intermediation and resale in networks i study intermediation via sequential bilateral bargaining in markets with a network structure a partition of the network into layers captures intermediation power competition governs trade withi

decentralized trading strategic behaviour and the walrasian outcome for a market with a finite number of agents pairwise matching and bargaining it is shown that even when the market is frictionless the equilibrium is not necessarily competitive it depends on the amount of information agents use if their behaviour is conditioned only on the sets of agents present and the time the competitive solution is the unique subgame perfect equilibrium if agents have full information and condition their behaviour on some of it there are also noncompetitive equilibria in which behaviour depends on specific information such as the identity of the trading partner and past events

bargaining orders in a multi person bargaining game abstract this paper studies a complete information bargaining game with one buyer and multiple sellers of different sizes or bargaining strengths the bargaining order is determined endogenously with a finite horizon there is a unique subgame perfect equilibrium outcome in which the buyer purchases in order of increasing size from the smallest to the largest with an infinite horizon if the sellers have sufficiently different sizes there is a unique equilibrium outcome which has the same bargaining order if the sellers have similar sizes with an infinite horizon there may be multiple equilibrium outcomes with different bargaining orders

modeling greenhouse gas reduction from the australian electricity sector the australian electricity sector is expected to undergo major changes to reduce the current sectoral co2 emission of 190 million tons to 96 million tons by 2050 this paper summarizes two major modeling studies that have been undertaken since 2006 to understand the full set of investment price and financial impact on existing generators especially coal based generators we have used a long term capacity and dispatch optimization model to comprehensively analyze both least cost and market led expansion of the system to accommodate alternative emission reduction targets from a shallow cut to a deep cut the modeling results demonstrate the cost of meeting the target can be over 30 billion in npv terms a mix of clean coal technologies gas and nuclear technologies is expected to displace the existing stock of conventional coal which varies significantly depending on the emission reduction target the analysis also show that mandatory renewable targets or technology standards are inefficient policies in comparison to a market based policy such as the proposed emissions trading scheme

international capital flows and the boom bust cycle in spain we study the joint dynamics of foreign capital flows and real activity during the recent boom bust cycle of the spanish economy using a three country new keynesian model with credit constrained households and firms a construction sector and a government we estimate the model using 1995q1 2013q2 data for spain the rest of the euro area rea and the rest of the world we show that falling risk premia on spanish housing and non residential capital a loosening of collateral constraints for spanish households and firms as well as a fall in the interest rate spread between spain and the rea fuelled the spanish output boom and the persistent rise in foreign capital flows to spain before the global financial crisis during and after the global financial crisis falling house prices and a tightening of collateral constraints for spanish borrowers contributed to a sharp reduction in capital inflows and to the persistent slump in spanish real activity the credit crunch was especially pronounced for spanish households firm credit constraints tightened later and more gradually and contributed much less to the slump

trading in networks theory and experiments intermediation is a prominent feature of economic production and exchange two features of intermediation are salient coordination among traders between the source and the destination and competition between alternative combinations of intermediaries we develop a simple model to study these forces and we test the theoretical predictions in experiments our theoretical analysis yields a complete characterization of pricing equilibrium in networks there exist both ecient and inecient equilibria suggesting a key role of coordination among intermediaries strategic interaction leads to either buyer and seller retaining all surplus or intermediaries extracting all surplus we develop conditions on network structure under which these di erent extremal outcomes arise respectively laboratory experiments show that eciency prevails in almost all cases so traders are successful in coordination subjects coordinate on extreme surplus division finally experiments highlight the role of network structure in determining pricing and the

elicitation of honest preferences for the assignment of individuals to positions the problem of eliciting honest preferences from individuals who must be assigned to a set of positions is considered individuals know that they will be charged for the positions to which they are assigned a set of prices that provide no incentive for the individual to misrepresent his preferences is suggested it is shown that these prices constitute an element of the optimal solution to the dual of a linear programming assignment problem both the optimal allocation and the prices to be charged can be derived by solving two linear programming problems once preferences have been elicited the procedure can usefully be viewed as a simulation of a competitive market under conditions where such a market cannot be expected to function well it results in an efficient allocation where all resources are valued at their opportunity costs and consumer surplus is maximized its outcome thus has the desirable properties of competitive market equilibria

