conditional dependence structure between oil prices and exchange rates a copula garch approach abstract we study the conditional dependence structure between crude oil prices and u s dollar exchange rates using a copula garch approach various copula functions of the elliptical archimedean and quadratic families are used to model the underlying dependence structure in both bearish and bullish market phases over the 2000 2011 period we find evidence of significant and symmetric dependence for almost all the oil exchange rate pairs considered the rise in the price of oil is found to be associated with the depreciation of the dollar moreover we show that student t copulas best capture the extreme dependence and that taking the extreme comovement into account leads to improve the accuracy of var forecasts our main results remain unchanged when considering alternative garch type specifications and the crisis period but are sensitive to the use of raw returns

a time varying copula approach to oil and stock market dependence the case of transition economies abstract we employ the time varying copula approach to investigate the conditional dependence between the brent crude oil price and stock markets in the central and eastern european cee transition economies our results show evidence of a positive dependence between the oil and the stock markets of the six cee countries which is indicative of a contagion between those markets regardless of the changes in the oil price or the cee stock index moreover the dependence patterns in both the center and left tails of the return distributions change over time particularly during the heart of the financial crisis and are best described by the survival gumbel copulas the empirical evidence also suggests that the lower tail dependence is much stronger than that of the upper tail highlighting the importance of contagion during severe contractionary business cycles among the sample markets poland is shown to be particularly sensitive in this regard while hungary and slovenia are the least sensitive

should a carbon tax be differentiated across sectors abstract if some but not all countries are cooperating to reduce co2 emissions one could make the following argument a high carbon tax for carbon intensive tradeable sectors in the cooperating countries will reduce the production of goods from these sectors and therefore co2 emissions in the cooperating countries however this will to a large extent be counteracted by increased production of such goods in the countries that have no climate policy and since it is only total co2 emissions from all countries that are relevant for the climate there is no point in a policy that simply relocates co2 emissions from the cooperating countries to the countries that have no climate policy according to this line of reasoning carbon intensive tradeable sectors should thus face a lower carbon tax than other sectors of the economy this paper shows that a carbon tax should not be differentiated across sectors in the economy provided one can use import and export tariffs on all traded goods it is also shown that such a differentiation of carbon taxes is optimal for the cooperating countries if they are prevented from using tariffs on the traded goods however informational or political factors constraining the use of tariffs are likely also to constrain the possibility of differentiating carbon taxes between sectors

are electricity prices affected by the us dollar to euro exchange rate the spanish case abstract the objective of this paper is to investigate the relationships between spanish electricity spot prices and the us dollar euro usd euro exchange rate during the period 2005 2007 taking into account the study of the association between dollar and oil prices in order to better understand the evolution of the former over time the first finding in this study is that spanish electricity spots prices the usd euro exchange rate and oil prices are cointegrated therefore there is a long run equilibrium relationship between the three variables short run relationships have been detected between oil prices and spanish electricity prices and usd euro exchange rate in the sense that spanish electricity prices and usd euro exchange rate are affected by oil prices in the short run there is a transmission of volatility between usd euro exchange rate and oil prices to spanish electricity prices so although spanish electricity prices are not affected in level by the movements of usd euro exchange rate they are in volatility in this kind of scenario the conclusions confirm that for countries so dependent on external causes as spain one possible solution for guarantying the energy security would be the promotion of the renewable energies therefore we cannot ignore the impact in the internal expenses of the cost of installation and generation of green energies so there must be a balance between the increase in renewables and the reasonable market price of the electricity

asymmetric international minimum quality standards and vertical differentiation this paper develops a two country model of a vertically differentiated duopoly that spans two countries which are not integrated without additional costs equilibrium qualities prices profits and consumer s surplus are compared when 1 minimum quality standards are identical and 2 standards differ across countries both markets turn out to be connected by the quality choices of the two firms both firms prices in the two countries and their profits are lower whereas consumer s surplus and the two offered qualities are higher in both countries if no firm is forced out of the country s market with the more demanding minimum quality standard copyright 1995 by blackwell publishing ltd

the induced innovation hypothesis and energy saving technological change we develop a methodology for testing hicks s induced innovation hypothesis by estimating a product characteristics model of energy using consumer durables augmenting the hypothesis to allow for the ine uence of government regulations for the products we explored the evidence suggests that i the rate of overall innovation was independent of energy prices and regulations ii the direction of innovation was responsive to energy price changes for some products but not for others iii energy price changes induced changes in the subset of technically feasible models that were offered for sale iv this responsiveness increased substantially during the period after energy efficiency product labeling was required and v nonetheless a sizable portion of efficiency improvements were autonomous

trade accumulation and uneven development abstract this paper develops a two country model of capital accumulation and growth where the industrial sector exhibits increasing returns to scale it shows that uneven development is a necessary outcome in such a model an initial discrepancy in capital labor ratios between the two countries will cumulate over time leading to the division of the world into a capital rich industrial region and capital poor agricultural region which region takes on which role depends on primative accumulation that is on which region starts with more capital if capital is mobile internationally the model can given rise to a two stage pattern of development a first stage where trade is the engine of growth in the leading country and a second in which foreign investment takes on that role which is reminiscent of the hobson lenin theory of imperialism

