the importance of financial considerations in divorce decisions i introduction one of the most dramatic and commonly cited consequences of divorce is the fall in family money income especially for households headed by divorced women using the panel survey of income dynamics duncan and hoffman 1985 estimate that the family income of divorced and separated women fell by 19 percent during the year following divorce or separation a study by nestel et al 1983 using data from the mature women s cohort of the national longitudinal survey of labor market experience indicates that the poverty rate for households headed by women who were divorced during the survey and did not remarry rose from 10 percent just prior to divorce to 25 percent immediately after dovorce similar results are reported by mott and moore 1982 and espenshade 1979 these statistics however may overestimate the long term negative consequences of divorce because they ignore the possibility of an improvement in financial circumstances through remarriage 1 mott and moore 1982 find that even for women who do not remarry economic status improves over time due primarily to better employment prospects given the large financial costs of divorce especially in the short run it is reasonable to ask how important are financial considerations in divorce decisions this paper explores the linkages between the financial consequences of divorce and the decision to become divorced the paper extends previous work by measuring these consequences over a period of time rather than at one point in time in particular the paper addresses two issues 1 do the expected financial consequences of divorce affect the decision to become divorced and 2 what is the relative importance of short versus long run considerations a standard choice theoretic model predicts that the smaller are the financial costs of divorce the greater is the probability of divorce the financial opportunity cost of divorce is measured as the difference in the expected present values of the income streams within marriage and at divorce the expected income stream at divorce includes the financial value attached to a possible remarriage as well as income from employment welfare alimony and child support payments the empirical analysis utilizes data from the national longitudinal survey of work experience of young women nls a sample of those divorced between 1973 and 1978 is observed over time during marriage after divorce and for some during a remarriage thus the actual income changes resulting from divorce and remarriage are measured income changes for a sample of continuously married women are also measured over a comparable period the expected changes in income for each subsample are estimated as a function of socio economic variables and the values are imputed for the entire sample to explore the relationship between these expected income streams and decisions about divorce the result indicate that the expected short term financial consequences of divorce are a better predictor of subsequent divorce than are the longer term consequences this evidence implies that individuals behave as if they face high discount rates ii economic models of divorce one of the first economic models of divorce was developed and emphirically tested by becker landes and michael 1977 as in any choice theoretic model divorce occurs when the gains from that choice exceed the benefit from remaining married gains from marriage include both a pecuniary component such as pooled household income from the market work of the husband and wife and a non pecuniary component such as children love companionship and household goods from home production gains from divorce include own labor market income home production which may differ between the divorced and married states and the expected value of potential new relationship e g remarriage marriage specific capital such as children has a higher value within marriage and increases the opportunity cost of divorce

are public sector workers more risk averse than private sector workers available evidence suggests that stability of employment is greater in the public sector than in the private sector the value that individuals place on tbis stability depends on tbe individual s degree of risk aversion economic reasoning suggests tbat otber tbings equal tbose individuals witb a high degree of aversion to risk will be more likely tban otbers to seek employment in the public sector this paper tests tbat hypothesis tbrougb tbe use of probit analysis and a measure of risk aversion developed in ibe university of micbigan s panel study of income dynamics the results tend to confirm tbe bypotbesis implying tbat a policy of intersectoral equality of pay for comparable jobs would result inanexcesssupplyof workers to tbe public sector

disentangling demand and supply shocks in the crude oil market how to check sign restrictions in structural vars given the growing dissatisfaction with exclusion and long run restrictions in structural vector autoregressive analysis sign restrictions are becoming increasingly popular so far there are no techniques for validating the shocks identied via such restrictions although in an ideal setting the sign restrictions specify shocks of interest sign restrictions may be invali dated by measurement errors data adjustments or omitted variables we model changes in the volatility of the shocks via a markov switching ms mechanism and use this devise to give the data a chance to object to sign restrictions the approach is illustrated by considering a small model for the market of crude oil

sharing the burden for climate change mitigation in the canadian federation dividing the burden for greenhouse gas abatement amongst the provinces has proven challenging in canada and is a major factor contributing to canada s poor historic performance on greenhouse gas abatement as the country aims to achieve substantial cuts to emissions over the next decade and by mid century such burden sharing considerations are likely to be elevated in importance this paper uses a calibrated multi region multi sector computable general equilibrium model to compare a number of archetypal rules for sharing the burden of a joint commitment amongst members for the case of greenhouse gas reductions in canada because of the substantial heterogeneity amongst canadian provinces these different burden sharing rules imply signifcantly different relative abatement effort amongst provinces and also signifcantly different welfare implications when emission permits are allocated on an equal per capita basis welfare is increased in ontario british columbia quebec and manitoba and signifcantly reduced in alberta and saskatchewan in contrast when emission permits are allocated based on historic emissions alberta and saskatchewan are made better off and ontario british columbia quebec and manitoba are made worse off we compare these archetypal burden sharing rules to existing provincial emission reduction commitments and find that none of the standard burden sharing rules comes close to existing commitments we argue that the debate on burden sharing of greenhouse gas abatement in canada could be objectified if informed by coherent quantitative analysis such as the one presented here

opec and the international oil market can a cartel fuel the engine of economic development abstract the opec cartel was formed to promote two economic goals one microeconomic low oil market volatility the other macroeconomic promotes economic development of its members these goals create a tension since the cartel s single tool is output quotas using this dual micro macro perspective we analyze oil exporting countries behavior we find that the effects of the cartel s choices will be reflected in oil market stability long term macroeconomic development and international oil market structure if an oil producing country cares about both oil industry profits and macroeconomic stability the goal of output stability may be inconsistent with cartel membership

