scarce collateral the term premium and quantitative easing abstract a model of money credit and banking is constructed in which the differential pledgeability of collateral and the scarcity of collateralizable wealth lead to a term premium an upward sloping nominal yield curve purchases of long maturity government debt by the central bank are always a good idea but for unconventional reasons a floor system is preferred to a channel system as a floor system permits welfare improving asset purchases by the central bank

the distribution of money and prices in search equilibrium this article considers a search theoretic model of monetary exchange agents bargain over both the amount of money and the quantity of goods to be exchanged in bilateral meetings determining endogenously the distributions of money and of prices i show that money is neutral if changes in the money supply are accomplished via proportional transfers however within the class of lump sum transfers an increase of the rate of monetary expansion tends to decrease the dispersion of wealth and prices and to improve welfare when inflation is low but when inflation is high enough the opposite effects occur

common agency and coordination general theory and application to government policy making we develop a model of common agency with complete information and general preferences with nontransferable utility and we prove that the principals nash equilibrium in truthful strategies implements an efficient action we apply this theory to the construction of a positive model of public finance where organized special interests can lobby the government for consumer and producer taxes or subsidies and targeted lump sum taxes or transfers the lobbies use only the nondistorting transfers in their noncooperative equilibrium but their intergroup competition for transfers turns into a prisoners dilemma in which the government captures all the gain that is potentially available to the parties

is protection for sale evidence on the grossman helpman theory of endogenous protection grossman and helpman 1994 present a theory of endogenous protection by explicitly modeling government industry interactions for which mere black box models previously existed they obtain a ramsey pricing type solution to the provision of protection which emphasizes the role of inverse import penetration ratios and import elasticities on the lobbying side the model makes predictions about lobbying competition and lobbying spending according to deadweight costs from protection the model not only makes for richer theory in terms of rigor and elegance but its predictions are directly testable whether the grossman helman model stands up to real world data is investigated in this paper predictions from both the protection side and lobbying side are tested using cross sectional u s nontariff barrier data we also compare the second generation grossman helpman model with a more traditional specification our results call for serious consideration of this model in the political economy literature

the political economy of opec abstract we develop a conceptual model that captures opec pricing behavior and apply it to explain the large gap observed between domestic fuel prices in opec countries and prices in the rest of the world we model opec as a cartel of nations not firms and assume that politicians use two instruments production quotas and domestic fuel consumption subsidies the cartel of nations model suggests that introduction of alternatives to petroleum products may lead opec to reduce exports and increase domestic fuel consumption the empirical analysis suggests that when opec sets production quotas it places similar weights on consumer and producer surplus but when opec countries set domestic fuel subsidies on average 6 more weight is given to consumer surplus with some of the opec countries pursuing very aggressive domestic cheap fuel policies

a bargaining theory of inefficient redistribution policies when two policies are available to achieve the same goal why is the relatively inefficient one often observed we address this question in the context of policies used to redistribute income towards special interest groups sigs in a two stage model in the first stage the set of constraints on policy instruments is chosen in the second stage the government and sigs bargain over the level of the available transfer policies restrictions on the use of efficient policies and the use of inefficient ones reduce the surplus over which sigs and governments can bargain there is however an offsetting effect not generally recognized in models of inefficient redistribution an improvement in the government s bargaining position which allows it to capture a larger share of the surplus we show that this positive effect for the government dominates under plausible conditions inefficient policies are the equilibrium outcome under alternative first stage mechanisms for policy selection such as the election of policymakers or in some cases bargaining between sigs and the government jel classification d7 f13 c70 h23

general equilibrium with nonconvexities and money in a general equilibrium economy with nonconvexities there are sunspot equilibria with good welfare properties sunspots can ameliorate the effects of the nonconvexities for these economies we show that agents act as if they have quasi linear utility functions we use this result to construct a new model of monetary exchange along the lines of lagos and wright where trade occurs in both centralized and decentralized markets but instead of quasi linear preferences we assume general preferences but with indivisible labor this suggests that modern monetary theory is more robust than one might have thought it also constitutes progress on the classic problem of integrating monetary economics and general equilibrium theory

banking a new monetarist approach we develop a model where i banks take deposits and make investments ii their liabilities facilitate third party transactions other models have i or ii not both although we argue they are intimately connected we show that they both emerge from limited commitment we describe an environment characterize desirable allocations and interpret the outcomes as banking arrangements banks are essential without them the set of feasible allocations is inferior as a technical contribution we characterize dynamically optimal credit allocations with frictions show they involve backloading and analyse how this interacts with banking we also confront the theory with economic history copyright 2013 oxford university press

on the future of macroeconomics a new monetarist perspective this article argues that a pressing goal for macroeconomics is to incorporate financial considerations but we need models with solid microfoundations in particular the use of assets in facilitating exchange as well as different credit or other financial arrangements should be outcomes of not inputs to theories as a preview i suggest that mainstream macro does a good job explaining many phenomena and a financial crisis does not disprove such theory but understanding crises requires better incorporating factors related to money credit banking and liquidity the approach called new monetarist economics can help a lot in this regard