integration of ccs emissions trading and volatilities of fuel prices into sustainable energy planning and its robust optimization in this paper a new approach has been proposed that allows a robust optimization of sustainable energy planning over a period of years it is based on the modified energy flow optimization model efom and minimizes total costs in planning capacities of power plants and ccs to be added stripped or retrofitted in the process it reduces risks due to a high volatility in fuel prices it also provides robustness against infeasibility with respect to meeting the required emission level by adopting a penalty constant that corresponds to the price level of emission allowances in this manner the proposed methodology enables decision makers to determine the optimal capacities of power plants and or ccs as well as volumes of emissions trading in the future that will meet the required emission level and satisfy energy demand from various user sections with minimum costs and maximum robustness they can also gain valuable insights on the effects that the price of emission allowances has on the competitiveness of res and ccs technologies it may be used in for example setting appropriate subsidies and tax policies for promoting greater use of these technologies the proposed methodology is applied to a case based on directions and volumes of energy flows in south korea during the year 2008

energy consumption and co2 emissions convergence in european union member countries a tonneau des danaides abstract as the consumption of energy is responsible for approximately 80 of ghg in eu iea 2008 the impact of energy activity on the environment has received increasing attention over the last decades from scholars researchers politicians and society as a whole within eu member countries it is commonly accepted that the design of energy and mitigation policies either at national or at european level require a detailed and integrated investigation of convergence divergence pattern among the participating countries in this paper we examine the distribution dynamics of energy consumption and co2 emissions their intensities as well as the carbonization index in 23 european countries over a forty one year period in particular from 1970 to 2010 for this purpose we used quah s methodology which is based on the dynamics of cross section distributions the main conclusion is that for all the examined variables the hypothesis of convergence patterns for the eu sample is not valid moreover regarding each examined variable different groups of polarization established important differences occur across eu countries according to the climate type with respect to the examined variables our analysis provides strong evidence supporting the fact that national and european energy and mitigation policies should be implemented according to the non convergence paradigm the body of evidence provided by our analysis is of great importance to energy policy makers and for issues related to climate change

physical market determinants of the price of crude oil and the market premium abstract we analyze the determinants of the real price of crude oil by means of an equilibrium correction model over the last two decades where we focus on the aspects of the physical market that impact on the clearing price we find that two cointegrating relations affect the changes in prices one refers to opec s behavior attempting to control prices using its market power and quotas the other to the coverage rate of oecd expected future demand using inventory behaviors we derive a forecasting equation for the change in oil prices which we use to assess the speculative elements of the price increases of the period 2000 05 we show that worries alien to the physical markets were the causes of the increase in oil prices and we quantify their overall impact

retracted on the conditional dependence structure between oil gold and usd exchange rates nested copula based gjr garch model energy commodities and precious metals differ from other trading products both oil and gold prices are leading economic variables and drive the evolution of the world economy since the us dollar is used as the primary currency of international crude oil and gold trading the relationship between commodities metals and exchange rates has become a major research agenda recently therefore this study proposes a nested copula based gjr garch model to explore the dependence structure between oil gold and the usd exchange rate more importantly a comparative framework based on two sub periods is implemented to capture the co movement during normal and crisis periods empirical results suggest that for both crisis periods the dependence between oil gold and the usd exchange rate is stronger compared with the dependence during the untroubled period moreover the co movement is accelerated which is explained by the unusual movement of the usd during the global financial crisis of 2007 2009

oil price volatility and political unrest prudence and protest in producer and consumer societies 1980 2013 abstract revenue from oil makes countries susceptible to the resource curse since rulers have ready access to finance for buying off opposition rather than reform we explore this issue by examining whether oil price volatility affects anti government unrest we argue that in oil producing countries low price years generate anti government protest conditional on a state s access to foreign exchange reserves the prudent management of oil revenue during boom years can allow some oil rich states to manage political dissent while others fail contrarily in oil importing countries high oil price years increase anti government dissent but again conditional on access to foreign exchange reserves which allow governments to ease the pain of austerity using panel data covering 165 countries between 1980 and 2013 34 years we find clear evidence in support of these propositions oil producer countries that are able to resist political dutch disease and save for rainy days are more capable of weathering low price years similarly oil import dependent states face higher dissent during high oil price years but conditional on access to foreign reserves these results are in line with others that show that some oil producers avoid civil war through heavy public spending oil rich countries should manage oil revenues in ways that allow them to survive the low price years perhaps by avoiding both economic and political dutch disease which will only lead to inevitable regime challenge the results are robust to alternative data measurement sample size and estimation methods

energy conservation investment do consumers discount the future correctly we argue that the apparently high discount rates attributed to investors making energy conservation investments are not irrational or the result of some market failure rather they may result from an investor recognizing that many conservation investments entail substantial sunk costs in the presence of these costs and uncertainty over future conservation savings consumers should use a higher hurdle rate for investment than if there were no uncertainty simulations suggest that the hurdle rate should be about four times greater than the standard rate an implication of our model is that tax subsidies for the purchase of conservation capital are likely to be ineffective we discuss alternative policy approaches which are more likely to increase energy efficient investment namely mandatory efficiency standards and energy taxes

metal volatility in presence of oil and interest rate shocks abstract this study uses three two factor volatility models of the garch family to examine the volatility behavior of three strategic commodities gold silver and copper in the presence of crude oil and interest rate shocks the results of the standard garch models suggest that gold and silver have almost the same volatility persistence which is greater than that of copper the cgarch estimates indicate that the short run transitory component of volatility converges to zero much faster for copper than for gold and silver in this sequence however the permanent volatility component demonstrates equally strong persistence in the long run for all three metals the egarch results suggest that the leverage effect is present and significant for copper only implying that gold and silver can be good investment in anticipation of bad times past oil shock does not impact all three metals similarly monetary policy and to leaser extent the oil shocks have calming effects on precious metals but not on copper if the t bill rate is used crises such as the 2003 iraq war heighten metal volatility these results have implications for derivatives valuations using gold as a reserve asset risk analysis and for the commodity exporting countries and commodity producing firms

