optimal monetary policy in an economy with inflation persistence abstract this paper studies optimal monetary policy in a model where inflation is persistent two types of price setters are assumed to exist one acts rationally given calvo type constraints on price setting the other type sets prices according to a rule of thumb this results in a phillips curve with both a forward looking term and a backward looking term the phillips curve nests a standard purely forward looking phillips curve as well as a standard purely backward looking phillips curve as special cases a cost push supply shock is derived from microfoundations by adding a time varying income tax and by making the elasticity of substitution between goods stochastic a central bank loss function for this model is derived from a second order taylor approximation of the household s welfare function optimal monetary policy for different relative values of the forward and backward looking terms is then analyzed for both the commitment case and the case of discretion

transmission system management and pricing new paradigms and international comparisons the transmission system once the necessary but nearly invisible component of the electric power system is now the focus of physical electrical and financial attention of the utility and more significantly their potential suppliers customers this paper has three primary objectives the first is to present a discussion of a new paradigm for the electric power industry the second is to review transmission pricing options specifically those utilizing either long run lrmc or short run srmc marginal cost based approaches the third is to provide a review of innovative approaches to transmission asset management and finance as seen from international experience

renewable energy curtailment a case study on today s and tomorrow s congestion management abstract this work aims at contributing to the development of congestion management in power systems facing a strong expansion of renewable electricity generation we address a comparatively new but increasingly important challenge to electricity markets with a uniform price zone renewable curtailment due to grid constraints our goal is to provide a model framework suitable to investigate the impact of expanding the grid operator s flexibility under varying congestion management regimes we aim to expose the limitations of the current regime and to present a favorable alternative for our analysis we develop an optimal power flow program to replicate the current congestion management regime for distribution grids with high penetration of distributed generation in germany furthermore we introduce district heating as additional flexibility option and investigate the impact under different approaches to congestion management our results suggest that introducing additional flexibility while keeping the current congestion management regime bears significant risk to increase the cost of congestion management adjusting the regime to take into account economic criteria as outlined in this work eliminates this risk and grants direct control on the trade off between curtailment and cost

monetary aggregates and liquidity in a neo wicksellian framework woodford 2003 describes a popular class of neo wicksellian models in which monetary policy is characterized by an interest rate rule and the money market and financial institutions are typically not even modeled critics contend that these models are incomplete and unsuitable for monetary policy evaluation our banks and bonds model starts with a standard neo wicksellian model and then adds banks and a role for bonds in the liquidity management of households and banks the banks and bonds model gives a more complete description of the economy but the neo wicksellian model has the virtue of simplicity our purpose here is to see if the neo wicksellian model gives a reasonably accurate account of macroeconomic behavior in the more complete banks and bonds model we do this by comparing the models second moments variance decompositions and impulse response functions we also study the role of monetary aggregates in predicting inflation in the two models

consistent and robust delimitation of price zones under uncertainty with an application to central western europe abstract new and alternative delimitations of price zones for central western europe cwe might constitute a mid term solution to cope with the increasing congestion in the electricity transmission grids the significantly growing infeed from renewable energy sources puts more and more pressure on the grid and emphasizes the need for improved congestion management thus a new delimitation of price zones is frequently considered in current discussions and research the present paper applies a novel hierarchical cluster algorithm that clusters locational marginal prices and weights nodes depending on their demand and supply situation to identify possible new price zone configurations pzcs the algorithm is applied in a scenario analysis of six scenarios reflecting main drivers that influence the future development of european electricity markets in line with the trilemma of energy policy targets robustness of the new configuration is an important criterion for price zone configurations according to the european guideline on capacity allocation and congestion management cacm therefore a robust price zone configuration is computed taking into account all the six individual scenarios results show that shape size and price variations of price zones on the one hand strongly depend on the individual scenario on the other hand the identified robust configuration is shown to outperform other configurations particularly also the current price zone configuration in cwe