on agreements in a nonrenewable resource market a cooperative differential game approach abstract we consider a nonrenewable resource duopoly with economic exhaustion we characterize the set of pareto efficient equilibria we show that when firms are sufficiently patient there exists no pareto efficient agreement that yields short run gains with respect to the noncooperative equilibrium given a pair of stocks there exists a unique interior pareto efficient agreement we characterize the set of stocks where a pareto efficient agreement results in larger discounted sum of profits for both players we show that social welfare under the interior pareto efficient agreement is smaller than under non cooperation despite the gains from a more cost effective extraction of the resources under an agreement

does opec act as a cartel empirical investigation of coordination behavior abstract in this paper i use quarterly and monthly data from 1994 to 2014 to test if opec acts as a cartel and therefore it affects oil prices through members coordination i use engle and granger two step approach johansen cointegration test and autoregressive distributed lag ardl bounds testing approach of cointegration to examine the long run relation between opec production and each member s production as an evidence of coordination besides i apply granger causality and toda and yamamoto tests to check the direction of causality between the opec production and oil prices u k brent and dubai fateh the findings show no evidence of cointegration between the production of the members and that of opec indicating no cartel behavior exists moreover the results show that opec production does not cause oil prices rather it is the other way around

limit pricing and the in effectiveness of the carbon tax we present a theory of limit pricing monopoly in non renewable resource production facing a very inelastic demand an oil monopoly seeks to induce the highest price that does not destroy its demand unlike the conventional hotellian analysis the monopoly tolerates some ordinary substitutes to its oil but deters high potential ones with limit pricing policy induced extraction changes do not obey the usual logic for example oil taxes have no effect on current oil production extraction increases when high potential substitutes are promoted but can be effectively reduced by supporting ordinary substitutes the carbon tax not only applies to oil it also penalizes its ordinary carbon substitutes whose market shares are taken over by the monopoly thus the carbon tax ambiguously affects current and long term oil production and carbon emissions

fluctuations in the foreign exchange market how important are monetary policy shocks abstract we study the effects of u s monetary policy shocks on the bilateral exchange rate between the u s and each of the g7 countries we also estimate deviations from uncovered interest rate parity conditional on these shocks the analysis is based on a structural vector autoregression in which monetary policy shocks are identified through the conditional heteroscedasticity of the structural disturbances unlike earlier work in this area our empirical methodology avoids making arbitrary assumptions about the relevant policy indicator or transmission mechanism in order to achieve identification at the same time it allows us to assess the implications of imposing invalid identifying restrictions our results indicate that the nominal exchange rate exhibits delayed overshooting in response to a monetary expansion depreciating for roughly ten months before starting to appreciate the shock also leads to large and persistent departures from uncovered interest rate parity variance decomposition results indicate that monetary policy shocks account for a non trivial proportion of exchange rate fluctuations

monetary policy shocks testing identification conditions under time varying conditional volatility abstract we propose an empirical procedure which exploits the conditional heteroscedasticity of fundamental disturbances to test the targeting and orthogonality restrictions imposed in the recent var literature to identify monetary policy shocks based on u s monthly data for the post 1982 period we reject the non borrowed reserve and interest rate targeting procedures in contrast we present evidence supporting targeting procedures implying more than one policy variable we also always reject the orthogonality conditions between policy shocks and macroeconomic variables we show that using invalid restrictions often produces misleading policy measures and dynamic responses these results have important implications for the measurement of policy shocks and their temporal effects as well as for the estimation of the monetary authority s reaction function

the outlook for us oil dependence abstract oil dependence is defined as a dynamic problem of short and long run market power the potential monopoly power of an oil cartel depends on its market share and the elasticities of oil supply and demand while the economic vulnerability of oil consuming states depends most directly on the quantity of oil imported and the oil cost share of gross domestic product gdp of these factors only the market share of the organization of petroleum exporting countries opec cartel and the rate of growth of world oil demand are clearly different than they were 25 years ago opec still holds the majority of world oil and in the future will regain market share a hypothetical 2 year supply reduction in 2005 2006 similar in size to those of 1973 1974 or 1979 1980 illustrates the potential benefits to opec and harm to the us economy of a future oil price shock opec s revenues are estimated to increase by roughly 0 7 trillion while the us economy loses about 0 5 trillion strategic petroleum reserves seem ineffective against a determined multi year supply curtailment increasing the market s price responsiveness by improving the technologies of oil supply and oil demand can greatly reduce the costs of oil dependence each element of this interpretation of the oil dependence problem is well supported by previous studies this paper s contribution is to unite these elements into a coherent explanation and to point out the enormously important implications for energy policy

risk preference and the interindustry propensity to strike this paper presents a model of the determinants of a union s decision to strike the model states that assuming management is risk neutral workers tastes for risks will be one important determinant of the decision to strike a risk preference variable from the panel survey of income dynamics and an injury and illness rate for each of 89 manufacturing industries serve as measures of workers tastes for risk the model predicts that industries with high injury rates will experience a disproportionate share of strikes and that a greater share of weakly risk averse workers will be employed in strike prone industries than in strike free industries the author discovers strong support for the first prediction but not for the second

a test of the opec cartel hypothesis 1974 1983 this paper tests whether the higher oil prices fo the last decade could have been the result of producer collusion we find little evidence that opec influenced oil prices during the years of skyrocketing prices 1974 1980 but there is evidence that it did so during the recent years of softening prices 1981 1983

iranian oil free zone and international oil prices abstract one of the main elements of economic sanctions against iran due to its nuclear and military programs is crude oil exportation restrictions in addition to investment in iranian energy related projects senders of such sanction are interested in understanding the impacts of such embargos on international oil prices we apply unrestricted vector autoregressive var model using impulse response functions irf and variance decomposition analysis vda tools with annual data from 1965 to 2012 to analyze the dynamic response of international oil prices to iranian oil export sanction controlling for the supply of non iranian oil the world gdp per capita and post islamic revolution exogenous dummy variables we show that international oil prices respond negatively and statistically significant to increasing shock in absolute negative changes of the iranian oil exports our proxy of iran oil sanctions following the first 2 years after shock the main reason is the positive response of the non iranian oil supply to negative shocks in iranian oil exports filling the missing supply of iranian oil in international markets