technical evidence for assessing the performance of markets affecting energy efficiency abstract this paper focuses on the empirical basis for skepticism about the effectiveness of the market mechanism in promoting cost effective energy efficiency improvements we present a framework for evaluating engineering economic evidence on the diffusion of energy efficiency improvements and then present a series of examples within this framework that provide evidence for the existence of market imperfections related to energy efficiency we conclude with a challenge to economists policy analysts and technologists to take this empirical evidence seriously and sponsor further collaborative research in this area

world oil market or mayhem the world oil market is regarded by many as a puzzle why are oil prices so volatile what is opec and what does opec do where are oil prices headed in the long run is peak oil a genuine concern why did oil prices spike in the summer of 2008 and what role did speculators play any attempt to answer these questions must be informed and disciplined by economics such is the purpose of this essay to illuminate recent developments in the world oil market from the perspective of economic theory

the role of trader positions in spot and futures prices for wti abstract we extend the analysis of causal relations between trader positions and oil prices and the process of price discovery by estimating a cointegrating vector autoregression cvar model that expands the cash and carry relation between spot and futures prices to quantify long and short run relations among oil prices trader positions interest rates and oil inventories results indicate that oil inventories and trader positions are needed to generate cointegration between spot and futures prices the presence of trader positions and oil inventories suggest that both play a role in price discovery furthermore the cointegrating relation for price loads into the equation for both oil prices and trader positions this suggests a bi directional simultaneous adjustment process between oil prices and trader positions this expands the unidirectional causal relation from oil prices to trader positions that is generated by previous studies additional results suggest that price discovery occurs in the market for heavily traded near month futures contracts but discovery for thin far month futures markets occurs in the spot market together these results suggest mechanisms by which speculation could affect oil prices but the results presented here are moot regarding their effects

are oil shocks permanent or temporary panel data evidence from crude oil and ngl production in 60 countries this paper examines the unit root properties of crude oil production for 60 countries employing a range of panel data unit root tests for the period 1971 to 2003 the study first employs a number of panel data tests that do not accommodate structural breaks and then proceeds to apply the lagrange multiplier lm panel unit root test with one structural break the results of the panel data tests without a structural break are inconclusive with at best mixed support for joint stationarity the findings from the lm panel unit root test with a structural break however are conclusive suggesting that for a world panel and smaller regional based panels crude oil and ngl production are jointly stationary

quality leadership when regulatory standards are forthcoming in many markets governments set minimum quality standards while some sellers compete on the basis of quality by exceeding them such quality leadership strategies often win public acclaim especially when they involve environmental attributes using a duopoly model of vertical product differentiation we show that if the high quality firm can commit to a quality level before regulations are promulgated it induces the regulator to weaken standards and welfare falls our results raise doubts about the social benefits of corporate self regulation and highlight the dangers of lengthy delays between legislative mandates for new regulations and their implementation

options in the real world lessons learned in evaluating oil and gas investments many firms in the oil and gas business have long used decision analysis techniques to evaluate exploration and development opportunities and have looked at recent development in option pricing theory as potentially offering improvements over the decision analysis approach unfortunately it is difficult to discern the benefits of the options approach from the literature on the topic most of the published examples greatly oversimplify the kinds of projects encountered in practice and comparisons are typically made to traditional discounted cash flow analysis which unlike the option pricing and decision analytic approaches does not explicitly consider the uncertainty in project cash flows in this paper we provide a tutorial introduction to option pricing methods focusing on how they relate to and can be integrated with decision analysis methods and describe some lessons learned in using these methods to evaluate some real oil and gas investments

the efficiency paradox bureaucratic and organizational barriers to profitable energy saving investments abstract the paradox of why profitable energy saving investments are not undertaken continues to provoke debate the underlying phenomenon might be called the efficiency paradox because it represents a case in which business firms which are often presumed or taken axiomatically to be economically efficient make decisions that do not maximize profits new data from one of the us environmental protection agency s voluntary pollution prevention programs enables this paradox to be explored statistically the data show that both the level and variation in returns to lighting upgrade investments cannot be explained by standard economic models substantial gains in energy efficiency can be achieved without sacrificing profitability both economic and organizational factors account for some of the variation in observed returns to these investments but the results suggest a need for improved and more comprehensive theories of the investment behavior of firms and other organizations

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

market structure marketing method and price instability data for metals sold on commodity exchanges and at prices set by producers are used to test the relationship between the organization of markets and the behavior of prices on the production side the question is whether prices are more stable in concentrated industries and on the sales side the question is whether markets where buyers are consumers have more stable prices than those with consumers and speculators the recent increase in metal price instability is explained by changes in the market structure and organization variables foremost is increased reliance on commodity exchanges declines in concentration are of less importance

the dynamic impact of unilateral environmental policies this paper builds a two country two sector polluting nonpolluting trade model with directed technical change examining whether unilateral environmental policies can ensure sustainable growth the emission rate of the polluting sector depends on its relative use of a clean and a dirty input a unilateral policy combining clean research subsidies and a trade tax can ensure sustainable growth while unilateral carbon taxes alone increase innovation in the polluting sector abroad and generally cannot ensure sustainable growth relative to autarky and exogenous technical change respectively trade and directed technical change accelerate environmental degradation either under laissez faire or with unilateral carbon taxes yet both help reduce environmental degradation under the appropriate unilateral policy i characterize the optimal unilateral policy analytically and numerically using calibrated simulations knowledge spillovers have the potential to reduce the otherwise large welfare costs of restricting policy to onecountry