transmission expansion in argentina 2 the fourth line revisited abstract in 1992 argentina introduced the public contest method which required transmission users to propose vote and pay for major expansions of the electricity transmission system economists consultants the regulator and others held the application of this method to be unsuccessful mainly on the ground that for many years it delayed investment in a much needed fourth line to buenos aires the commentators blamed externalities free rider problems the area of influence method used to define voting rights and transactions costs this paper re examines the history and economics of the fourth line the delay to the fourth line was short a year and a half rather than many years and enabled a significant reduction in construction costs externalities free riding the area of influence method and transactions costs were not problematic the fourth line was initially rejected because it was unprofitable to key beneficiaries far from being much needed the fourth line was not economic because the congestion it avoided was worth less than the cost of building it it had become more economic to transport gas to generate electricity near buenos aires than to transmit electricity over long distances the location of subsequent power stations reflected this even though the presence of a subsidy meant that the public contest method did not prevent the building of the fourth line it nonetheless forced a much needed reappraisal of traditional transmission investment policy

designing a firm s coordinated manufacturing and supply decisions with short product life cycles in this paper we consider a problem of joint coordination between a firm s manufacturing and supply departments the manufacturing department is responsible for meeting random demand of a product with a short life cycle the supply department s responsibility is to provide the sufficient amount of raw materials so that the required production level can be achieved when coordination prevails both departments decisions are jointly made otherwise decisions are made independently without an exchange of information if the random demand exceeds the amount produced a second production run can be expedited at a substantially higher cost our analysis yields insightful results to such a coordination problem between the two departments we provide conditions under which it is desirable to coordinate resulting in a significant increase in expected profit if coordination is optimal then the supply department would purchase additional reserved material for the second run under this scenario we analyze the effects of joint coordination on the expected profit we also find explicit conditions for which joint coordination is not beneficial i e the supply department should only order sufficient material to meet the first production run requirements we provide a detailed set of numerical examples and generate response surfaces indicating the desirability of coordination for different pairs of parameter combinations

expenditure switching vs real exchange rate stabilization competing objectives for exchange rate policy this paper develops a view of exchange rate policy as a trade off between the desire to smooth fluctuations in real exchange rates so as to reduce distortions in consumption allocations and the need to allow flexibility in the nominal exchange rate so as to facilitate terms of trade adjustment we show that optimal nominal exchange rate volatility will reflect these competing objectives the key determinants of how much the exchange rate should respond to shocks will depend on the extent and source of price stickiness the elasticity of substitution between home and foreign goods and the amount of home bias in production quantitatively we find the optimal exchange rate volatility should be significantly less than would be inferred based solely on terms of trade considerations moreover we find that the relationship between price stickiness and optimal exchange rate volatility may be non monotonic

economic dispatch savings in the coal fired power sector an empirical study of china abstract the current equal share dispatch approach has often been criticized for its negative influence on the electricity system operation in china which worsens the energy security environmental sustainability and affordability problems to provide references for the on going electricity market reform this study employs an optimization model to quantify the economic dispatch savings in the coal fired power sector key findings are summarized as follows 1 the heat rates of 2803 coal generators in china range from 273 91 gce kwh to 348 38 gce kwh units in 2014 and the great differences among these generators at different geographical areas exhibit the necessity for economic dispatch 2 5 67 of the coal used for power generation could be saved from economic dispatch in a provincial level the monetary value of which can reduce the average electricity price by 0 0058 yuan kwh in 2014 3 three major political and economic challenges hinder the transition from the current dispatch mode to economic dispatch namely the insufficient running hours for cost recovery limited cross border trading due to electricity over supply and local protectionism and the political economy problems from generators of different ownership types

evaluation of alternatives for power system coordination and pooling in a competitive environment the paper defines and classifies essential issues that relate the need for electric power system coordination with the increasing development of competition principles are formulated and a coordination model and a market structure are proposed emphasizing the need for economic dispatch in the wholesale market a detailed comparison is made of the market and pooling implementations developed in argentina and chile countries that have pioneered the creation of competitive markets in the electric energy sector an evaluation of strengths and weaknesses of those two implementations is included

two price zones for the german electricity market market implications and distributional effects abstract we discuss the implications of two price zones i e one northern and one southern bidding area on the german electricity market in the northern zone continuous increases in capacity with low variable costs cause large regional supply surpluses in the market dispatch while in the southern zone conventional capacity decreases as the spatial imbalance of supply and load is increasing the current single bidding area more often results in technically infeasible market results requiring curative congestion management measures there is an ongoing discussion about the potential effects of introducing bidding zones in germany this paper applies an electricity sector model with network representation to analyze the system implications and the distributional effects of two bidding zones in the german electricity system in 2012 and 2015 results show a modest decrease in cross zonal re dispatch levels particularly in 2015 however overall network congestion and re dispatch levels increase in 2015 and also remain on a high level for two bidding zones results are very sensitive to more than two bidding zones and additional line investments illustrating the challenge to define stable price zones in a dynamic setting with two bidding areas prices in the model results increase in the southern zone and decrease in the northern zone the average price deviation grows from 0 4eur mwh in 2012 to 1 7eur mwh in 2015 with absolute values being significantly higher in hours when price differences occur stakeholders within zones are exposed to the price deviations to a different extent distributional effects are surprisingly small compared to the wholesale price or different network charges

