market clearing with stochastic security part i formulation the first of this two paper series formulates a stochastic security constrained multi period electricity market clearing problem with unit commitment the stochastic security criterion accounts for a pre selected set of random generator and line outages with known historical failure rates and involuntary load shedding as optimization variables unlike the classical deterministic reserve constrained unit commitment here the reserve services are determined by economically penalizing the operation of the market by the expected load not served the proposed formulation is a stochastic programming problem that optimizes concurrently with the pre contingency social welfare the expected operating costs associated with the deployment of the reserves following the contingencies this stochastic programming formulation is solved in the second companion paper using mixed integer linear programming methods two cases are presented a small transmission constrained three bus network scheduled over a horizon of four hours and the ieee reliability test system scheduled over 24 h the impact on the resulting generation and reserve schedules of transmission constraints and generation ramp limits of demand side reserve of the value of load not served and of the constitution of the pre selected set of contingencies are assessed

sovereign debt as a contingent claim a quantitative approach abstract we construct a dynamic equilibrium model with contingent service and adverse selection to quantitatively study sovereign debt in the model benefits of defaulting are tempered by higher future interest rates for a wide set of parameters the only equilibrium is one in which the sovereign defaults in all states additional output losses however sustain equilibria that resemble the data we show that due to the adverse selection problem some countries choose to delay default to reduce loss of reputation moreover although equilibria with no default imply greater welfare levels they are not sustainable in highly indebted and volatile countries

the role of institutions in reputation models of sovereign debt abstract a standard explanation for why sovereign governments repay their debts is that they must maintain a good reputation to easily borrow more we show that the ability of reputation to support debt depends critically on the assumptions made about institutions at one extreme we assume that bankers can default on payments they owe to governments at the other we assume that bankers are committed to honoring contracts made with governments we show that if bankers can default then a government gets enduring benefits from maintaining a good relationship with bankers and its reputation can support a large amount of borrowing if however bankers must honor their contracts then a government gets only transient benefits from maintaining a good relationship and its reputation can support zero borrowing

bidding strategies for electricity producers in a competitive electricity marketplace this paper presents a methodology for the development of bidding strategies for electricity producers in a competitive electricity marketplace initially the problem is modeled as a two level optimization problem where at the first level a market participant tries to maximize his expected profit under the constraint that at the second level an independent system operator dispatches power solving an optimal power flow problem that minimizes total system cost it is assumed that each supplier bids a linear supply function and chooses his bidding strategy based on probabilistic estimates of demand and rival behavior monte carlo simulation is used to calculate the expected profit and genetic algorithms are employed to find the optimal strategy subsequently the formulation is expanded to account for different market participants risk profiles it is shown that risk aversion may influence the optimal bidding strategy of an individual

optimal response of a power generator to energy agc and reserve pool based markets the electric power industry all over the world is undertaking major regulatory and operational changes the understanding of power supply as a public service is being replaced by the notion that competitive markets constitute a more appropriate framework to supply reliable and cheap electric energy to consumers as mandated by ferc orders 888 and 889 this paper considers simultaneously energy agc and reserve markets in a pool framework it provides a tool to enable a power generator to determine optimally its degree of involvement in each one of these markets a real world case study is analyzed and results are presented

default settlement and signalling lending resumption in a reputational model of sovereign debt this paper develops a simple model of sovereign debt in which defaulting nations are excluded from capital markets and regain access by making partial repayments this implication of the model is consistent with the historical evidence that defaulting countries return to international loan markets soon after a settlement but after varying periods of exclusion copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

bubbles and self enforcing debt we characterize equilibria with endogenous debt constraints for a general equilibrium economy with limited commitment in which the only consequence of default is losing the ability to borrow in future periods first we show that equilibrium debt limits must satisfy a simple condition that allows agents to exactly roll over existing debt period by period second we provide an equivalence result whereby the resulting set of equilibrium allocations with self enforcing private debt is equivalent to the allocations that are sustained with unbacked public debt or rational bubbles in contrast to the classic result by bulow and rogoff 1989a positive levels of debt are sustainable in our environment because the interest rate is sufficiently low to provide repayment incentives