an identification robust test for time varying parameters in the dynamics of energy prices summary we test for the presence of time varying parameters tvp in the long run dynamics of energy prices for oil natural gas and coal within a standard class of mean reverting models we also propose residual based diagnostic tests and examine out of sample forecasts in sample lr tests support the tvp model for coal and gas but not for oil though companion diagnostics suggest that the model is too restrictive to conclusively fit the data out of sample analysis suggests a random walk specification for oil price and tvp models for both real time forecasting in the case of gas and long run forecasting in the case of coal copyright 2010 john wiley sons ltd

free trade and global warming a trade theory view of the kyoto protocol this paper demonstrates how three important results in environmental economics true under mild conditions in closed economies are false or need serious amendment in a world with international trade in goods since the three results we highlight have framed much of the ongoing discussion and research on the kyoto protocol our viewpoint from trade theory suggests a re examination may be in order specifically we demonstrate that in an open trading world but not in a closed economy setting 1 unilateral emission reductions by the rich north can create self interested emission reductions by the unconstrained poor south 2 simple rules for allocating emission reductions across countries such as uniform reductions may well be efficient even if international trade in emission permits is not allowed and 3 when international emission permit trade does occur it may make both participants in the trade worse off and increase global emissions

forecasting the conditional volatility of oil spot and futures prices with structural breaks and long memory models this paper extends previous studies by investigating the relevance of structural breaks and long memory in modeling and forecasting the conditional volatility of oil spot and futures prices using a variety of garch type models our results can be summarized as follows first we provide evidence of parameter instability in five out of nine garch based conditional volatility processes for energy prices second long memory is effectively present in all the series considered and a figarch model seems to better fit the data but the degree of volatility persistence diminishes significantly after adjusting for structural breaks finally the out of sample analysis shows that volatility models accommodating instability and long memory characteristics of the data provide the best volatility forecasts for most cases

dependence and extreme dependence of crude oil and natural gas prices with applications to risk management abstract in this article we show how the copula garch approach can be appropriately used to investigate the conditional dependence structure between the crude oil and natural gas markets as well as to derive implications for portfolio risk management in extreme economic conditions using daily price data from january 1997 to october 2011 our in sample results show evidence of asymmetric dependence between the two markets the crude oil and gas markets tend to comove closely together during bullish periods but not at all during bearish periods moreover taking the extreme comovement into account leads to an improvement in the accuracy of the out of sample value at risk forecasts

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

why do oil prices jump or fall this paper discusses theories that can explain the zig zags of oil prices in general and in particular the recent jump more precisely the following explanations are discussed homo oeconomicus pure profit maximization if demand is dynamic and convex price reaction function price increases and respectively declines depend on capacity utilization cartelization contingent on output or revenues of which the latter can lead to backward bending supply segments and multiple equilibria statistical descriptions mean reversion homo politicus i e arguments for price hikes that are rational public choice despite the long run economic loss finally two approaches are presented that emphasize demand uncertainty one extending the above mentioned dynamic demand framework and the other considers a dynamic game of non competitive suppliers with lumpy investments summing up a demand shock seems to be the most suitable explanation of today s high prices indeed a shock given that international energy agency iea and department of energy doe were promising just a couple of years ago that we are going to have lots of oil at low prices while others and in particular politics have surprisingly little or no explanatory power

modelling oil price volatility in this paper we examine the volatility of crude oil price using daily data for the period 1991 2006 our main innovation is that we examine volatility in various sub samples in order to judge the robustness of our results our main findings can be summarised as follows 1 across the various sub samples there is inconsistent evidence of asymmetry and persistence of shocks and 2 over the full sample period evidence suggests that shocks have permanent effects and asymmetric effects on volatility these findings imply that the behaviour of oil prices tends to change over short periods of time

double limit pricing abstract we study oil extraction by a monopolist who faces demand from a climate aware and a climate ignorant region a renewable perfect substitute for oil is available at constant unit cost the climate aware region uses a carbon tax and a renewables subsidy as policy instruments due to heterogeneity in climate policies between regions the oil price path possibly contains two limit pricing phases we specify conditions under which a tightening of climate policies results in lower initial carbon emissions a renewables subsidy and a carbon tax effectively force the monopolist to sell more oil to the climate ignorant region during the stage when demand from the climate aware region has already vanished we calibrate the model and numerically investigate climate damage and welfare effects of the policies of the climate aware region we find that both the carbon tax and a renewables subsidy lower climate damage even though cumulative emissions are fixed

oil price shocks and the dispersion hypothesis recent research by david lilien shows that a significant fraction of aggregate unemployment can be explained by the dispersion of employment growth across industries this paper presents two new results in this area first it is shown that a significant fraction of the variation in lilien s dispersion index is due to the differential impact of oil shocks across industries second and more important it is shown that once the dispersion in employment growth due to oil shocks is accounted for the residual dispersion has no explanatory power for unemployment

date stamping historical periods of oil price explosivity 1876 2014 article i nfo this paper sets out to date stamp periods of historic oil price explosivity using the generalized sup adf gsadf test procedure developed by phillips shi and yu 2013 the date stamping procedure used in this paper is ef fective at identifying periodically collapsing bubbles a feature found lacking with previous bubble detection methods weset out to identify periods of oilpriceexplosivity relative to the general price leveland oilinventory supplies in the us since 1876 and 1920 respectively the recursive identification algorithms used in this study identify multiple periods of price explosivity and as such provides future researchers with a reference for study ing the macroeconomic impact of historical periods of significant oil price build ups