bargaining in a network of buyers and sellers abstract we analyze bargaining between buyers and sellers who are connected by an exogenously given network players can make repeated alternating public offers that may be accepted by any of the responders linked to each specific proposer our purpose is to find the conditions of the network which drive the price distribution in equilibrium this paper uses graph theory tools to provide necessary and sufficient conditions regarding the architecture of networks for the subgame perfect equilibrium of the bargaining game to coincide with the walrasian outcome

the role of networks in antitrust investigations antitrust investigations typically focus on the competitive pressures coming from within the defined markets of interest however competitive pressures can also come from other markets even when individually these markets place only weak constraints on one another collectively they may matter a networks approach to modelling competition permits a systemic view of competition that can sometimes paint a more accurate picture we demonstrate this through some simple examples and show more generally how tools from the networks literature can be applied to capture competition across a system of interrelated markets as a leading example we consider antitrust investigations into supermarkets where local geographic markets have been used as the basis of investigation

can government purchases explain the recent u s net export deficits abstract this paper investigates the role of u s government purchases in explaining recent u s net export behavior i develop a two country neoclassical model that emphasizes linkages from government purchases to consumption i compare the model s implications for the movements and co movements of net exports against their data counterparts a parameterization in which government purchases and private consumption are complements and in which expectations of future government purchases are revised downward can account for much of the time path and co movements of net exports i conclude that u s government purchases play some role in explaining recent u s net export behavior

current accounts in the long run and the intertemporal approach a panel data investigation this paper is a theory based study of the long run determinants of the current account ca for many oecd economies after the second world war there has been more long run variation in the ca data than is emphasised by a permanent income version of the intertemporal approach that is based on consumption smoothing and that allows only transitory ca imbalances a theoretical model of the ca is developed based on the broader variant of the intertemporal approach that stresses the long term component of the ca we find that some key theoretical predictions hold while others fail validating the approach but also pointing to its limitations

bilateral bargaining in networks abstract each connected pair of nodes in a network can jointly produce one unit of surplus a maximum number of linked nodes is selected in every period to bargain bilaterally over the division of the surplus according to the protocol proposed by rubinstein and wollinsky equilibrium in a market with sequential bargaining econometrica 53 1985 1133 1150 all pairs which reach an agreement obtain the discounted payoffs and are removed from the network this bargaining game has a unique subgame perfect equilibrium that induces the dulmage mendelsohn decomposition partition of the bipartite network of the set of nodes in this network

productivity shocks budget deficits and the current account abstract productivity shocks and budget deficits are considered to be two key determinants of the current account in order to assess formally the role of both factors in driving current account movements the present paper extends the standard intertemporal model of the current account to allow for non ricardian household behavior testable cross equation restrictions for the current account and investment are derived by drawing on the distinction between country specific and global innovations to productivity as well as to the government budget we test the restrictions of the model against time series data for 21 oecd countries and find evidence in support of the model

a real model of the world business cycle abstract in this paper a stochastic two country log linear infinite horizon model is used to analyze the generation and transmission of economic fluctuations across countries it is argued that following a country specific supply disturbance production interdependence and unitary elasticities in consumption and production are sufficient to generate comovements in aggregate economic activity investment and trade that are persistent over time and positively correlated across countries however the empirical analysis carried out for the usa japan germany and uk for the 1960 82 period suggests that common shocks rather than trade links are responsible for this pattern of comovements

international portfolios capital accumulation and foreign assets dynamics despite the liberalization of capital ows among oecd countries equity home bias remains sizable we depart from the two familiar explanations of equity home bias transaction costs that impede international diversi cation and terms of trade responses to supply shocks that provide risk sharing so that there is little incentive to hold diversi ed portfolios we show that the interaction of the following ingredients generates a realistic equity home bias capital accumulation shocks to the e ciency of physical investment as well as international trade in stocks and bonds in our model domestic stocks are used to hedge uctuations in local wage income terms of trade risk is hedged using bonds denominated in local goods and in foreign goods in contrast to related models the low level of international diversi cation does not depend on strongly countercyclical terms of trade the model also reproduces the cyclical dynamics of foreign asset positions and of international capital ows