discretionary monetary and fiscal policy with endogenous sovereign risk abstract how does the presence of sovereign risk affect the conduct of public policy to answer this question this paper studies optimal monetary and fiscal policy without commitment for a model economy with nominal public debt and strategic sovereign default compared to an economy without the possibility of default economies with sovereign risk experience more volatile interest rates which impedes the government s ability to smooth tax rates across states risk of default also limits public debt accumulation reducing the government s incentive to use surprise inflation on average when calibrated to the united states the model predicts that a counterfactual increase in the average annual default probability from 0 to 1 lowers average inflation by 33 raises the standard deviation of inflation by 18 and increases the standard deviation of the labor income tax by 73 the transmission of exogenous shocks to real aggregate quantities is however almost unaffected by the possibility of default for example the presence of sovereign risk would increase the standard deviation of log real gdp by less than 1 in the experiment above similarly the welfare consequences of sovereign risk are found to be of negligible size as well

private capital flows capital controls and default risk abstract what has been the effect of the shift in emerging market capital flows toward private sector borrowers are emerging market capital flows more efficient if not can controls on capital flows improve welfare this paper shows that the answers depend on the form of default risk when private loans are enforceable but there is the risk that the government will default on behalf of all residents private lending is inefficient and capital controls are potentially pareto improving however when private agents may individually default capital flow subsidies are potentially pareto improving

public input competition abstract public investment in infrastructure may help create agglomeration economies by attracting mobile factors such as skilled labour competition among regions in public investment can then be destructive this paper analyzes the nash equilibria to a simple model of public input competition even though the regions are assumed identical the equilibrium may not be symmetric the problem with non cooperative behaviour is not only that regions invest too much but that too many regions may choose to invest depending on the parameter values the nash equilibrium may be efficient may be inefficient or may not exist at least not in pure strategies better mobility among regions leads to more aggressive competition the analysis suggests that rents from public investment may be dissipated by governments competition to attract mobile factors

connecting the intraday energy and reserve markets by an optimal redispatch electricity markets based on simple bids provide a very high degree of transparency and simplicity however simple bids fail to capture many well known characteristics of generating units and therefore the responsibility for obtaining feasible schedules is transferred to market participants the purpose of this paper is to help the generating utility to automatically analyze the last energy program cleared in the market and in case this program is technically unfeasible to provide an alternative schedule by re dispatching the generating units this is achieved by formulating an optimization problem where the objective is to find the cheapest and feasible instantaneous power trajectory of each generator trying to minimize the differences between its hourly average values and the last energy program as the objectives of the utility can vary during the day three different models are presented two of them are formulated as a joint energy and reserve dispatch in order to take into account possible commitments acquired in the ancillary services market of agc regulation in this sense a novel approach for considering discontinuous ancillary regulation curves is proposed some numerical examples are included to illustrate the essential features of the models

risk constrained self scheduling of a thermal power producer this paper addresses the self scheduling problem of a price taker power producer it focuses on risk modeling emphasizing the tradeoff existing between maximum profit and minimum risk the paper analyzes a self scheduling model that considers simultaneously profit and risk this model is formulated as a mixed integer quadratic programming problem which is solved using commercially available software relevant results from a realistic case study are discussed

sovereign defaults information investment and credit abstract why would a sovereign government immune from bankruptcy procedures and with few assets that could be seized in the event of a default ever repay foreign creditors and correspondingly why do foreign creditors lend to sovereigns this paper finds general conditions under which even in the absence of sanctions lending to sovereigns can emerge in a single shot game furthermore it shows that positive borrowing can be sustained both in pooling and separating equilibria in this way it makes clear that neither sanctions nor reputation considerations the two classical explanations are necessary to enforce repayment information revelation is the crucial mechanism for these results the repayment default decision is interpreted as a signal used by the government to communicate information to domestic and foreign agents about the fundamentals of the economy governments repay to affect agents expectations about them a default through its effect on expectations about fundamentals can generate a decline in foreign and domestic investment and a credit crunch in domestic credit markets governments repay to avoid these costs but may default in equilibrium when hit by a negative shock