the political economy of the pharmaceutical industry e conomicsis a practical science since its inception as an independent discipline it has probed the major policy issues of the day the topics that aroused the interests of its practitioners have generally been those that presented government officials with critical choices the modern literature on the economics of the pharmaceutical industry is no exception this body of material originated with the investigations of the kefauver committee in late 1959 public interest was aroused by the spectacle of confrontation between committee and industry the record made by this committee and its successors grew to tens of thousands of pages as claims and counterclaims were offered regarding industry conduct and performance the primary line of attack concerned pharmaceutical prices and profits the committee demonstrated that prices generally exceeded direct costs of manufacturing for 22 major pharmaceutical firms in 1958 costs of goods sold were merely 32 percent of total sales u s senate report 1961 p 31 the committee argued that this fact alone demonstrated the presence of monopoly power while the substantial difference between revenues and production costs permitted high expenditures on research and development it also paid for even higher selling outlays moreover reported rates of return after taxes during this period on the order of 21 to 22 percent exceeded twice the average for all manufacturing the industry replied that on the contrary prices were low relative to the value afforded consumers and high returns on successful products were required to balance the losses from the large numbers of unsuccessful ones the relevant concept of marginal costs according to the industry position must include the costs of developing and marketing new products and therefore prices were not excessive at all although it admitted earning substantial profits the industry argued that without these returns research outlays would be limited and the number of new drugs reduced the committee countered that little of social value arose from industry research molecules were manipulated and the new drugs that resulted were therapeutically similar to those already on the market indeed it suggested that much

effect of inventory announcements on crude oil price volatility abstract this paper examines the behavior of crude oil futures price volatility and investigates how the eia weekly crude oil inventory reports announcements especially information shocks impact crude oil price movement and volatility this study focuses on inventory information shocks using a new measure rather than on inventory changes themselves the empirical results reveal that inventory information shocks rather than actual inventory changes negatively affect crude oil returns on the day the eia releases the inventory information although inventory shocks have no effect on daily conditional variance which mainly follows a garch 1 1 process to test the robustness of our model we re estimate the models for three subsamples according to all results we find that the effect of inventory shocks is weakened in rapid growth periods and disappears in steep fall markets

modelling futures price volatility in energy markets is there a role for financial speculation this paper models volatility in four energy futures markets adopting garch models the variance equation is enriched with alternative measures of speculation based on cftc data the market share of non commercial traders the working s t index and the percentage of net long positions of non commercials over total open interest in future markets it also includes a control for market liquidity we consider four energy commodities light sweet crude oil heating oil gasoline and natural gas over the period 2000 2014 analysed at weekly frequency we find that speculation presents a negative and significant sign the robustness exercise shows that i results remain unchanged through different model specifications garch in mean egarch and tarch ii results are robust to different specifications of the mean and variance equation

embodied carbon tariffs in a world where the prospects of a global agreement to control greenhouse gas emissions are bleak the idea of using trade policy as an implicit regulation of foreign emission sources has gained many supporters in countries contemplating unilateral climate policies embodied carbon tariffs tax the direct and indirect carbon emissions embodied in imported goods the appeal seems obvious as oecd countries are on average large net importers of embodied emissions from non oecd countries carbon tariffs could substantially extend the reach of oecd climate policies we investigate this claim by simulating the effects of embodied carbon tariffs with a computable general equilibrium model of global trade and energy use we find that embodied carbon tariffs do effectively reduce carbon leakage however the scope for improvements in the global cost effectiveness of unilateral climate policy is limited the main welfare effect of the tariffs is to shift the burden of oecd climate policy to the developing world

daily seasonality in crude oil returns and volatilities abstract in this article we test for the existence of daily seasonality in returns and volatilities of crude oil using a dummy augmented garch specification for the period from may 1987 to october 2013 our key findings are as follows i volatilities on mondays are significantly higher than on all other weekdays providing the important insight that seasonal effects should be considered when forecasting crude oil volatility ii returns on the other hand tend to be lower on mondays than on other weekdays suggesting profitable investment strategies based on this seasonal pattern in fact the analysis of a simple long short trading rule based on the monday effect provides some evidence that it can outperform a passive buy and hold approach however it cannot do so to an extent that is statistically significant iii our seasonality results are fairly robust to the choice of other frequently used garch model variants like garch m tgarch and cgarch

regime switching stochastic volatility evidence from the crude oil market this paper incorporates regime switching into the stochastic volatility sv framework in an attempt to explain the behavior of crude oil prices in order to forecast their volatility more specifically it models the volatility of oil return as a stochastic volatility process whose mean is subject to shifts in regime the shift is governed by a two state first order markov process the bayesian markov chain monte carlo method is used to estimate the models the main findings are first there is clear evidence of regime switching in the oil market ignoring it will lead to a false impression that the volatility is highly persistent and therefore highly predictable second incorporating regime switching into the sv framework significantly enhances the forecasting power of the sv model third the regime switching stochastic volatility model does a good job in capturing major events affecting the oil market

a neoclassical model of unemployment and the business cycle this paper investigates a general equilibrium model of unemployment and the business cycle in which specialization of labor plays a key role a rational expectations equilibrium with fully flexible wages and prices can exhibit unemployment in which the marginal product of employed workers exceeds the reservation wage of those who are without jobs workers are unemployed either because they are in the process of relocating for a better job or because they are waiting for conditions in the depressed sector to improve moreover seemingly small disruptions in the supplies of primary commodities such as energy could be the source of fluctuations in aggregate employment and can exert surprisingly large effects on real output

the narrow moving band the dutch disease and the competitive consequences of mrs thatcher notes on trade in the presence of dynamic scale economies abstract this paper presents a model of trade in which comparative advantage instead of being determined by underlying attributes of countries evolves over time through learning by doing in this model arbitrary patterns of specialization once established tend to become entrenched over time the model sheds light on three widely held views that do not make sense in more conventional models first is the view that temporary protection of selected sectors can permanently alter the pattern of comparative advantage in the protecting country s favor second is the view that seemingly favorable developments such as the discovery of exportable natural resources may lead to a permanent loss of other sectors and reduce welfare in the long run third is the possibility that a temporary overvaluation of a currency due to tight money can lead to a permanent loss of competitiveness in some sectors