the optimality of s s policies for a stochastic inventory problem with proportional and lump sum penalty cost in this paper we consider a single product multi period inventory problem for which the penalty cost consists of two parts a lump sum portion which is independent of the size of the shortage and a portion which is linear in the size of the shortage we show that for all nonincreasing demand density functions the expected total cost function is k convex and hence there is an optimal policy for the n period problem that is s s

commodity trade and international risk sharing how much do financial markets matter abstract this paper evaluates the social gains from international risk sharing in some simple general equilibrium models with output uncertainty a simulation model calibrated to selected moments of u s and japanese data estimates the incremental loss from a ban on international portfolio diversification to be on the order of 0 20 percent of output per year even the theoretical gains from asset trade may disappear under alternative sets of assumptions on preferences and technology the paper argues that the small magnitude of potential trade gains may help explain the apparently inconsistent findings of empirical studies on the degree of international capital mobility

business model for cross border interconnections in the mediterranean basin abstract given the complementarity of electricity systems in the north and south mediterranean basin a greater integration and trade can help achieving national and regional energy policy objectives of security of supply cost optimisation and sustainability however the issues such as different electricity market structures regulatory and institutional diversity and disparate level of political stability make interconnection investment between north and south a risky undertaking due to high perceived risk delivery of interconnection projects through the eu regulated model is less likely or only possible at prohibitively high rate of returns the merchant transmission initiative mti on the other hand seen as an exception under the eu laws can be approved only if the project meets a set of strict conditions here we show that a hybrid business model in which the main benefits of a merchant model are maintained within a regulated structure that involves minimal regulatory changes to national electricity markets offers an appropriate response to the existing investment challenges in the euro mediterranean basin we highlight the main components of the proposed model and show how it addresses the key features of a viable business model regarding investment incentives risks governance and compatibility with the region s energy scenario

electricity transmission arrangements in great britain time for change in great britain gb and across europe significant investment in electricity transmission is expected over the coming years as decarbonisation and market integration efforts are intensified however there is also significant uncertainty with the amount location and timing of new generation connection which in turn will drive the transmission investment needs given the absence of efficient market design we identify three key areas of concern with the current transmission investment arrangements i a mis aligned incentives framework for transmission investment and operation ii lack of coordination of investment and operation and iii conflicts of interest we then propose three options for future evolution of transmission regimes which cover the full spectrum of institutional arrangements with respect to transmission planning and delivery i e how and who plans owns builds and operates the transmission system for each option we present key characteristics evolution of the current regimes the ability of the option to address the concerns and key strengths and weaknesses overall we conclude in the case of gb this conclusion could be extended to other european countries that the most appropriate option would be that of an independent system operator iso who would be responsible for planning and operating the transmission system

openness imperfect exchange rate pass through and monetary policy abstract this paper analyses the implications of imperfect exchange rate pass through for optimal monetary policy in a linearised open economy dynamic general equilibrium model calibrated to euro area data imperfect exchange rate pass through is modelled by assuming sticky import price behaviour the degree of domestic and import price stickiness is estimated by reproducing the empirical identified impulse response of a monetary policy and exchange rate shock conditional on the response of output net trade and the exchange rate it is shown that a central bank that wants to minimise the resource costs of staggered price setting will aim at minimising a weighted average of domestic and import price inflation

low inflation pass through and the pricing power of firms abstract recently there has been a significant decline in the degree to which firms pass through changes in costs to prices a decline that is frequently characterized as a reduction in the pricing power of firms the decline appears to be associated with the decline in inflation in many countries the decline has important implications for monetary policy because it affects both forecasts of inflation and the effects of changes in monetary policy on inflation some have argued that the decline in pricing power helped to keep inflation low in the face of apparently strong demand pressures in the united states in the late 1990s this paper puts forth the view that the decline in pass through or pricing power is due to the low inflation environment that has recently been achieved in many countries first a microeconomic model of price setting is used to show that lower pass through is caused by lower perceived persistence of cost changes evidence is then presented showing that inflation is positively correlated with persistence of inflation suggesting that the low inflation itself has caused the low pass through an economy wide model consistent with the micromodel is then presented to illustrate how such changes in pricing power affect output and inflation dynamics in favorable ways but can disappear quickly if monetary policy and expectations change