characteristics of the prices of operating reserves and regulation services in competitive electricity markets in this paper characteristics of the prices of reserves and regulation services in the ontario new york and ercot electricity markets are studied more specifically price variability price jumps long range correlation and non linearity of the prices are analyzed using the available measures in the literature for the ontario electricity market the prices of 10 min spinning 10 min non spinning and 30 min operating reserves for the period may 1 2002 to december 31 2007 are analyzed for the new york market prices of the same reserves plus regulation service are studied for the period february 5 2005 to december 31 2008 for the ercot market we analyze the prices of responsive reserve regulation up and regulation down services for the period january 1 2005 to december 31 2009 the studied characteristics of operating reserve and regulation prices are also compared with those of energy prices the findings of this paper show that the studied reserve and regulation prices feature extreme volatility more frequent jumps and spikes different peak price occurrence time and lower predictability compared to the energy prices

the effect of inflation targeting and financial openness on currency composition of sovereign international debt abstract this paper analyzes the joint effect of inflation targeting and capital account openness in promoting changes to the currency composition of sovereign international debt in developing countries first using difference in differences in combination with entropy balancing we offer empirical evidence that the adoption of inflation targeting together with high capital account openness can significantly reduce the reliance on foreign currency denominated sovereign international debt we find that financially integrated inflation targeting countries have 11 percentage points lower foreign currency shares in their sovereign debt compared to non targeting countries second we determine the threshold level of financial openness that countries need to attain before they see the full benefits of inflation targeting third the joint effect of inflation targeting and capital account openness significantly increases three years after the policy implementation our results are robust to alternative specifications which include instrumental variables to account for the endogeneity of the policy

nominal sovereign debt i show that reputation alone can sustain nominal sovereign debt which is subject to both the risks of default and opportunistic devaluations nominal debt combined with a countercyclical exchange rate policy allows more hedging against shocks than real savings if markets are incomplete thus the loss of either repayment or monetary reputation severely affects the government s ability to smooth consumption the model offers a simple explanation for the bulow and rogoff critique while simultaneously helping explain the issuance of nominal sovereign bonds by emerging economies the model also helps explain why many governments borrow and save at the same time

operating reserve model in the power market most of the current research on operating reserve markets assumes that the required capacity is predetermined which means that the demand of operating reserve capacity is inelastic this paper considers that operating reserve capacity in a power system is flexible and that one should optimize it by cost benefit analysis based on the reliability evaluation of the generation system a clearing model of the operating reserve market is proposed to determine the optimal reserve capacity and simultaneously clear the operating reserve market the model is discussed on both uniform price and pay as bid auction mechanisms by using a heuristic method we suggest an efficient algorithm to solve the model case studies for reliability test system rts96 demonstrate the usefulness and efficiency of the proposed model

why do we have nominal government debt abstract we study the choice between nominal and indexed debt in a stochastic macroeconomic model with discretionary monetary and fiscal policy with distortionary taxes nominal debt provides valuable insurance against the budgetary effects of economic fluctuations we show that a welfare maximizing government always issues some nominal debt even though nominal debt increases inflation along the time consistent path of the economy the result is fairly robust with respect to changes in assumptions about policy constraints and about the macroeconomic setting

government spending interest rates prices and budget deficits in the united kingdom 1701 1918 abstract the british data from the early 1700s through wwi provide an unmatched opportunity for studying temporary changes in government purchases temporary increases which appeared mainly as wartime spending raised long term interest rates but significantly increased the growth rates of money and prices only during suspensions of the gold standard 1797 1821 and 1914 1918 temporary changes in military spending accounted for the bulk of budget deficits over the sample of more than 200 years i found only two major non war deficits one associated with compensation payments to slaveowners in 1835 1936 and the other with a dispute over the income tax in 1909 1910 interest rates did not react much to these exogenous deficits

expectation traps and discretion abstract we develop a dynamic model with optimizing private agents and a benevolent optimizing monetary authority that cannot commit to future policies we characterize the set of sustainable equilibria and discuss the implications for institutional reform we show that there are equilibria in which the monetary authority pursues inflationary policies because that is what private agents expect we call such equilibria expectation traps alternative institutional arrangements for the conduct of monetary policy which impose limited forms of commitment on the policymaker can eliminate expectation traps journal of economic literatureclassification numbers e31 e42 e50 e51 e58

optimal dispatch of a system based on offers and bids a mixed integer lp formulation the federal energy regulatory commission s ferc orders 888 and 889 will have far reaching consequences on the operation and dispatch of electric power systems a common element of the change is that of dispatching the system based on offers and bids to sell and buy unbundled commodities this paper formulates and solves the optimal dispatch problem as a mixed integer linear program such a formulation allows the acceptance of offers with minimum takes arising from generator characteristics