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

oil and the euro area economy we examine the macroeconomic effects of different types of oil shocks and the oil transmission mechanism in the euro area a comparison is made with the us and across individual member countries first we find that the underlying source of the oil price shift is crucial to determine the repercussions on the economy and the appropriate monetary policy reaction second the transmission mechanism is considerably different compared to the us in particular inflationary effects in the us are mainly driven by a strong direct pass through of rising energy prices and indirect effects of higher production costs in contrast euro area inflation reacts sluggishly and is much more driven by second round effects of increasing wages the monetary policy reaction of the ecb to oil shocks is also strikingly different compared to the fed the inflation objective relative to the output stabilization objective appears more important for euro area monetary authorities than for the fed third there are substantial asymmetries across member countries these differences are due to different labour market dynamics which are further aggravated by a common monetary policy stance which does not fit all gert peersman and ine van robays

understanding the us natural gas market a markov switching var approach abstract over the past three decades the us natural gas market has witnessed significant changes utilizing a standard bayesian model comparison method this paper formally determines four regimes existing in the market it then employs a markov switching vector autoregressive model to investigate the regime dependent responses of the market to its fundamental shocks the results reveal that the us natural gas market tends to be much more sensitive to shocks occurring in regimes existing after the decontrol act 1989 than the other regimes the paper also finds that shocks to the natural gas demand and price have negligible effects on natural gas production while the price of natural gas is mainly driven by specific demand shocks augmenting the model by incorporating the price of crude oil the results show that the impacts of oil price shocks on natural gas prices are relatively small and regime dependent

modeling opec behavior economic and political alternatives the predominant approach to modeling opec behavior depends upon the assumption that economic self interest provides the best predictor of the cartel s price and production strategy with rational monopoly behavior the exogenous characteristics of the oil market determine an optimal price path for the group but opec members have diverse economic as well as political goals and uncertainty about oil market responses provides substantial leeway to argue about what is optimal an examination of the five key opec price decisions since 1973 shows that an operational code of advancing political priorities on arab israeli issues while deflecting security challenges better explains saudi arabia s decision making than the economic optimizing approach moreover no economic formula alone is consistent with saudi behavior the balance of internal and external forces of a political or security character on saudi leadership suggests more of a tilt toward price hawkishness than pure considerations of economic self interest would indicate this tilt is reinforced by a systematic weakness on the part of the u s government to exercise a sustained countervailing influence on the kingdom on behalf of moderation

stochastic trends and economic fluctuations are business cycles mainly the result of permanent shocks to productivity this paper uses a long run restriction implied by a large class of real business cycle models identifying permanent productivity shocks as shocks to the common stochastic trend in output consumption and investment to provide new evidence on this question econometric tests indicate that this common stochastic trend cointegration implication is consistent with postwar u s data however in systems with nominal variables the estimates of this common stochastic trend indicate that permanent productivity shocks typically explain less than half of the business cycle variability in output consumption and investment copyright 1991 by american economic association

the empirical role of the exchange rate on the crude oil price formation this paper adopts a novel empirical approach to the crude oil price formation for the purpose of understanding the price reactions of opec member countries to changes in the exchange rate of the us dollar against other major currencies and prices of other members the results are broadly consistent with the view of the absence of a unified opec determined price in the international crude market literature in addition the results also highlight a cross regional dimension of the crude oil market

does opec still exist as a cartel an empirical investigation the aim of this paper is to determine if opec acts as a cartel by testing whether the production decisions of the different countries are coordinated and if they have an influence on oil prices relying on cointegration and causality tests in both time series and panel settings our findings show that the opec influence has evolved through time following the changes in the oil pricing system while the influence of opec is found to be important just after the counter oil shock our results show that opec is a price taker on the majority of the considered sub periods finally by dividing opec between savers and spenders we show that it acts as a cartel mainly with a subgroup of its members

price differentials in monetary unions the role of fiscal shocks we study the effect of regional expenditure and revenue shocks on price differentials for 47 us states and 9 eu countries we identify shocks using sign restrictions on the dynamics of expenditures revenues deficits and output and construct two estimates for structural price differentials dynamics one for the average and one for each unit which optimally weight information contained in the data for all units on average expansionary fiscal disturbances produce positive while distortionary balance budget shocks produce negative price differential responses the negative price differentials responses in some units is partially explained by spillovers and labour supply effects

structural vector autoregressions checking identifying long run restrictions via heteroskedasticity long run restrictions have been used extensively for identify ing structural shocks in vector autoregressive var analysis such restric tions are typically just identifying but can be checked by utilizing changes in volatility this paper reviews and contrasts the volatility models that have been used for this purpose three main approaches have been used exoge nously generated changes in the unconditional residual covariance matrix changing volatility modelled by a markov switching mechanism and multi variate generalized autoregressive conditional heteroskedasticity garch models using changes in volatility for checking long run identifying restric tions in structural var analysis is illustrated by reconsidering models for identifying fundamental components of stock prices

opec s market power an empirical dominant firm model for the oil market abstract we estimate a dominant firm competitive fringe model for the crude oil market using quarterly data on oil prices for the 1986 2016 period the estimated structural parameters have the expected signs and are significant we find that opec exercised market power during the sample period counterfactual experiments indicate that world gdp is the main driver of long run oil prices however supply depletion factors have become more important in recent years

in pursuit of monopoly power recent quantitative work in industrial economics this paper reviews empirical work in industrial organization devoted to the question of inferring the existence of monopoly power from data on observed market outcomes like profits and prices the discussion covers inter industry work long conventional in the area newer developments in intra industry analysis and case studies and concludes with some remarks on a small but growing body of work assessing market dynamics the wide range of studies reviewed all generally reveal that market power exists in many industries