the central banker as a risk manager estimating the federal reserve s preferences under greenspan we derive a natural generalization of the taylor rule that links changes in the interest rate to the balance of the risks implied by the dual objective of sustainable economic growth and price stability this monetary policy rule reconciles economic models of expected utility maximization with the risk management approach to central banking within this framework we formally test and reject the standard assumption of quadratic and symmetric preferences in inflation and output that underlies the derivation of the taylor rule our results suggest that fed policy decisions under greenspan were better described in terms of the fed weighing upside and downside risks to their objectives rather than simply responding to the conditional mean of inflation and of the output gap

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

renewable electric energy integration quantifying the value of design of markets for international transmission capacity abstract integrating large quantities of variable renewable electricity generation remains a political and operational challenge one of the main obstacles in europe to installing at least 200 gws of power from variable renewable sources is how to deal with the insufficient network capacity and the congestion that will result from new flow patterns we model the current methodology for controlling congestion at international borders and compare its results under varying penetrations of wind power with models that simulate an integrated european network using nodal localised marginal pricing the nodal pricing simulations illustrate that congestion and price patterns vary considerably between wind scenarios and within countries and that a nodal price regime could make better use of existing network capacity introducing substantial operational cost savings and reducing marginal power prices in the majority of european countries

optimal myopic policy for a stochastic inventory problem with fixed and proportional backorder costs in this paper we consider a single product periodic review stochastic demand inventory problem where backorders are allowed and penalized via fixed and proportional backorder costs simultaneously fixed backorder cost associates a one shot penalty with stockout situations whereas proportional backorder cost corresponds to a penalty for each demanded but yet waiting to be satisfied item we discuss the optimality of a myopic base stock policy for the infinite horizon case critical number of the infinite horizon myopic policy i e the base stock level is denoted by s if the initial inventory is below s then the optimal policy is myopic in general i e regardless of the values of model parameters and demand density otherwise the sufficient condition for a myopic optimum requires some restrictions on demand density or parameter values however this sufficient condition is not very restrictive in the sense that it holds immediately for erlang demand density family we also show that the value of s can be computed easily for the case of erlang demand this special case is important since most real life demand densities with coefficient of variation not exceeding unity can well be represented by an erlang density thus the myopic policy may be considered as an approximate solution if the exact policy is intractable finally we comment on a generalization of this study for the case of phase type demands and identify some related research problems which utilize the results presented here

investigating inflation persistence across monetary regimes under inflation targeting estimates of the indexation parameter in hybrid new keynesian phillips curves are either equal to zero or very low in the united kingdom canada sweden and new zealand analogous results hold for the euro area under the european monetary union and for switzerland under the new monetary regime under stable regimes with clearly defined nominal anchors inflation appears to be purely forward looking these results question the notion that the intrinsic inflation persistence found in post wwii u s data is structural in the sense of lucas carnegie rochester conference series on public policy 1 1976 19 46 and suggest that hardwiring inflation persistence in macroeconomic models is potentially misleading

exploring international differences in inflation dynamics abstract standard closed economy dsge models have difficulty replicating the persistence of inflation we use a multicountry dataset to establish some empirical regularities on persistence and volatility of aggregate consumer prices for 135 countries since 1993 we find both persistence and volatility to be low high in developed developing countries relative to the full sample average this pattern is also observed in low high inflation countries we then employ a two country dsge framework to investigate the extent to which structural open economy features such as incomplete exchange rate pass through the existence of nontraded goods and international financial market incompleteness can help in replicating the persistence and volatility of consumer prices our simulation results indicate that the model can replicate the degree of inflation persistence seen in the data for both developed and developing countries but cannot generate the low levels of volatility observed in developed economies