optimal taxes on fossil fuel in general equilibrium we analyze a dynamic stochastic general equilibrium dsge model with an externality through climate change from using fossil energy our central result is a simple formula for the marginal externality damage of emissions or equivalently for the optimal carbon tax this formula which holds under quite plausible assumptions reveals that the damage is proportional to current gdp with the proportion depending only on three factors i discounting ii the expected damage elasticity how many percent of the output flow is lost from an extra unit of carbon in the atmosphere and iii the structure of carbon depreciation in the atmosphere thus the stochastic values of future output consumption and the atmospheric co2 concentration as well as the paths of technology whether endogenous or exogenous and population and so on all disappear from the formula we find that the optimal tax should be a bit higher than the median or most well known estimates in the literature we also formulate a parsimonious yet comprehensive and easily solved model allowing us to compute the optimal and market paths for the use of different sources of energy and the corresponding climate change we find coal rather than oil to be the main threat to economic welfare largely due to its abundance we also find that the costs of inaction are particularly sensitive to the assumptions regarding the substitutability of different energy sources and technological progress

carbon leakage revisited unilateral climate policy with directed technical change using a stylized theoretical model we argue that current economic analyses of climate policy tend to over estimate the degree of carbon leakage as they abstract from the effects of induced technological change we analyse carbon leakage in a two country model with directed technical change where only one of the countries enforces an exogenous cap on emissions climate policy induces changes in relative prices that cause carbon leakage through a terms of trade effect however these changes in relative prices also affect the incentives to innovate in different sectors this leads to a counterbalancing induced technology effect which always reduces carbon leakage we therefore conclude that the leakage rates reported in the literature may be too high as these estimates neglect the effect of price changes on the incentives to innovate

induced innovation and energy prices this paper uses u s patent data from 1970 to 1994 to study the impact of energy prices on energy efficient innovations theories of technological change have focused both on demand side factors which spur innovative activity by increasing the value of new innovations and supply side factors such as scientific advancements that make new innovations possible data on demand side factors are easily obtained but data on supply side factors that influence innovation are not readily available this paper uses patent citations as a measure of the usefulness of the existing base of scientific knowledge citations to previous patents are used to construct productivity estimates which measure the usefulness of the existing stock of knowledge to inventors in a given energy field for any given year these estimates are then combined with data on demand side factors to estimate a model of induced innovation in energy technologies the results indicate that both energy prices and the supply of knowledge have strongly significant positive effects on innovation the paper concludes with a discussion of the implication of this work for environmental policy

price volatility in commodity markets with restricted participation abstract in commodity markets price volatility may rise significantly if the product granularity increases to gain insights into the underlying drivers we analyze price volatility based on the example of german electricity markets we develop a theoretical model to reproduce the price formation in the day ahead and intraday auction which are sequential short term electricity markets with 60 minute and 15 minute products as cross border trade is allowed in the day ahead but not in the intraday auction the model accounts for the impact of restricted market participation the theoretical model is then transferred into an empirical analysis to first validate the modeling approach and second to comparatively assess the impact of increasing product granularity and restricted market participation the empirical results indicate that the disproportional rise in quarter hourly price volatility is mainly triggered by limited market participation and not only by the high volatility of renewable supply and demand since restricted market participation refers to a lack of market coupling we derive a proxy for efficiency losses ranging from eur 55 million to eur 108 million that may be reduced if markets are coupled

trade and carbon taxes we study various scenarios for taxing emissions of carbon dioxide c02 the question is how carbon tax policies will perform given interna tional trade if countries adopt different tax rates we investigate this question quantitatively using cim earth a newly developed open source computable general equilibrium cge model since climate change is a function of global c02 emissions an efficient strategy for control ling emissions would be to impose the same price wherever they occur such an approach presents a free riding problem however because nations have an incentive not to comply while gaining the ben efits of reduced emissions elsewhere moreover because of distributive concerns and claims about

how high are option values in energy efficiency investments high implicit discount rates in consumers energy efficiency investments have long been a source of controversy in several recent papers hassett and metcalf argue that the uncertainty and irreversibility attendant to such investments and the resulting option value account for this anomalously high implicit discounting using their model and data we show that to the contrary their analysis falls well short of providing an explanation of this pattern

environment directed technical change and economic policy we study the effects of an economic policy in an endogenous growth general equilibrium framework where production of consumption goods requires two resource inputs a polluting non renewable resource and a non polluting labour resource the use of the former contributes to the accumulation of pollution in the atmosphere which affects welfare there is a specific research sector associated with each of those resources we provide a full welfare analysis and we describe the equilibrium paths in a decentralized economy we go on to study the effects of three associated economic policy tools a tax on the polluting resource and two research subsidies we show that the optimal environmental policy has two main effects it delays the extraction of the resource and with it the level of polluting emissions and it reallocates research efforts decreasing the amount put into grey research to the benefit of green research we also show that the environmental policy is grey biased in the short term and green biased in the long term finally we compute the optimal values for these tools

oil price shocks stock market economic activity and employment in greece abstract using a multivariate vector autoregression var approach this paper attempts to shed light into the dynamic relationship among oil prices real stock prices interest rates real economic activity and employment for greece the empirical evidence suggests that oil price changes affect real economic activity and employment oil prices are important in explaining stock price movements stock returns do not lead to changes in real activity and employment