divorce as a risky prospect in 1910 the divorce rate per 1000 members of the us population stood at 0 9 1 this rate showed a slow upward trend for the next 50 years and by 1960 had more than doubled to 2 2 it took only 20 years for the rate to more than double again so that by 1980 the rate was 5 3 for the last 20 years the marriage rate by contrast has experienced mild fluctuations between 10 0 and 11 0 per 1000 in the population with no discernible trend if the same pattern for both rates holds until the year 2000 the annual number of divorces will exceed the annual number of marriages although sociologists have researched divorce extensively only a few economic studies exist this is unfortunate since divorce is likely to have considerable impact on economic vaiables such as hours of work labour force participation human capital accumulation work performance and earnings 2 without denying the influences of peer groups social norms and role models it seems reasonable to suggest that pecuniary considerations ma

the effects of fiscal shocks on employment and the real wage we study the transmission of fiscal shocks in the labor market we employ a structural var and base identification on the restrictions that shocks to government consumption investment and employment must raise output and deficits these restrictions hold in both prototype real business cycle rbc and new keynesian models shocks to government consumption and investment increase real wages and employment contemporaneously both at state level and in the aggregate the dynamics in response to employment shocks are mixed increases in government employment raise the real wage and total employment in the aggregate however in one third of the states they reduce total employment

cross country differences in the effects of oil shocks abstract we compare the macroeconomic consequences of several types of oil shocks across a set of industrialized countries that are structurally very diverse with respect to the role of oil and other forms of energy in the economy the results crucially depend on the underlying source of the oil price shift when a rise in oil prices is caused by increased global economic activity or a rise in oil specific demand almost all countries experience respectively a temporary increase and transitory decline of real gdp the role of oil and other forms of energy cannot explain the differences in the effects of both shocks across countries in contrast this role is very important to explain asymmetries in the effects of exogenous oil supply shocks whereas net oil and energy importing countries typically face a permanent fall in economic activity the impact is insignificant or even positive in net energy exporting countries in addition countries that improved their net energy position the most over time became less vulnerable to oil supply shocks relative to other countries

historical energy price shocks and their changing effects on the economy abstract the purpose of this paper is to identify the changes in the impact of energy shocks on economic activity with an interest in assessing if an economy s vulnerability and resilience to shocks improved with economic development using data on the united kingdom over the last three hundred years the paper identifies supply aggregate demand and residual shocks to energy prices and estimates their changing influence on energy prices and gdp the results suggest that the impacts of supply shocks rose with its increasing dependence on coal and declined with its partial transition to oil however the transition from exporting coal to importing oil increased the negative impacts of demand shocks more generally the results indicate that improvements in vulnerability and resilience to shocks did not progress systematically as the economy developed instead the changes in impacts depended greatly on the circumstances related to the demand for and supply of energy sources if these experiences are transferable to future markets a transition to a diversified mix of renewable energy is likely to reduce vulnerability and increase resilience to energy price shocks

opec unconventional oil and climate change on the importance of the order of extraction we show that opec s market power contributes to climate change by enabling producers of relatively expensive and dirty oil to start producing before opec reserves are depleted we examine the importance of this extraction sequence effect by calibrating and simulating a cartel fringe model of the global oil market while welfare net of climate damage under the cartel fringe equilibrium can be significantly lower than under a first best outcome almost the entire welfare loss is due to the sequence effect of opec s market power in our benchmark calibration the cost of the sequence effect amounts to 15 trillion us which corresponds to 97 percent of the welfare loss moreover we find that an increase in non opec oil reserves decreases global welfare in a counterfactual world without non opec oil global welfare would be 13 trillion us higher 10 trillion us of which is due to lower climate damages

an analysis of the global oil market using svarma models the paper analyses the importance of supply versus demand shocks on the global oil market from 1974 to 2017 using a parsimonious structural vector autoregressive moving average svarma model the superior out of sample forecasting performance of the reduced form varma compared to var alternatives advocates the suitability of this framework we specifically account for the changes in the oil market over three distinctive sub periods pre moderation great moderation and post moderation periods to provide a means of identifying the changing nature of shock transmission mechanism across times the findings shed some light on the effects of supply versus demand related oil shocks under different economic environment oil supply shocks explain large fraction of the movements in the global oil market in the pre and post moderation periods i e during the slower economic growth periods the importance of global activity shock on oil price movements is obvious during the 2003 2008 boom period the oil specific shock has an interesting transmission path on the global economic activity where the global activity responded positively and negatively during the global economic expansion and contraction respectively emphasising the precautionary nature of the shock

opec and cheating revisiting the kinked demand curve abstract given a formal or tacit group agreement by an oligopoly such as opec it is still necessary to understand what pricing and output decisions individual members actually make the well known kinked demand curve model of oligopoly behaviour is useful in this regarg the model is usually applied to a price and market share fixing oligopoly in a deterministic world with appropriate modifications it can be applied to opec as a price fixing cartel with varying degrees of cohesion from 1973 1986 and as a quantity fixing cartel since 1986 operating in an uncertain world

opec and the u s oil import tariff open loop nash extraction plans of exhaustible resource producers in which producers take the plans of others as given are time consistent but proposed open loop oil import tariffs are almost always time inconsistent the paper derives a time consistent open loop nash tariff that can be readily computed for both competitive and a nash cournot specification of the oil market the authors illustrate the time sequence of the optimal import tariff for a simple model of the united states facing a duopolistic version of opec and a comparative fringe of oil producers and compare the outcome with the competitive equilibrium copyright 1991 by royal economic society