openness lobbying and provision of infrastructure casual empirical evidence suggests that infrastructure provision is higher in economies that are open to world trade we develop a model of imperfect competition to show that open economies are likely to provide more infrastructure than closed economies if infrastructure is financed by taxing a producer lobby the open economy will overprovide while the closed economy will underinvest an open economy approaches optimal provision when this lobby group is small in size if financing of infrastructure is done by taxing the whole population the closed economy outcome may be preferred relative to that of the open economy

nominal versus indexed debt a quantitative horse race abstract the main arguments in favor and against nominal and indexed debts are the incentive to default through inflation versus hedging against unforeseen shocks we model and calibrate these arguments to assess their quantitative importance we use a dynamic equilibrium model with tax distortion government outlays uncertainty and contingent debt service our framework also recognizes that contingent debt can be associated with incentive problems and lack of commitment thus the benefits of unexpected inflation are tempered by higher interest rates we obtain that costs from inflation more than offset the benefits from reducing tax distortions we further discuss sustainability of nominal debt in developing volatile countries

taxation base in developing countries abstract informal sectors are larger in developing countries than in rich countries this is a result of higher fixed costs of entry into the formal economy in developing countries we show that raising barriers to entry is consistent with a deliberate government policy for raising tax revenue by generating market power and hence rents for the permitted entrants market entry fees foster the emergence of large taxpayers the rents can be readily confiscated by the government through entry fees and taxes on profits at a low administrative cost the relevance of the theory is assessed with a sample of 64 countries empirical analysis supports the results of the paper

consumption puzzles and precautionary savings abstract when marginal utility is convex agents accumulate savings as a precautionary measure against labor income eventualities this paper shows that precautionary savings can go a long way in making the excess growth excess smoothness and excess sensitivity features of consumption consistent with the stochastic processes of labor income observed in the u s at the microeconomic level

generation scheduling in a deregulated system the norwegian case the paper gives an overview of the deregulated electricity supply system in norway with emphasis on the generation scheduling approach procedures and tools for long medium and short term scheduling are described scheduling is carried out by each individual utility since scheduling is based on profit maximizing the spot market price is a very important factor this price is varying and uncertain however a part of the paper describes how to deal with this by considering the spot market price as an exogenously given stochastic variable it is shown how to extend the common water value computations so as to handle this case implications to the medium and short term scheduling are also discussed

forecasting next day electricity prices by time series models in the framework of competitive electricity markets power producers and consumers need accurate price forecasting tools price forecasts embody crucial information for producers and consumers when planning bidding strategies in order to maximize their benefits and utilities respectively this paper provides two highly accurate yet efficient price forecasting tools based on time series analysis dynamic regression and transfer function models these techniques are explained and checked against each other results and discussions from real world case studies based on the electricity markets of mainland spain and california are presented

price taker bidding strategy under price uncertainty this paper provides a framework to obtain the optimal bidding strategy of a price taker producer an appropriate forecasting tool is used to estimate the probability density functions of next day hourly market clearing prices this probabilistic information is used to formulate a self scheduling profit maximization problem that is solved taking advantage of its particular structure the solution of this problem allows deriving a simple yet informed bidding rule results from a realistic case study are discussed in detail

electricity price short term forecasting using artificial neural networks this paper presents the system marginal price smp short term forecasting implementation using the artificial neural networks ann computing technique the described approach uses the three layered ann paradigm with backpropagation the retrospective smp real world data acquired from the deregulated victorian power system was used for training and testing the ann the results presented in this paper confirm considerable value of the ann based approach in forecasting the smp

fiscal hedging with nominal assets abstract we analyze optimal fiscal and monetary policy in an economy with distortionary labor income taxes nominal rigidities nominal debt of various maturities and short selling constraints optimal policy prescribes the almost exclusive use of long term debt such debt mitigates the distortions associated with hedging fiscal shocks by allowing the government to allocate them efficiently across states and periods

optimal self scheduling of a thermal producer in short term electricity markets by milp this paper addresses the problem of the self scheduling of a thermal electricity producer in day ahead energy and reserves markets a 0 1 mixed integer linear formulation of the producer self scheduling problem is provided which allows a realistic and accurate modeling of the unit s operating phases a novel unit start up modeling is presented in which three different start up types are modeled hot warm and cold each with distinct start up cost synchronization time soak time and predefined start up power output trajectories all dependent on the unit s prior reservation time test results address the effect of the energy and reserves market clearing prices on the producer units day ahead commitment status and profits