a theory of buyer seller networks this paper introduces a new model of exchange networks rather than markets of buyers and sellers it begins with the empirically motivated premise that a buyer and seller must have a relationship a link to exchange goods networks buyers sellers and the pattern of links connecting them are common exchange environments this paper develops a methodology to study network structures and explains why agents may form networks in a model that captures characteristics of a variety of industries the paper shows that buyers and sellers acting strategically in their own self interests can form the network structures that maximize overall welfare

asymmetric information and intermediation chains we propose a parsimonious model of bilateral trade under asymmetric information to shed light on the prevalence of intermediation chains that stand between buyers and sellers in many decentralized markets our model features a classic problem in economics where an agent uses his market power to inefficiently screen a privately informed counterparty paradoxically involving moderately informed intermediaries also endowed with market power can improve trade efficiency long intermediation chains in which each trader s information set is similar to those of his direct counterparties limit traders incentives to post prices that reduce trade volume and jeopardize gains to trade

the simple economics of extortion evidence from trucking in aceh this paper tests whether the behavior of corrupt officials is consistent with standard industrial organization theory we designed a study in which surveyors accompanied indonesian truck drivers on 304 trips during which they observed over 6 000 illegal payments to police soldiers and weigh station attendants using plausibly exogenous changes in the number of checkpoints we show that market structure affects the level of illegal payments we further show that corrupt officials use complex pricing schemes including third degree price discrimination and a menu of two part tariffs our findings illustrate the importance of considering the market structure for bribes when designing anticorruption policy

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

us trade balance dynamics the role of fiscal policy and productivity shocks and of financial market linkages abstract this paper examines whether domestic and foreign productivity and fiscal policy changes can account for the wide swings in us net exports during the period 1975 1991 a two country real business cycle model is used for that purpose the model is simulated using data on productivity government purchases and taxes for the g7 countries a version of the model with incomplete asset markets in which only bonds can be used for international capital flows tracks the us trade balance fairly closely provided permanent country specific productivity shifts are assumed the simulations suggest that us productivity changes were the main source of fluctuations in us net exports

stability and competitive equilibrium in trading networks we introduce a model in which agents in a network can trade via bilateral contracts we find that when continuous transfers are allowed and utilities are quasi linear the full substitutability of preferences is sufficient to guarantee the existence of stable outcomes for any underlying network structure furthermore the set of stable outcomes is essentially equivalent to the set of competitive equilibria and all stable outcomes are in the core and are efficient by contrast for any domain of preferences strictly larger than that of full substitutability the existence of stable outcomes and competitive equilibria cannot be guaranteed

explaining saving investment correlations national saving and investment rates are highly positively correlated in virtually all countries this is puzzling as it apparently implies a low degree of international capital mobility this paper shows that the observed positive correlation between national saving and investment rates arises naturally within a quantitatively restricted equilibrium model with perfect mobility of financial and physical capital the model is consistent with the fact that saving investment correlations are larger for larger countries but are still substantial for small countries further the model is consistent with the finding that current account deficits tend to be associated with investment booms copyright 1993 by american economic association

dissecting the dynamics of the us trade balance in an estimated equilibrium model in an estimated two country dsge model we find that efficiency shocks specific to investment account for more than half of the forecast variance of cyclical fluctuations in the us trade balance both domestic and foreign investment specific shocks have a substantial impact on the variability of the imbalance total factor productivity shocks do not matter for the variance and even lead to procyclicality in the trade balance

bargaining and efficiency in networks abstract we study an infinite horizon game in which pairs of players connected in a network are randomly matched to bargain over a unit surplus players who reach agreement are removed from the network without replacement the global logic of efficient matchings and the local nature of bargaining in combination with the irreversible exit of player pairs following agreements create severe hurdles to the attainment of efficiency in equilibrium for many networks all markov perfect equilibria of the bargaining game are inefficient even as players become patient we investigate how incentives need to be structured in order to achieve efficiency via subgame perfect but non markovian equilibria the analysis extends to an alternative model in which individual players are selected according to some probability distribution and a chosen player can select a neighbor with whom to bargain

optimal flexible operation of a co _ 2 capture power plant in a combined energy and carbon emission market since co2 capture and storage ccs is a viable co2 abatement option co2 capture power plants ccpps could become a significant part of the future generation mix this paper investigates the flexibility of the operation of a representative post combustion ccpp with ancillary facilities a mathematical model of the operation of such a plant is developed this model quantifies the relation between the major operating characteristics of a ccpp including efficiency penalty capacity penalty net power output and net co2 emission on this basis a profit maximization model is proposed this model would help a ccpp decide its power output schedule co2 capture schedule and bidding strategies in response of volatile power and carbon prices in a day ahead energy market and a cap and trade carbon emission market the validity and the usefulness of the proposed model are demonstrated using numerical results