the emperor has no clothes the limits of opec in the global oil market most scholars and policymakers believe opec can and does influence the price of oil by acting as a cartel this paper argues that most of the conventional wisdom about opec is wrong opec rarely if ever influences the oil production rate in its member states further opec has almost no lasting impact on world prices except under rare conditions there was one occasion on which opec did have a significant impact on world oil prices namely the 1973 oil crisis but opec s role in the event has been greatly misunderstood the circumstances of the crisis were highly exceptional making it unlikely that the organization could ever have a similar impact on world oil prices again this paper seeks to correct the misunderstanding about opec s role and replace it with a better understanding of the organization i argue that opec is dysfunctional as a cartel as it has little or no causal impact on its members choices about production levels or investment in production capacity opec s role is obscured in part by the complexity of the world oil market and in part by misdirection by policymakers especially within opec many scholars especially economists have argued that opec should be understood as a cartel designed to solve a prisoner s dilemma pd coordination game yet opec s persistence is better understood as a widespread failure to update beliefs about the organization a failure that is driven by information asymmetry and politics the fact that such a widespread belief about the world s most important commodity market could be wrong can help us better understand international regimes

opec behavior a test of alternative hypotheses since interpretations of past and future oil price patterns depends on the model chosen the author tests and compares alternative theories of opec as a first step in validating the choice on any one model the results show that among opec countries the partial market sharing cartel model is the only model not rejected by at least some of the 11 members and gives the best explanation of production in comparison with 11 non opec countries the competitive model could not be rejected for 10 of the 11 non opec producers this raises the question of why if opec is a cartel friedman s predictions have not come true and introduces new questions for future research 19 references 3 tables

oil and the macroeconomy since the 1970s economists have long been intrigued by empirical evidence that suggests that oil price shocks may be closely related to macroeconomic performance this interest dates back to the 1970s the 1970s were a period of growing dependence on imported oil unprecedented disruptions in the global oil market and poor macroeconomic performance in the united states thus it was natural to suspect a causal relationship from oil prices to u s macroeconomic aggregates since then a large body of work has accumulated that purports to establish this link on theoretical grounds and to provide empirical evidence in its support we do not attempt a comprehensive survey of this literature but rather provide an idiosyncratic synthesis of what we view as the key issues in this debate and the insights gained over the last 30 years the timing seems right for such an account although the experience of the 1970s continues to play an important role in discussions of the link between oil and the macroeconomy there have been a number of new oil price shocks since the 1970s notably the 1986 collapse of oil prices and the 2000 boom in oil prices as well as the oil price increases associated with the 1990 1991 gulf war and the 2003 iraq war given this richer case history we are arguably in a better position than two decades ago to distinguish the idiosyncratic features of each oil crisis from the systematic effects increases in oil prices have been held responsible for recessions periods of excessive inflation reduced productivity and lower economic growth in this paper we review the arguments supporting such views first we highlight some of the conceptual difficulties in assigning a central role to oil price shocks in explaining

opec saudi arabia and the shale revolution insights from equilibrium modelling and oil politics why did opec not cut oil production in the wake of 2014 s price fall this study aims at aiding the mostly qualitative discussion with quantitative evidence from computing quarterly partial market equilibria q4 2011 q4 2015 under present short term profit maximisation and different competition setups although the model performs reasonably well in explaining pre 2014 prices all setups fail to capture low prices which fall even beyond perfect competition outcomes this result is robust with respect to large variations in cost parameters rejecting present short term profit maximisation as well as a qualitative discussion of saudi arabian politics and the shale oil revolution lead to the conclusion that the price drop of 2014 16 was most plausibly the result of an attempt to defend market shares and to test for shale oil resilience besides being fuelled by other factors such as rising competitiveness of alternative technologies although shale oil might have increased competition permanently as supported by model results the agreement of december 2016 should not be misunderstood as an opec defeat

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

clustering in crude oil prices and the target pricing zone hypothesis abstract this paper studies the target pricing zone tpz hypothesis for crude oil by examining price clustering in the dollar digit it is hypothesized that price clustering occurs within an established tpz if opec is able to defend the upper and lower bounds through output changes the results show that prices strongly cluster around the dollar digit value of 9 within the tpz sub periods but not outside the sub periods furthermore the degree of clustering declines when production capacity utilization is high and when production significantly exceeds quotas consistent with opec s inability to defend the zone nine centered clustering also results in lower contemporaneous and next day volatility these results support the target pricing zone hypothesis of crude oil

on the economic determinants of oil production theoretical analysis and empirical evidence for small exporting countries abstract in this paper decisions regarding production in oil exporting countries are studied by means of theoretical analysis and empirical investigation in particular we aim at describing the relationship between oil production levels and changes in the world oil demand and prices intertemporal production decisions by a representative oil producer are modeled by means of a partial equilibrium model in this theoretical model oil producers are subject to exogenous shocks in world oil consumption and prices oil companies can change output levels only by incurring a fixed cost results from the simulation of this model show a strong relationship between oil production and changes in world oil consumption on the contrary the effects of changes in real oil prices on oil production decisions seem to be much lower results from the simulation of the theoretical model are then empirically investigated using time series econometric techniques the empirical evidence supports the hypothesis that oil producing countries are characterized by different responses to changes in world oil demand and in real oil prices for many countries production rapidly adjusts to changes in consumption whereas responses of oil production to innovations in real oil prices are found to be not statistically significant in addition when non linearities in the relationship between world oil demand prices and output levels are allowed for evidence of asymmetric effects of shocks to exogenous variables on output levels is found for some countries

testing for the cartel in opec non cooperative collusion or just non cooperative this paper extends the framework of green and porter 1984 and porter 1983a to encompass the case of a cartel opec faced by a competitive fringe non opec oil producers estimation of a simultaneous equation switching regression model allows us to examine which market structure better characterizes the world oil market during the 1974 2004 period and to test whether switches between collusive and non cooperative behaviour occurred the null hypothesis that no switch occurred is rejected in favour of the alternative that both cooperative and non cooperative behaviour was observed we find that although there were periods in which oil prices were measurably higher owing to collusion among opec members overall opec has not been effective in systematically raising prices above cournot competition levels our results suggest that on average over the period of study opec s behaviour is best described as cournot competition in the face of a competitive fringe constituted by non opec producers