market splitting in germany new evidence from a three stage numerical model of europe abstract with the sharp increase in redispatch measures seen during recent years the importance of an efficient congestion management has increased particularly in germany as the current market design with a single bidding area ignores the physical constraints of the transmission grid there is an ongoing discussion about introducing price zones against this background we develop a three stage approach to model redispatch and market splitting for germany while considering interactions with interconnected countries we identify an increasing spatial imbalance between generation and load and delays in grid extension as being the main drivers for the increase of modeled redispatch volumes from 2012 to 2020 we show that market splitting reduces imminent congestion although results are sensitive to the zonal delimitation and corresponding net transfer capacities the overall welfare effect is negligible but price differences between the bidding areas investigated i e one northern and southern price zone result in considerable distributional effects while consumers in northern germany would benefit producer rents and in particular the value of wind energy would decrease the opposite is true for southern germany we conclude that market splitting constitutes a solution to reduce redispatch measures as long as transmission grid expansion is further delayed

quantifying the risk of deflation we propose formal and quantitative measures of the risk that future inflation will be excessively high or low relative to the range preferred by a private sector agent unlike alternative measures of risk our measures are designed to make explicit the dependence of risk measures on the private sector agent s preferences with respect to inflation we illustrate our methodology by estimating the risks of deflation for the united states germany and japan for horizons of up to 2 years the question of how large these risks are has been subject to considerable public debate we find that as of september 2002 when this question first arose there was no evidence of substantial deflation risks for the united states and for germany contrary to some conjectures at the time in contrast there was evidence of substantial deflation risks in japan

the persistence of inflation in the united states abstract has the persistence of inflation in the united states changed since 1965 we estimate the persistence of inflation over time using different measures and estimation procedures and we produce confidence intervals for our estimates as well as formal tests of unchanged persistence we find that inflation persistence has been high and approximately unchanged in the u s over our sample period we reconcile our results with other studies that reached different conclusions

inflation dynamics in the u s global but not local mean reversion a stylized fact of u s inflation dynamics is one of extreme persistence and possible unit root behavior if so the implications for macroeconomics and monetary policy are somewhat unpalatable our econometric analysis proposes a parsimonious univariate representation of the inflation process for the last 60 years the nonlinear exponential smooth autoregressive the empirical results confirm a number of the key features such as global stationarity local unit root behavior and lower persistence in the post 1983 period than in the pre 1983 period we compare the forecasting ability of our model with that of competing univariate models and find that the nonlinear model outperforms the linear autoregressive model in the pre 1983 period and the random walk in the post 1983 period at short horizons

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

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

spatially uneven development and low carbon transitions insights from urban and regional planning the ageing of existing energy system infrastructure the threat of climate change and uncertainty in the movement of energy prices have resulted in a widespread agreement on the need for a transition to a low carbon energy system yet the nature of this transition i e what when how and where and its socio economic outcomes at different scales are not well understood the interdependence of the energy sector and economic growth has been mostly studied at the national level via some general equilibrium or econometric models whilst sub national studies at community or urban levels mostly focus on the governance of transitions hence we suggest that a regional perspective to energy policy and research promises to integrate these two approaches by providing a more robust and comprehensive understanding of the implications of low carbon transitions as well as contributing to the development of more effective policies by building on recent ideas on geographical aspects of energy transitions this article offers insights on the changing relationship between the spatial organisation of economic activities and energy systems and identifies tools and methods from urban and regional planning to help with the delivery of efficient and equitable policy outcomes

coordination and uncertainty in strategic network investment case on the north seas grid abstract the notion of developing a transnational offshore grid in the north sea has attracted considerable attention in the past years due to its potential for substantial capital savings and increased scope for cross border trade sparking a european wide policy debate on incentivizing integrated transmission solutions however one important aspect that has so far received limited attention is that benefits will largely depend on the eventual deployment pattern of electricity infrastructure which is currently characterized by severe locational sizing and timing uncertainty given the lack of coordination between generation and network developments across europe there is a real risk for over investment or a premature lock in to options that exhibit limited adaptability in the near future important choices that have to be made concerning the network topology and amount of investment in this paper we identify the optimal in terms of reduced cost network investment including topology in the north seas countries under four deployment scenarios and five distinct policy choices differing in the level of offshore coordination and international market integration by drawing comparisons between the study results we quantify the net benefit of enabling different types of coordination under each scenario furthermore we showcase a novel min max regret optimization model and identify minimum regret first stage commitments which could be deployed in the near future in order to enhance strategic optionality increase adaptability to different future conditions and hence reduce any potential sub optimality of the initial network design in view of the above we put forward specific policy recommendations regarding the adoption of a flexible anticipatory expansion framework for the identification of attractive investment opportunities under uncertainty