bilateral monopolies and incentives for merger the paper presents a model of duopoly in which firms acquire inputs through bilateral monopoly relations with suppliers it combines a bargaining model with a duopoly model to examine how input pri

an experimental study on emission trading behaviors of generation companies the overall performance of emission trading et a market based emission regulation tool strongly relies on participants participation and responses in order to improve market design it is important for policy makers to understand the participants trading behaviors in different market environments however human behaviors cannot be easily modeled with conventional analytical methods due to its bounded rationality characteristics in this paper based on the complementary features between experimental and agent based computational methods a hybrid interactive simulation methodology is proposed to solve human behaviors related problems human subjected experiment based on european union emissions trading system price data in 2006 is conducted the results show that there is no fixed emission trading interval for generation companies and the strategic behaviors of market participants are observed major driving factors of emission trading are categorized into emission price emission quantity and time related factors which are in accordance with empirical analysis results on eu ets 2005 2006 transaction dataset furthermore more human subjected experiments are conducted under different emission price scenarios to obtain samples for quantitative analysis based on thousands of samples obtained the joint influences of driving factors on emission trading behaviors are analyzed the quantitative analysis results obtained can reflect the trading patterns of human participants which provide basis for constructing computer agents that can act as useful substitutes for human participants

the exchange rate in a dynamic optimizing business cycle model with nominal rigidities a quantitative investigation this paper studies a quantitative dynamic optimizing business cycle model of a small open economy with staggered price and wage setting the model exhibits exchange rate overshooting in response to money supply shocks the predicted variability of the nominal and especially of the real exchange rate is noticeably higher than in standard real business cycle models with flexible prices and wages a positive domestic money supply shock is predicted to lower the domestic interest rate raise gdp and trigger a depreciation of both the nominal and real exchange rate increases in domestic productivity and in the world interest rate are also predicted to induce a nominal and real exchange rate depreciation 2001 elsevier science b v all rights reserved

explaining international comovements of output and asset returns the role of money and nominal rigidities abstract output and asset returns are highly positively correlated across the u s and the remaining major industrialized countries standard business cycle models that assume flexible prices and wages in the real business cycle rbc tradition have great difficulties explaining this fact this paper presents a dynamic optimizing stochastic general equilibrium model of a two country world with sticky nominal prices and wages the structure here generates cross country correlations of output and returns that are markedly higher and hence closer to the data than the cross country correlations that obtain when flexible prices and wages are assumed

a structural decomposition of the u s trade balance productivity demographics and fiscal policy abstract the us external deficits have been the most striking manifestation of global imbalances this paper investigates the contribution of productivity growth demographics and fiscal policy in accounting for the evolution of the us external imbalances against industrialized countries during the last three decades productivity growth plays a dominant role demographics explain a non negligible and nearly permanent component of the us trade deficit furthermore the international demographic transition is crucial for large us external imbalances to be consistent with the persistent decline of world real interest rates observed in the data fiscal policy is of minor importance

bargaining in stationary networks we study an infinite horizon game in which pairs of players con nected in a network are randomly matched to bargain players who reach agreement are replaced by new players at the same positions in the network we show that all equilibria are payoff equivalent the payoffs and the set of agreement links converge as players become patient several new concepts mutually estranged sets partners and shortage ratios provide insights into the relative strengths of the positions in the network we develop a procedure to deter mine the limit equilibrium payoffs for all players characterizations of equitable and nondiscriminatory networks are also obtained jel c78 d85 competitive equilibrium theory assumes large and anonymous markets in which every buyer can trade with every seller underlying these assumptions are standard goods and services that may be traded at low transaction costs by agents who are not in specific relationships with one another however in many markets goods and services are heterogeneous e g cars apartments or need to be tailored to particular needs e g manufacturing inputs technical support furthermore trad ing opportunities may depend on transportation costs social relationships infor mation advertising trust technological compatibility joint business opportunities free trade agreements etc in such cases it is natural to model the market using a network where only pairs of connected agents may engage in exchange new theories are needed to explore the influence of the network structure on market outcomes many questions arise how does an agent s position in the net work determine his bargaining power and the local prices he faces who trades with whom and on what terms when are prices uniform in the network one possible conjecture is that an agent s bargaining power is determined by his relative number of connections in the network however this simple theory is implausible consider the network of four sellers located at the top nodes and nine buyers located at the bottom nodes depicted in figure 1 assume that each seller supplies one unit of a homogeneous indivisible good each buyer demands one unit of the good and all buyers have identical values for the good the buyer located in the middle has the largest number of links in the network as he is connected to each