oil and energy price volatility it is commonly believed that since the 1973 oil crisis oil and energy prices have been more volatile than other commodity prices this study examines monthly producer prices for thousands of products over the period january 1945 through august 2005 the results show that crude oil refined petroleum and natural gas prices are more volatile than prices for about 95 of products sold by domestic producers relative to crude commodities however crude oil prices are currently more volatile than about 65 of other products and oil price volatility first exceeded the median for crude commodities following the 1986 drop in oil prices

speculative trading and oil price dynamic a study of the wti market abstract the aim of this paper is to study the oil price dynamic in west texas intermediate wti market in the us by using statistical and econometric tools we first attempt to identify the long term relationship between wti spot prices and the prices of futures contracts on the new york mercantile exchange nymex subsequently we model the short term dynamic between these two prices and this analysis points up several breaks on this basis a short term markov switching vectorial error correction model ms vecm with two distinct states standard state and crisis state has been estimated finally we introduce the volumes of transactions observed on the nymex for the wti contracts and we estimate the influence of the non commercial players we conclude that the hypothesis of an influence of non commercial players on the probability for being in the crisis state cannot be rejected in addition we show that the rise in liquidity of the first financial contracts as measured by the volume of open interest is a key element to understand the dynamics in market prices

the impact of energy derivatives on the crude oil market we examine the effects of energy derivatives trading on the crude oil market there is a common public and regulatory perception that derivative securities increase volatility and can have a destabilizing effect on the underlying market consistent with this view we find an abnormal increase in volatility for three consecutive weeks following the introduction of nymex crude oil futures while there is also evidence of a longer term volatility increase this is likely due to exogenous factors such as the continuing deregulation of the energy markets subsequent introductions of crude oil options and derivatives on other energy commodities have no effect on crude oil volatility we also examine the effects of derivatives trading on the depth and liquidity of the crude oil market this analysis reveals a strong inverse relation between the open interest in crude oil futures and spot market volatility specifically when open interest is greater the volatility shock associated with a given unexpected increase in volume is much smaller

volatility forecasting and risk management for commodity markets in the presence of asymmetry and long memory abstract this paper explores the relevance of asymmetry and long memory in modeling and forecasting the conditional volatility and market risk of four widely traded commodities crude oil natural gas gold and silver a broad set of the most popular linear and nonlinear garch type models is used to investigate this relevancy our in sample and out of sample results show that volatility of commodity returns can be better described by nonlinear volatility models accommodating the long memory and asymmetry features in particular the fiaparch model is found to be the best suited for estimating the var forecasts for both short and long trading positions this model also gives for all four commodities the lowest number of violations under the basel ii accord rule given a risk exposure at the 99 confidence level several implications for commodity market risks policy regulations and hedging strategies can be drawn from the obtained results

evaluating energy efficiency investments accounting for risk in the discounting process a prominent feature of the literature regarding the economics of energy conservation is the debate over the existence and nature of the so called efficiency gap a frequent subject of debate is whether consumers apply a reasonable discount rate when evaluating the future benefits of energy efficiency measures a key aspect of the discounting debate is the manner in which consumer attitudes toward risk are accounted for when discounting this paper suggests that an appropriate approach to incorporating risk into the evaluation of energy efficiency projects would yield higher net benefits to such projects than standard evaluation techniques we argue that analysing the purchase of fuel saving capital as though it were a standard investment in a physical asset obscures an important feature of the decision rather than deciding whether or not to invest in an asset with an uncertain future benefit stream the consumer is actually choosing between two future cost streams each of which is uncertain this seemingly minor change in perspective has important implications for how the risk associated with fuel saving capital should be brought into the discounting process an example based on lighting technologies is used to illustrate the principles discussed

time frequency relationship between u s output with commodity and asset prices abstractcommodity and asset prices have a well documented effect on economic growth as manifested through various channels at the same time the business cycle influences the commodity and asset prices whereas empirical evidence on the effect of commodity and asset prices on the long run economic growth is ambiguous most of the previous researches highlight a positive correlation in the short run the aim of this article is to disentangle the short and long run co movements between us historical business cycles and commodity and asset prices over the period 1859 2013 for this purpose we use a time frequency approach and we test the historical influence of oil gold housing and stock prices over the output growth in contrast to other studies we control for the effect of other prices and monetary conditions using the wavelet partial coherency in line with the previous works we discover that co movements between economic growth and commodity and assets prices manifest especially in the short run

private voluntary standards in the food system the perspective of major food retailers in oecd countries abstract the paper examines the main economic and institutional incentives which have driven major oecd food retailers in their use of private voluntary standards and discusses their growing role in shaping the agri food system it is based on interviews with quality and safety directors of major oecd retailers and a brief survey of retailers actual buyer practices though not all retailers are included these firms account for over 70 of retail food sales in oecd countries we find that the growing voice of civil society changing legal and institutional frameworks increased market concentration and buying power as well as their integration with financial markets has provided the setting for development of private standards while food safety and quality standards are seen as key to maintaining and improving reputation as well as against legal liabilities additional standards such as labour environmental and animal welfare are also gaining ground as strategies for customer loyalty and market shares the grass roots retailer move in the harmonization of food safety standards is seen as an initial step towards a global approach to managing the food system with harmonization of other standards likely in the future given their buyer power these developments can be viewed as a way of governing the food system and will be important for both oecd and non oecd food and agricultural sector evolution in the coming years

analytical pricing of discretely monitored asian style options theory and application to commodity markets we compute an analytical expression for the moment generating function of the joint random vector consisting of a spot price and its discretely monitored average for a large class of square root price dynamics this result combined with the fourier transform pricing method proposed by carr and madan carr p madan d 1999 option valuation using the fast fourier transform journal of computational finance 2 4 summer 61 73 allows us to derive a closed form formula for the fair value of discretely monitored asian style options our analysis encompasses the case of commodity price dynamics displaying mean reversion and jointly fitting a quoted futures curve and the seasonal structure of spot price volatility four tests are conducted to assess the relative performance of the pricing procedure stemming from our formulae empirical results based on natural gas data from nymex and corn data from cbot show a remarkable improvement over the main alternative techniques developed for pricing asian style options within the market standard framework of geometric brownian motion