nodal uniform or zonal pricing distribution of economic surplus competitive markets for electricity determine either a uniform marginal price ump a set of nodal marginal prices nmps or a smaller set of zonal marginal prices zmps in theory the nmp system is best as it correctly accounts for transmission constraints and losses in some versions but critics allege that the large number of prices is confusing since the ump or zmp solution must be adjusted to account for transmission constraints and losses it is reasonable to consider a market design in which actual dispatch corresponds to an nmp model that accounts for losses and if a ump or zmp model is used at all it is only to compute prices for settlements and compensation for constrained on or off generation or load we prove that if used in this way the ump or zmp models a do not affect the total economic surplus b redistribute the surplus among generators and loads at the different nodes and c give perverse incentives for generation expansion we illustrate on a realistic system

marginal pricing of transmission services a comparative analysis of network cost allocation methods a strict marginal network pricing policy is not able to generate enough revenues to recover the cost of the primary transmission service other related network services are ignored here this cost recovery problem requires the stipulation of a complementary charge which completes the network marginal revenues this paper evaluates numerically and qualitatively three different allocation methods of the complementary charge marginal participation factors mean participation factors and benefit factors the evaluation has been applied to the spanish electrical system model

testing monetary policy intentions in open economies 1 introductionthis article examines the relationship between economic openness and inflation performance among the most prominent research on this topic is the work by romer 1993 he demonstrates a negative relationship between economic openness and the inflation level his finding has also been viewed as supportive albeit indirectly of time consistency theory kydland and prescott 1977 1 romer 1993 argues that policymakers in more open economies have less incentive to adopt an expansionary monetary policy his argument is based on the assumption that monetary surprises in more open economies result in higher inflation for a given increase in output romer s finding that more open economies have lower inflation levels leads him to infer that this is evidence of time consistency in monetary policy practices however romer s work has not been generally accepted temple 2002 provides evidence that the openness inflation correlation does not stem from time consistency theory because the inflation level may not properly reveal the monetary authorities policy intentions temple questions this inference because it starts from a strong but unjustified assumption more open economies possess a relatively steeper phillips curve consequently temple proposes that the examination of the positive relationship between openness and the slope of the phillips curve is a fundamental condition for romer s argument he however finds little support for the positive relationship between economic openness and the slope of the phillips curve further work on the relationship of openness and monetary policy intentions comes from clarida gali and gertler 2001 2002 hereafter cgg in cgg 2001 the authors present a simple open economy model with a taylor type interest rate policy rule taylor 1993 the article concludes that the optimal monetary policy in an open economy has the same solution as that in a closed economy derived in cgg 1999 the authors also suggest that there is a direct link between the degree of economic openness and the aggressiveness of monetary policy they state that o penness does affect the parameters of the model suggesting a quantitative implication h ow aggressively a central bank should adjust the interest rate in response to inflationary pressures depends on the degree of openness cgg 2001 p 248 in subsequent work cgg 2002 revisit the issue based on a dynamic open economy new keynesian model and the role of monetary policy in open economies is refined consistent with the argument in cgg 2001 they find that the optimal monetary policy rule in an open economy is isomorphic to that in a closed economy in the nash equilibrium they also suggest that openness does not affect the optimality of a policy rule in such a scenario on the other hand economic openness does affect optimal monetary policy when the foreign optimal policy is endogenous in the domestic country s objective function this effect however is ambiguous in direction because the relationship between the degree of economic openness and the aggressiveness of monetary policy is determined by the relative size of trade and wealth effects of changes in foreign output this line of theoretical literature is limited and does not offer a definitive conclusion on the relationship between economic openness and monetary policy intentions our article provides an alternative empirical evaluation of the relationship based on prior literature we use inflation variability and persistence as the measures of monetary policy intentions one branch of the literature such as taylor 1999 cgg 2000 and owyang 2001 argues that aggressive monetary policy reduces the volatility of inflation for instance cgg 2000 estimate a forward looking taylor rule for the period between 1960 i and 1996 iv they use paul volcker s appointment as chairman of the federal reserve system as a regime shift to a more aggressive anti inflation policy stance