bilateral trading in networks in many markets goods flow from initial producers to final customers travelling through many layers of intermediaries and information is asymmetric we study a dynamic model of bargaining in networks that captures these features we show that the equilibrium price demanded over time is non monotonic but the sequence of transaction prices declines over time with the possible exception of the last period the price dynamic is therefore reminiscent of fire sales and hot potato trading traders who intermediate the object arise endogenously and make a positive profit the profit earning intermediaries are not necessarily traders with many connections for the case of multilayer networks they belong to the path that reaches the maximum number of potential buyers using the minimal number of intermediaries this is not necessarily the path of the network that maximizes the probability of consumption by traders who value the most the object i e welfare

partial carbon permits allocation of potential emission trading scheme in australian electricity market emission trading is widely considered to be the most effective policy to minimize the overall costs for co2 abatement however the political feasibility of an emission trading scheme may crucially depend on the free initial allocation of emission permits to carbon intensive industries in order to offset the reduction in profits this paper aims to analyze these potential profit impacts and the possible compensation to affected generation companies through modeling the australian national electricity market under a potential emission trading scheme historical emission based and historical generation based allocation approaches are used in this paper to calculate and compare the percentages of carbon permits that should be freely allocated two carbon permit price scenarios are used to analyze the sensitivity of the optimal percentage of free allocation to carbon permit price

liquidity risk in sequential trading networks abstract this paper studies a model of intermediated exchange with liquidity constrained traders intermediaries are embedded in a trading network and their financial capacities are private information we characterize our model s monotone pure strategy equilibrium agents earn positive intermediation rents in equilibrium an experimental investigation supports the model s baseline predictions concerning agents strategies price dynamics and the division of surplus while private financial constraints inject uncertainty into the trading environment our experiment suggests they are also a behavioral speed bump preventing traders from experiencing excessive losses due to overbidding

efficiency and stability of a financial architecture with too interconnected to fail institutions abstract the regulation of large interconnected financial institutions has become a key policy issue to improve financial stability regulators have proposed limiting banks size and interconnectedness i estimate a network based model of the over the counter interbank lending market in the us and quantify the efficiency stability implications of this policy trading efficiency decreases with limits on interconnectedness because the intermediation chains become longer while restricting the interconnectedness of banks improves stability the effect is non monotonic stability also improves with higher liquidity requirements when banks have access to liquidity during the crisis and when failed banks depositors maintain confidence in the banking system

middlemen in bilateral search markets this article examines the role of middlemen in bilateral search markets e g employment agencies real estate brokers it is shown that the middleman narrows the set of buyer firm and seller worker types who search seller types with high valuations and buyer types with low valuations drop out of the search market and instead trade through the middleman the middleman also decreases the equilibrium search intensities of those agents who search it is proven that the middleman improves welfare if search is very costly and inefficient and decreases welfare if search is effectively costless and very efficient

what drives the german current account and how does it affect other eu member states we estimate a three country model using 1995 2013 data for germany the rest of the euro area rea and the rest of the world row to analyse the determinants of germany s current account ca surplus after the launch of the euro our results suggest that the german surplus reflects a succession of distinct shocks mono causal explanations of the surplus are thus insufficient the most important factors driving the german surplus were positive shocks to the german saving rate and to row demand for german exports as well as german labour market reforms and other positive german aggregate supply shocks the key shocks that drove the rise in the german ca tended to worsen the rea trade balance but had a weak effect on rea real activity our analysis suggests these driving factors are likely to be slowly eroded leading to a very gradual reduction of the german ca surplus an expansion in german government consumption and investment would raise german gdp and reduce the ca surplus but the effects on the surplus would be weak