the incentive to cheat an empirical analysis of opec relatively little is known about the payoffs to various kinds of strategies facing opec cartel members we propose an empirically tractable procedure to calculate the payoffs to relevant opec strategies fresh insights into the problem of the quota system and deterring cheating are presented stressing the importance of the nonrenewability of the oil stock the short run rigidity of demand short term capacity constraints the presence of a backstop technology and the different discount rates the cartel members are facing we conclude that punishment is a dominant strategy for the saudis and that the finite resource base in the oil industry substantially attenuates the incentive to cheat also the biased market quota system in favor of small producers weakens but does not eliminate their incentive to cheat in addition we compute the price paths and payoffs corresponding to competitive cournot and joint profit maximization solutions and contrast them with the actual historical patterns of opec beha

what are the effects of fiscal policy shocks we propose and apply a new approach for analyzing the effects of fiscal policy using vector autoregressions specifically we use sign restrictions to identify a government revenue shock as well as a government spending shock while controlling for a generic business cycle shock and a monetary policy shock we explicitly allow for the possibility of announcement effects i e that a current fiscal policy shock changes fiscal policy variables in the future but not at present we construct the impulse responses to three linear combinations of these fiscal shocks corresponding to the three scenarios of deficit spending deficit financed tax cuts and a balanced budget spending expansion we apply the method to us quarterly data from 1955 to 2000 we find that deficit financed tax cuts work best among these three scenarios to improve gdp with a maximal present value multiplier of five dollars of total additional gdp per each dollar of the total cut in government revenue 5 years after the shock copyright 2009 john wiley sons ltd

aggregate production planning for process industries under oligopolistic competition abstract we consider a competitive version of the traditional aggregate production planning model with capacity constraints in the general case multiple products are produced by a few competing producers oligopoly with limited capacities production quantities prices and consequently profits depend on production and allocation decisions of each producer in addition there is competition for the raw material whose supplies are limited and where prices reflect these limitations such situations have recently occurred in several process industry settings including petro refining petrochemicals basic chemicals cement fertilizers pharmaceuticals rubber paper food processing and metals we use a successive bertrand cournot framework to address this problem and to determine optimal production quantities prices and profits at the producers and at the raw material supplier our analysis allows a new way to understand and evaluate the marginal value of additional capacity when there is competition for the market and raw materials

are biofuels the culprit opec food and fuel the food commodity price boom of 2003 2008 was the most notable in the past several decades having a substantial impact on global economic activity it affected developing nations by impacting real output the balance of payments government budgetary positions and most important the well being of the very poor high commodity prices also affected developed countries by transmitting business cycle disturbances and creating inflationary pressures several recent studies tried to identify and quantify the factors that caused the food commodity price boom of 2003 2008 see for instance isabel vansteenkiste 2009 these studies suggest that one key factor is growth in demand which since the 1980s has outpaced growth in supply other studies argued that biofuel is the culprit since it increases demand for staple crops see for instance donald mitchell 2008 all these studies however assumed competitive markets and did not consider the impact of biofuel on energy costs to farmers moreover they ignored the organization of petroleum exporting countries opec these studies leave us perplexed regarding the true impact of biofuel on food commodity prices was it or was it not an important contributor to the recent food commodity boom we believe that to answer this question the interactions between energy and food must be modeled and opec introduced and the impact of biofuels compared with other factors that are argued by the literature to be important this paper aims to analyze the multiple contributions of energy and biofuels to the increase are biofuels the culprit opec food and fuel

investment and operating choice oil and natural gas futures prices and drilling activity abstract we present evidence that changes in oil and natural gas field investment measured by drilling rig use respond positively to changes in the futures prices of oil and natural gas consistent with predictions based upon value maximizing behavior these results hold for world regions dominated by private independent oil companies but not national oil companies in those cases where futures price changes are identified as drivers the role of spot prices is either absent or weak the results are robust to several alternative specifications including controls for changes in rig productivity

bayesian inference for structural vector autoregressions identified by markov switching heteroskedasticity abstract in this study bayesian inference is developed for structural vector autoregressive models in which the structural parameters are identified via markov switching heteroskedasticity in such a model restrictions that are just identifying in the homoskedastic case become over identifying and can be tested a set of parametric restrictions is derived under which the structural matrix is globally or partially identified and a savage dickey density ratio is used to assess the validity of the identification conditions the latter is facilitated by analytical derivations that make the computations feasible and numerical standard errors small as an empirical example monetary models are compared using heteroskedasticity as an additional device for identification the empirical results support an identified interest rate reaction function with money

technology shocks and robust sign restrictions in a euro area svar we use a model based identification strategy to estimate the impact of technology shocks on hours worked and employment in the euro area the sign restrictions applied in the vector autoregression var analysis are consistent with a large class of dynamic stochastic general equilibrium dsge models and are robust to parameter uncertainty the results are in line with the conventional real business cycle rbc interpretation that hours worked rise as a result of a positive technology shock by comparing the sign restrictions method to the long run restriction approach of gali quaterly journal of economics 1992 709 38 we show that the results do not depend on the stochastic specification of the hours worked series or the data sample but only on the identification scheme

the balance sheet effects of oil market shocks an industry level analysis abstract the paper estimates the dynamic impact of structural oil market shocks on the balance sheet of us firms using industry level data covering manufacturing trade and mining sectors for manufacturing firms findings indicate that an unexpected disruption in oil supply that raises oil prices by 1 lowers firm profits by 1 3 on impact on the other hand profits rise by 0 39 in response to the same increase in the price of oil when it is driven by a positive movement in the global demand for oil and by 0 79 after an unexpected surge in speculative oil demand the positive balance sheet effect of speculative oil shocks on the manufacturing sector contrasts their negative effect on global economic activity an explanation follows from the industry level analysis which suggests that speculation in the oil market creates a ripple effect in downstream industries and raises inventory demand for petroleum and chemical products in contrast to its secondary role in explaining historical variations in the price of oil and profits in trade and mining sectors oil supply shocks are found to have been the dominant oil market innovations in driving fluctuations in manufacturing firms profits the analysis also finds a limited response of production costs to exogenous changes in the oil price disputing the classic notion that the cost share of oil in an industry determines its level of exposure to oil market shocks

