement of european gas prices the relationship between oil and gas prices over time is also analysed

sensitivity of impulse responses to small low frequency comovements reconciling the evidence on the effects of technology shocks this article clarifies the empirical source of the debate on the effect of technology shocks on hours worked we find that the contrasting conclusions from levels and differenced vector autoregression specifications documented in the literature can be explained by a small low frequency comovement between hours worked and productivity growth that gives rise to a discontinuity in the solution for the structural coefficients identified by long run restrictions whereas the low frequency comovement is allowed for in the levels specification it is implicitly set to 0 in the differenced vector autoregression consequently even when the root of hours is very close to 1 and the low frequency comovement is quite small removing it can give rise to biases of sufficient size to account for the empirical difference between the two specifications

the message in north american energy prices how similar is the price behavior of north american natural gas fuel oil and power prices using current state of the art econometric methodology we explore the degree of shared trends across north american energy markets across these markets there appear to be effective arbitraging mechanisms for the price of natural gas and fuel oil but not for the price of electricity

on the brazilian fuel pricing policy a gaussian factor model approach in this paper we investigate the oil spot price dynamics and volatility in brazilian reais the local currency the current policy on price adjustments of refined products caused enormous turmoil

two markets and a weak link abstract we characterise the relationship between two network based oligopoly markets when local players share the interconnection s ownership to that purpose we analyse the case of the bacton uk zeebrugge belgium natural gas pipeline using vector auto regressive representation techniques we conclude that there is a threshold of capacity deployment after which the two local markets split as a result the relationship between local price differentials and capacity utilisation is increasing and convex we also show that the local prices dynamic structure is characterised by convergence features