consumption real exchange rates and the structure of international asset markets abstract international real business cycle irbc models that assume complete asset markets yield strong restrictions for consumption and bilateral real exchange rate series empirical tests with data for the us japan france uk italy canada and sweden suggest that neither the trend behavior nor high frequency movements of consumption and real exchange rates are well explained by irbc models with complete markets it appears however that high frequency fluctuations of consumption and real exchange rates are consistent with unrestricted international trade in risk free bonds

understanding the dynamic effects of government spending on foreign trade abstract using vector autoregressions on u s time series the present paper documents the effects of fiscal policy on foreign trade an increase in government spending significantly depreciates the nominal exchange rate appreciates the terms of trade and increases net exports exposed to the same spending shock a new keynesian general equilibrium model is shown to match qualitatively the response of relative prices the response of net exports in contrast depends on the intra and intertemporal elasticities of substitution and the degree of home bias in private spending an accommodating monetary policy dampens but does not alter the response of net exports

trading networks with price setting agents abstract in a wide range of markets individual buyers and sellers trade through intermediaries who determine prices via strategic considerations typically not all buyers and sellers have access to the same intermediaries and they trade at correspondingly different prices that reflect their relative amounts of power in the market we model this phenomenon using a game in which buyers sellers and traders engage in trade on a graph that represents the access each buyer and seller has to the traders we show that the resulting game always has a subgame perfect nash equilibrium and that all equilibria lead to an efficient allocation of goods finally we analyze trader profits in terms of the graph structure roughly a trader can command a positive profit if and only if it has an essential connection in the network thus providing a graph theoretic basis for quantifying the amount of competition among traders

frictional intermediation in over the counter markets we extend duffie et al s 2005 search theoretic model of over the counter otc asset markets allowing for a decentralized inter dealer market with arbitrary heterogeneity in dealers valuations or equivalently inventory costs we develop a solution technique that makes the model fully tractable and allows us to derive in closed form theoretical formulas for key statistics analysed in empirical studies of the intermediation process in otc markets a calibration to the market for municipal bonds allows us to quantify important unobservable characteristics of this market including the severity of search and bargaining frictions and the nature of heterogeneity across dealers we use our calibrated model to study the effect of these market characteristics on total welfare and the distribution of gains from trade across customers and dealers

networks versus vertical integration we construct a theory to compare vertically integrated firms to networks of manufacturers and suppliers vertically integrated firms make their own specialized inputs in networks manufacturers procure specialized inputs from suppliers that in turn sell to several manufacturers the analysis shows that networks can yield greater social welfare when manufacturers experience large idiosyncratic demand shocks individual firms may also have the incentive to form networks despite the lack of long term contracts the analysis is supported by existing evidence and provides predictions as to the shape of different industries

on the international transmission of technology shocks abstract using vector autoregressions on u s time series and an aggregate of industrialized countries we find that technology shocks appreciate the terms of trade and lower the trade balance they induce an s shaped cross correlation function for both variables the s curve in calibrating a prototypical international business cycle model under complete and incomplete financial markets we find two distinct sets of parameter values while both model specifications deliver the s curve the underlying transmission mechanism of technology shocks is fundamentally different most importantly only in the incomplete markets economy the terms of trade appreciate and thus amplify the relative wealth effects of technology shocks as suggested by the evidence

multi item auctions a collection of items is to be distributed among several bidders and each bidder is to receive at most one item assuming that the bidders place some monetary value on each of the items it has been shown that there is a unique vector of equilibrium prices that is optimal in a suitable sense for the bidders in this paper we describe two dynamic auction mechanisms one achieves this equilibrium and the other approximates it to any desired degree of accuracy

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

twin deficit or twin divergence fiscal policy current account and real exchange rate in the u s abstract in spite of concerns about twin deficits fiscal and the current account deficits for the united states economy empirical evidence suggests that twin divergence is a more usual feature of the historical data i e when fiscal accounts worsen the current account improves and vice versa this paper empirically studies the effects of fiscal policy government budget deficit shocks on the current account and the real exchange rate during the flexible exchange rate regime period based on var vector auto regression models we identified exogenous fiscal policy shocks after controlling for business cycle effects on fiscal balances in contrast to the predictions of most theoretical models the u s results suggest that an expansionary fiscal policy shock or a government budget deficit shock improve the current account and depreciate the real exchange rate increases in private savings and declines in investment contribute to the current account improvement while a nominal exchange rate depreciation as opposed to a relative price level change is mainly responsible for the real exchange rate depreciation the twin divergence of fiscal balances and current account balances is also explained by the prevalence of output shocks i e output shocks more than fiscal shocks appear to drive the co movements of the current account and the fiscal balance