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

price adjustment and exchange rate pass through abstract this paper develops a simple theoretical model that can be used to account for the determinants of exchange rate pass through to consumer prices while recent evidence has found low estimates of pass through in many countries there is little consensus on an explanation for this our paper argues that sticky prices represent a key determinant of exchange rate pass through we make this argument in two stages first holding the frequency of price change constant we show that our model calibrated to data from low inflation countries can reproduce the estimates of very low pass through for these countries the principal determinant of low pass through in this case is the slow adjustment of prices we then extend the model to allow the frequency of price change to be endogenous calibrating to a wider set of countries including both low inflation and high inflation countries we show that our model implies that exchange rate pass through is increasing in average inflation but at a declining rate performing the identical exercise on the data we find a striking correspondence between the predictions of the model and those of the data

volatility and persistence of simulated dsge real exchange rates abstract we investigate the time series properties of both filtered and unfiltered real exchange rate series produced by dsge models that feature local currency pricing home bias nontraded goods and incomplete markets detrended series produced by several specifications approach the empirically observed volatility although none of the models generates enough persistence conversely several models produce unfiltered series that possess the same degree of persistence as the data but none can match its volatility

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

trend inflation indexation and inflation persistence in the new keynesian phillips curve purely forward looking versions of the new keynesian phillips curve nkpc generate too little inflation persistence some authors add ad hoc backward looking terms to address this shortcoming we hypothesize that inflation per sistence results mainly from variation in the long run trend component of inflation which we attribute to shifts in monetary policy we derive a version of the nkpc that incorporates a time varying inflation trend and examine whether it explains the dynamics of inflation when drift in trend inflation is taken into account a purely forward looking version of the model fits the data well and there is no need for backward looking components jel e12 e31 e52 in this paper we consider the extent to which guillermo calvo s 1983 model of nominal price rigidities can explain inflation dynamics without relying on arbitrary backward looking terms in its baseline formulation the calvo model leads to a purely forward looking new keynesian

inventory control with generalized expediting we consider a single item periodic review inventory control problem in which discrete stochastic demand must be satisfied when shortages occur the unmet demand must be filled by some form of expediting we allow a very general form for the cost structure of expediting we explicitly consider the case where expedited production is allowed to produce up to a positive inventory level we also consider the case where expedited production beyond the deficit is not permitted an alternate application for this model is an inventory system with general lost sales costs for the infinite horizon discounted problem we characterize the structure of the optimal stationary expediting policy and show that an s s policy is optimal for regular production for the special cases where the expediting cost function is concave or consists of a fixed and linear per unit cost we show that the optimal stationary expediting policy is generalized s s or order up to respectively a numerical study allows us to gain insight into when expediting above and beyond the deficit is cost effective

how market design shapes the spatial distribution of power plant curtailment costs abstract when multiple power plants are curtailed at the same time and in the same region electricity system costs rise if transmission lines are congested these costs might be amplified and spatially more concentrated because there are less spatial spill overs we study how such costs and their distribution depend on the market design nodal pricing or uniform pricing we extend the literature on curtailment by considering space and market design and the literature on market design by considering curtailment we expose a dc load flow model for germany to severe correlated curtailment scenarios we find that additional costs are moderate for the simulated week curtailment of 9 3 non renewable capacity reduces welfare by 2 7 uniform pricing with nodal pricing welfare loss can be reduced by 1 5 distributional differences are multiple times larger for nodal pricing producer surplus rises more and costs are spatially more concentrated at the curtailed power plants consumer surplus becomes lower the difference is unlikely to justify changes of the current market design if also wind or photovoltaic feed in is unavailable economic impacts can decrease or increase but remain in the same order of magnitude the spatial electricity system structure matters more than the volume of curtailment

integrated north sea grids the costs the benefits and their distribution between countries abstract a large number of offshore wind farms and interconnectors are expected to be constructed in the north sea region over the coming decades creating substantial opportunities for the deployment of integrated network solutions creating interconnected offshore grids that combine cross border links and connections of offshore plants to shore offers multiple economic and environmental advantages for europe s energy system however despite evidence that integrated solutions can be more beneficial than traditional radial connection practices no such projects have been deployed yet in this paper we quantify costs and benefits of integrated projects and investigate to which extent the cost benefit sharing mechanism between participating countries can impede or encourage the development of integrated projects three concrete interconnection case studies in the north sea area are analysed in detail using a national level power system model model outputs are used to compute the net benefit of all involved stakeholders under different allocation schemes given the asymmetric distribution of costs and benefits we recommend to consistently apply the positive net benefit differential mechanism as a starting point for negotiations on the financial closure of investments in integrated offshore infrastructure