a utility based approach to energy hedging abstract a key issue in the estimation of energy hedges is the hedgers attitude towards risk which is encapsulated in the form of the hedgers utility function however the literature typically uses only one form of utility function such as the quadratic when estimating hedges this paper addresses this issue by estimating and applying energy market based risk aversion to commonly applied utility functions including log exponential and quadratic and we incorporate these in our hedging frameworks we find significant differences in the optimal hedge strategies based on the utility function chosen

dynamic effects of rising oil prices on consumer energy prices in canada and the united states evidence from the last half a century abstract this paper examines the dynamic relationship between the price of crude oil and the cpi energy price sub index in canada and the u s using a markov regime switching model and the bai perron sequential method since these two series are cointegrated during the sample period january 1961 june 2013 a short run dynamic model is thus estimated for each country in which all coefficients and the error variance terms can freely switch over time between two values prevailing in regimes 0 and 1 previous studies indicate that the price of crude oil does not currently affect the aggregate cpi as much as it did in the 1970s this finding is not disputed in this paper however the sequentially determined break date as well as the time varying regime switching probabilities point to two new findings first the marginal effects of changes in oil price on consumer energy prices not the aggregate cpi have consistently increased and become more instantaneous for both countries after the western u s energy crisis of 2000 second the speed of adjustment proxied by different error correction coefficients has also risen particularly for the u s therefore oil prices exert far more positive and immediate impacts on energy costs in the post rather than pre 1999 periods

the relationship between crude oil spot and futures prices cointegration linear and nonlinear causality the present study investigates the linear and nonlinear causal linkages between daily spot and futures prices for maturities of one two three and four months of west texas intermediate wti crude oil the data cover two periods october 1991 october 1999 and november 1999 october 2007 with the latter being significantly more turbulent apart from the conventional linear granger test we apply a new nonparametric test for nonlinear causality by diks and panchenko after controlling for cointegration in addition to the traditional pairwise analysis we test for causality while correcting for the effects of the other variables to check if any of the observed causality is strictly nonlinear in nature we also examine the nonlinear causal relationships of vecm filtered residuals finally we investigate the hypothesis of nonlinear non causality after controlling for conditional heteroskedasticity in the data using a garch bekk model whilst the linear causal relationships disappear after vecm cointegration filtering nonlinear causal linkages in some cases persist even after garch filtering in both periods this indicates that spot and futures returns may exhibit asymmetric garch effects and or statistically significant higher order conditional moments moreover the results imply that if nonlinear effects are accounted for neither market leads or lags the other consistently videlicet the pattern of leads and lags changes over time

economics and climate change integrated assessment in a multi region world this paper develops a model that integrates the climate and the global economy an integrated assessment model with which different policy scenarios can be analyzed and compared the model is a dynamic stochastic general equilibrium setup with a continuum of regions thus it is a full stochastic general equilibrium version of rice nordhaus s pioneering multi region integrated assessment model like rice our model features traded fossil fuel but otherwise has no markets across regions there is no insurance nor any intertemporal trade across them the extreme form of market incompleteness is not fully realistic but arguably not a bad approximation of reality its major advantage is that along with a set of reasonable assumptions on preferences technology and nature it allows a closed form model solution we use the model to assess the welfare consequences of carbon taxes that differ across as well as within oil consuming and producing regions we show that surprisingly only taxes on oil producers can improve the climate taxes on oil consumers have no effect at all the calibrated model suggests large differences in views on climate policy across regions

international standards and international trade empirical evidence from iso 9000 diffusion abstract empirical scholarship on the standards trade relationship has been held up due to methodological challenges measurement varied effects and endogeneity considering the trade effects of one particular standard iso 9000 we surmount methodological challenges by measuring standardization via national penetration of iso 9000 allowing standardization to manifest via multiple quality signaling information compliance cost and common language channels and using instrumental variable multilateral resistance and panel data techniques to overcome endogeneity we find evidence of common language and quality signaling augmenting country pair trade yet iso rich nations benefit the most from standardization while iso poor nations find iso 9000 to represent a trade barrier due to compliance cost effects

oil and the macroeconomy when prices go up and down an extension of hamilton s results in an important paper hamilton 1983 demonstrated a strong correlation between oil price changes and gross national product growth in u s data however his study pertained to a period in which all the large oil price movements were upward and thus it left unanswered the question whether the correlation persists in periods of price decline moreover the price variable he used was somewhat distorted by price controls in the 1970s this note investigates whether hamilton s results continue to hold when the sample is extended to include the recent oil market collapse and the oil price variable is corrected for the effects of price controls particular attention is given to the possibility of asymmetric responses to oil price increases and decreases as suggested in the structural employment literature loungani 1986 davis 1987 hamilton 1988 like hamilton i based my investigation on the gnp equation in sims s 1 980b six variable quarterly vector autoregressive model

endogenous technological change in climate change modelling this article investigates the impact on optimal co2 abatement and carbon tax levels of introducing endogenous technological change in a macroeconomic model of climate change we analyse technological change as a function of cumulative capacity as incorporated recently in energy systems models our calculations confirm that including endogenous innovation implies earlier emission reduction to meet atmospheric carbon concentration constraints however the effect is stronger than suggested in the literature moreover the development of non fossil energy technologies constitutes the most important opportunity for emission reductions optimal carbon tax levels reducing fossil energy use are lower than usually advocated