efficiency in decentralized oligopolistic markets the paper analyzes quantity competition in economies in which a network describes the set of feasible trades a model is presented in which the identity of buyers of sellers and of intermediaries is endogenously determined by the trade flows in the economy the analysis first considers small economies and provides sufficient conditions for equilibrium existence a characterization of prices and flows and some negative results relating welfare to network structure the second and central part of the analysis considers behavior in large markets and presents necessary and sufficient conditions on the network structure for equilibria to be approximately efficient when the number of players is large

from micro to macro via production networks amodern economy is an intricately linked web of specialized production units each relying on the flow of inputs from their suppliers to produce their own output which in turn is routed towards other downstream units in this essay i argue that the structure of this production network is key in determining whether and how microeconomic shocks affecting only a particular firm or technology along the chain propagate throughout the economy and shape aggregate outcomes therefore understanding the structure of this production network can better inform both academics on the origins of aggregate fluctuations and policy makers on how to prepare for and recover from adverse shocks that disrupt these production chains two recent events have brought to the forefront the importance of interconnections between firms and sectors in aggregate economic performance consider first the 2011 earthquake in japan while the triple tragedy of the earthquake the ensuing tsunami and the near nuclear meltdown at fukushima surely resulted in a significant destruction of human and physical capital its effects would have been largely restricted to the affected areas were it not for the disruption of national

twin deficits squaring theory evidence and common sense in this paper we reconsider the twin deficit hypothesis that fiscal shocks generating budget deficits also worsen external trade both from a theoretical point of view and by analyzing data for australia canada the uk and the us first we assess the joint dynamics of budget and trade deficits along the business cycle uncovering a strikingly recurrent s shaped relation between the two the correlation is actually negative suggesting twin divergence this observation however cannot rule out the possibility that government spending expansions and or tax cuts may cause trade deficits as the overall correlation is likely to be dominated by cyclical factors second we reconsider the transmission of government spending in a standard two country two good model we find that openness and the persistence of fiscal shocks are major determinants of the magnitude or even sign of the response of the trade balance to fiscal shocks for a given persistence of the fiscal shock the closer an economy the larger the crowding out effect on investment the lower the deterioration of the trade balance third we take this insight to the data investigating the transmission of fiscal shocks in a var framework in the four countries in our sample our empirical findings tend to support our view in the us and australia which are relatively less open than canada and the uk and where government spending shocks are less persistent we find that the external impact of fiscal policy is rather limited instead private investment responds substantially the reverse is true for canada and the uk these findings confirm and put into perspective earlier results whereas fiscal expansions in the us are found to have on average a negligible effect on the country s trade balance however we emphasize that these results are consistent with a call for a us fiscal retrenchment to address global imbalances the impact of budget cuts on the us external trade is muted by their positive effect on domestic investment strengthening the us ability to generate resources against future interest and debt repayment

productivity shocks stabilization policies and the dynamics of net foreign assets in this paper we investigate the role of macroeconomic stabilization policies for the international transmission of productivity shocks and their eects on the external sector we develop a two country stochastic dynamic new keynesian perpetual youth model of the business cycle with incomplete international nancial markets our olg structure implies stationary net foreign asset dynamics and allows for a thorough analysis of the interaction of monetary policy with non balanced budget scal policy we derive the dynamic and cyclical properties of scal decit feedback rules and their implications for net foreign assets dynamics our results imply that the degree of scal discipline i e the extent to which the scal rule responds to debt dynamics is crucial for the dynamics of net foreign assets we show that under a counter cyclical scal rule with low

semi parametric predictions of the intertemporal approach to the current account abstract this paper uses the method dynamic programming dp by gmm and canadian data to estimate a dynamic model of a small open economy dp by gmm has several appealing features it does not impose certainty equivalence it accommodates multiple shocks and imposes few restrictions on the properties of the shocks in the model also since it uses the actual shocks series to estimate approximate decision rules it produces sample paths for the endogenous variables in the model the model estimated fits the data well in particular the variance of the predicted trade balance output ratio matches its empirical counterpart