demand side reserve offers in joint energy reserve electricity markets we propose a market model that includes demand side reserve offers and where energy and reserve are jointly dispatched generators and consumers can submit offers and bids on five distinct products energy upspinning reserve downspinning reserve and two kinds of standby reserve the resources are scheduled and dispatched in a joint auction through a mixed integer optimization program the extra scheduling flexibility introduced by demand side reserve offers can lead to significant gains in economic efficiency thus the results suggest that not only do the consumers increase their profits but in addition the market power of the generators is reduced

risk constrained bidding strategy with stochastic unit commitment this paper develops optimal bidding strategies based on hourly unit commitment in a generation company genco that participates in energy and ancillary services markets the price based unit commitment problem with uncertain market prices is modeled as a stochastic mixed integer linear program the market price uncertainty is modeled using the scenario approach monte carlo simulation is applied to generate scenarios scenario reduction techniques are applied to reduce the size of the stochastic price based unit commitment problem and postprocessing is applied based on marginal cost of committed units to refine bidding curves the financial risk associated with market price uncertainty is modeled using expected downside risk which is incorporated explicitly as a constraint in the problem accordingly the proposed method provides a closed loop solution to devising specific strategies for risk based bidding in a genco illustrative examples show the impact of market price uncertainty on genco s hourly commitment schedule and discuss the way gencos could decrease financial risks by managing expected payoffs

sustainable plans and debt abstract this paper presents a simple general equilibrium model of optimal fiscal policy similar to that of lucas and stokey j monet econ 12 1983 55 93 except that we let the government default on its debt we consider sustainable equilibria in which both government and private agent decision rules are required to be sequentially rational we concentrate on trigger mechanisms which specify reversion to the markov equilibrium after deviations by the government and show that such mechanisms cannot support equilibria with positive debt we go on to show by way of examples that there can be more complicated trigger mechanisms which support positive debt journal of economic literature classification numbers e61 e62

debt constrained asset markets we develop a theory of general equilibrium with endogenous debt limits in the form of individual rationality constraints similar to those in the dynamic consistency literature if an agent defaults on a contract he can be excluded from future contingent claims markets trading and can have his assets seized he cannot be excluded from spot markets trading however and he has some private endowments that cannot be seized all information is publicly held and common knowledge and there is a complete set of contingent claims markets since there is complete information an agent cannot enter into a contract in which he would have an incentive to default in some state in general there is only partial insurance variations in consumption may be imperfectly correlated across agents interest rates may be lower than they would be without constraints and equilibria may be pareto ranked

multimarket optimal bidding for a power producer this paper considers a profit maximizing thermal producer that participates in a sequence of spot markets namely day ahead automatic generation control agc and balancing markets the producer behaves as a price taker in both the day ahead market and the agc market but as a potential price maker in the volatile balancing market the paper provides a stochastic programming methodology to determine the optimal bidding strategies for the day ahead market uncertainty sources include prices for the day ahead and agc markets and balancing market linear price variations with the production of the thermal producer results from a realistic case study are reported and analyzed conclusions are duly drawn

optimal response of a thermal unit to an electricity spot market this paper addresses the optimal response of a thermal unit to an electricity spot market the objective is to maximize the unit profit from selling both energy and spinning reserve in the spot market the paper proposes a 0 1 mixed integer linear programming approach that allows a rigorous modeling of i nonconvex and nondifferentiable operating costs ii exponential start up costs iii available spinning reserve taking into account ramp rate restrictions and iv minimum up and down time constraints this approach overcomes the modeling limitations of dynamic programming approaches and is computationally efficient results from realistic case studies are reported

international aspects of public infrastructure investment m odelling infrastructure as an international public good in a two country m odel of trade where each country s social planner behaves strategically we show that the equilibrium levels of infrastructure are sub optimal from a global perspective utilising an appropriate econom etric fram ework and data from 16 european countries over the period 1987 95 we find evidence that accords well with the m ain predictions of our theory thus we are able to offer a plausible theoretical explanation why public capital m ay be undersupplied as suggested by previous em pirical literature