testing the hypothesis of collusive behavior among opec members abstract this paper presents a test to discriminate among collusive and competitive behavior by producers of exhaustible resources in contrast to previous studies griffin 1985 jones 1990 which are based on static models our approach is based on of the dynamic implications of the optimization problem faced by a competitive producer we use this framework to test the hypothesis of collusive behavior within opec between 1983 and 1991 the existence of future markets allows us to sidestep the difficult issues related to the estimation of future prices and demand

opec and other commodity cartels a comparison abstract the economic literature provides specific characteristics for cartels although the theory of international cartels is not well developed in the literature and every cartel is unique some of these characteristics exist in each cartel this study investigates the existence of these characteristics in six known commodity cartels including opec in addition it compares the oil companies cartel the seven sisters to opec and summarizes the findings of opec econometric models developed in the literature in the last 25 years and concludes that the results do not support cartel or competitive models for opec although other cartels are more successful than opec many books and articles in economics use opec as a cartel example neither statistical tests nor theory support the popular use of opec as a cartel example indeed this article concludes that opec is composed of saudi arabia the dominant world producer plus several distinct sub groups and that separate models are required to explain the behavior of each assigning the power of some opec members to opec has caused confusion about its behavior recent opec success is attributed to political natural and technical capacity limitations in the oil fields that prevented countries from cheating on their quota in other words opec adherence to the quota except for saudi arabia is anything but voluntary

identifying monetary policy shocks via changes in volatility a central issue of monetary policy analysis is the speciflcation of monetary policy shocks in a structural vector autoregressive setting there has been some controversy about which restrictions to use for identifying the shocks because standard theories do not provide enough information to fully identify monetary policy shocks in fact to compare difierent theories it would even be desirable to have over identifying restrictions which would make statistical tests of difierent theories possible it is pointed out that some progress towards over identifying monetary policy shocks can be made by using speciflc data properties in particular it is shown that changes in the volatility of the shocks can be used for identiflcation based on monthly us data from 1965 1996 difierent theories are tested and it is found that as sociating monetary policy shocks with shocks to nonborrowed reserves leads to a particularly strong rejection of the model whereas assuming that the fed accommodates demand shocks to total reserves cannot be rejected

were there regime switches in u s monetary policy working paper 2004 14 june 2004 abstract a multivariate model identifying monetary policy and allowing for simultaneity and regime switching in coefficients and variances is confronted with u s data since 1959 the best fit is with a model that allows time variation in structural disturbance variances only among models that also allow for changes in equation coefficients the best fit is for a model that allows coefficients to change only in the monetary policy rule that model allows switching among three main regimes and one rarely and briefly occurring regime the three main regimes correspond roughly to periods when most observers believe that monetary policy actually differed and the differences in policy behavior are substantively interesting though statistically ill determined the estimates imply monetary targeting was central in the early 80s but was also important sporadically in the 70s the changes in regime were essential neither to the rise in inflation in the 70s nor to its decline in the 80s jel classification e52 e47 c53 key words counterfactuals lucas critique policy rule monetary targeting simultaneity volatility model comparison i the debate over monetary policy change in an influential paper clarida gali and gertler 2000 cgg presented evidence that us monetary policy changed between the 1970 s and the 1980 s indeed that in the 70 s it was drastically worse they found that the policy rule apparently followed in the 70 s was one that when embedded in most stochastic general equilibrium models would imply non uniqueness of the equilibrium and hence vulnerability of the economy to sunspot fluctuations of arbitrarily large size their estimated policy rule for the later period on the other hand eliminated this indeterminacy these results are a possible explanation of the volatile and rising inflation of the 70 s and of its subsequent decline the cgg analysis has two important weaknesses one is that it fails to account for stochastic volatility us macroeconomic variables and particularly the federal funds rate have gone through periods of tranquility and of agitation with forecast error variances varying greatly from period to period ignoring such variation does not lead to inconsistent estimates of model parameters when the forecasting equations themselves are constant but it strongly biases toward a finding of changed parameters tests of the stability of the forecasting equations the other weakness is that the cgg analysis rests on powerful and implausible identifying assumptions they require that we accept that the response of the monetary authority to expected future inflation and output does not depend on the recent history of inflation money growth or output it is hard to understand why this should be so especially in the 70 s when monetarism was a prominent theme in policy debates congress was requiring reports from the fed of projected time paths of monetary aggregates and financial markets were reacting sensitively to weekly money supply numbers the requirement for existence and uniqueness of equilibrium in dynamic models is that the monetary policy rule show a more than unit response of interest rates to the sum of the logs of all nominal variables that appear on the right hand side of the reaction function if we force a particular measure of expected future inflation to proxy for all the nominal variables that actually appear independently in the reaction function we are bound to get distorted conclusions on the one hand because expected future inflation will be a noisy measure of the full set of nominal influences on policy we might get downward bias in our estimates from the usual errorsin variables effect on the other hand to the extent that expected future inflation like most expected future values shows less variation than current nominal variables we could find a mistaken scaling up of coefficients

structural vector autoregressions with smooth transition in variances abstract in structural vector autoregressive analysis identifying the shocks of interest via heteroskedasticity has become a standard tool unfortunately the approaches currently used for modeling heteroskedasticity all have drawbacks for instance assuming known dates for variance changes is often unrealistic while more flexible models based on garch or markov switching residuals are difficult to handle from a statistical and computational point of view therefore we propose a model based on a smooth change in variance that is flexible as well as relatively easy to estimate and illustrate its use by analysis of the interaction between monetary policy and the stock market based on a five dimensional system of u s variables for the benchmark setup it is found that previously used conventional identification schemes in this context are rejected by the data if heteroskedasticity is allowed for we also illustrate the implications of using different transition variables and varying the sample period

measuring the reaction of monetary policy to the stock market movements in the stock market can have a significant impact on the macroeconomy and are therefore likely to be an important factor in the determination of monetary policy however little is known about the magnitude of the federal reserve s reaction to the stock market in part because the simultaneous response of equity prices to interest rates makes it difficult to estimate this paper uses an identification technique based on the heteroskedasticity of stock market returns to measure the reaction of monetary policy to the stock market we find a significant policy response with a 5 percent rise fall in the s p 500 index increasing the likelihood of a 25 basis point tightening easing by about a half

asymmetric reactions of the us natural gas market and economic activity this paper provides new empirical evidence on the asymmetric reactions of the us natural gas market and us economy to its market fundamental shocks we find that results based on a smooth transition vector autoregressive stvar model provides a plausible and robust explanation to the behavior of the us natural gas market which asymmetrically reacts in bad times and good times during times of recession natural gas production shrinks in response to a positive oil price shock while the corresponding response is found to be positive in times of expansion the positive relationship between the price of natural gas and crude oil is found to be more prominent in expansions especially in the long run in addition the results also reveal that us economic activity is much more sensitive to oil and natural gas price shocks occurring in bad times than in good times

how does the u s natural gas market react to demand and supply shocks in the crude oil market abstract in this paper we use monthly data over the period from january 1976 to december 2012 and a structural var model to disentangle demand and supply shocks in the global crude oil market and investigate their effects on the real price of natural gas in the united states we identify the model by assuming that innovations to the real price of crude oil are predetermined with respect to the natural gas market and show that close to 45 of the variation in the real price of natural gas can be attributed to structural supply and demand shocks in the global crude oil market

changes in the global oil market changes in the parameters of a recursively identified oil market model are examined through an iterative algorithm that tests for possible breaks in coefficients and variances the analysis detects breaks in the coefficients of the oil production and price equations together with volatility shifts in all three equations of the model coefficient changes imply an enhanced response of production to aggregate demand shocks after 1980 and that the price response to supply shocks is more persistent from the mid 1990s all variables evidence changes in the relative contributions of individual shocks to their forecast error variances with coefficient and volatility breaks in the first half of the 1990s being particularly important in this respect the results show that analysts of this market should eschew constant parameter models estimated over an extended period

estimation of user s cost for a depletable resource such as oil abstract this paper presents an attempt to derive an empirically tractable definition of the user s cost for a depletable resource such as oil it is shown that in an intertemporal optimization framework the user s cost can be measured by the marginal replacement cost mrc of the resource defined as the cost of adding one unit to the stock of the resource this definition is applied to data for the middle east based on an econometric analysis of the proven reserves production process the user s cost is estimated for that area for the period 1960 76 the empirical results show that the user s cost is but a small fraction of the market price of crude oil for the period under consideration

the equilibrium price range of oil economics politics and uncertainty in the formation of oil prices abstract this paper attempts to clarify the articulation between economic and political factors in the formation of petroleum prices it begins with defining the political factors then it gives a definition of the dynamic equilibrium price of a mineral commodity market the essential point is that when actors control significant low cost reserves and will not or cannot adopt behaviour of a substantial economic rationality then the economic analysis does not allow a unique dynamic equilibrium price to be determined however it does permit definition of an equilibrium price range within which political preferences may be expressed finally the paper draws some conclusions on what could be discussed within the scope of a new oil producer consumer dialogue

will disruptions in opec oil supply have permanent impact on the global oil market abstract opec has long been a major stakeholder and strong player in the global energy market especially in the petroleum sub sector in recent time however there have been questions over the influence of opec in the sub sector due to changing petroleum production landscape specifically as a result of the discovery of unconventional energy resources in north america and emergence of non opec petroleum producing and exporting countries this development could have significant effect on the global energy market and the macro economy of opec member countries the stationarity or otherwise of opec oil production supply has important implications for determining whether fluctuations in opec market supply has temporary or permanent effect using the zivot andrews structural break stationarity test and production data of opec member countries from 1980 to 2011 this paper investigates whether fluctuations in opec market supply has temporary or permanent effect the empirical analysis shows that for only 5 opec members nigeria saudi arabia ecuador kuwait and uae is the hypothesis of unit root rejected this implies that for the five 5 opec members the effects of shocks to oil production are not permanent and future pattern of oil production can be predicted following past trend the practical implication of this finding is that opec production quota strategy may not have long term impact on the global oil market thus the cartel needs to improve oil production policy coordination among members and ensure strict adherence to production quota while also stressing the need for diversification in member countries

the macroeconomic effects of oil price shocks evidence from a statistical identification approach we analyze the dynamics in the global crude oil market based on a structural vector autoregressive model we identify the model by presuming that reduced form residuals can be traced back to structural shocks that are independently distributed over the cross equation dimension the resulting point estimates of the impulse response functions allow for a direct comparison with the outcomes of more conventional identification approaches our results are remarkably similar to the results regarding oil market dynamics in kilian and murphy 2012 and inoue and kilian 2013 even though they rely on statistical arguments instead of a set of theory based a priori restrictions based on the results from our statistical approach we investigate the cumulative contributions of different oil shocks on the rapid fall in oil prices at the end of 2008 and 2014 as well as the effects of different oil shocks on macroeconomic aggregates in the us the euro area and china

revisiting the environmental kuznets curve hypothesis evidence from the asean 5 countries with structural breaks abstractthis paper tests if the environmental kuznets curve ekc hypothesis exists for asean 5 countries in an annual sample data that covers 1971 2013 by utilizing auto regressive distributed la