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

commuting migration and local employment elasticities many changes in the economic environment are local including policy changes and infrastructure investments the effect of these changes depends crucially on the ability of factors to move in response therefore a key object of interest for policy evaluation and design is the elasticity of local employment to these changes in the economic environment we develop a quantitative general equilibrium model that incorporates spatial linkages between locations in goods markets trade and factor markets commuting and migration we find substantial heterogeneity across locations in local employment elasticities we show that this heterogeneity can be well explained with theoretically motivated measures of commuting flows without taking into account this dependence estimates of the local employment elasticity for one location are not generalizable to other locations we also find that commuting flows and their importance cannot be accounted for with standard measures of size or wages at the county or commuting zone levels

models as economies the distinction between actual economies and stylized general equilibrium models is no t sharp general equilibrium models with such key elements as uncerta inty spatial separation private information limited communication and limited commitment provide a catalogue that one can use to inter pret actual economies further a general equilibrium model can provi de a framework one can use to trace out the logic of some premise for joint economy wide phenomena a web to tie together seemingly unrel ated observations also in tolerating wide variations in environment s general equilibrium models provide laboratories one can use to con duct relatively inexpensive policy experiments copyright 1987 by royal economic society

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

sticky prices a new monetarist approach why do some sellers set nominal prices that apparently do not respond to changes in the aggregate price level in many models prices are sticky by assumption here it is a result we use search theory with two consequences prices are set in dollars since money is the medium of exchange and equilibrium implies a nondegenerate price distribution when the money supply increases some sellers may keep prices constant earning less per unit but making it up on volume so profit stays constant the calibrated model matches price change data well but in contrast to typical sticky price models money is neutral jel e52 e31 e42

banking panics and policy responses we study how banking panics unfold in av ersion of the diamond and dybvig 1983 model with limited commitment as is well known the banking authority could eliminate the possibility of a run on the banking system by committing to suspend payments to depositors if a run were to start once a run is under way however the banking authority will choose to reschedule rather than suspend payments we construct equilibria in which depositors run on the banking system with positive probability and we show that an equilibrium bank run in this setting is necessarily partial with only some depositors participating we also show that a run naturally occurs in waves with each wave of withdrawals prompting a further policy response from the banking authority the number of waves that occur in equilibrium is stochastic and can be arbitrarily large

liquidity redistribution and the welfare cost of inflation abstract the long run welfare costs of inflation are studied in a micro founded model with trading frictions and costly liquidity management by modelling the liquidity management decision the model endogenizes the responses of velocity output the degree of market segmentation and the distribution of money compared to the traditional estimates based on a representative agent model the welfare costs of inflation are significantly smaller due to distributional effects of inflation the welfare cost of increasing inflation from 0 to 10 is 0 62 of consumption for the us economy furthermore the welfare cost is generally non linear in the inflation rate

domestic demand for petroleum products in mena countries abstract the purpose of this paper is to analyse the domestic demand for petroleum products in the middle east and north african mena countries employing a recent data series 1982 2005 understanding the domestic demand of oil producing countries is important due to the existence of subsidised supply loss of foreign exchange income and the environmental effects of oil use the paper analyses the evolution of petroleum product demand in mena and presents an econometric analysis of demand using a simple log linear specification for four petroleum products namely gasoline diesel kerosene and fuel oil the study covers seven mena countries namely algeria iran kuwait libya saudi arabia uae and qatar the results show that demand has grown quite fast in these countries probably because the fuel price has been kept very low while income has risen fast and thus demand has grown fast the gasoline demand model has performed better than other models in terms of producing expected signs for the parameters the results for the kerosene model was the least satisfactory as most of the coefficients were found to be statistically insignificant however in terms of numerical results this study compares well with other similar studies of the past

a spatial perspective on european integration heterogeneous welfare and migration effects from the single market and the brexit we use a quantitative model to study the implications of european integration for welfare and net migration flows across 1 280 european regions the model suggests that an increase of trade barriers to the level of 1957 reduces welfare by about 5 8 on average depending on the presumed trade elasticity however remote regions may face initial welfare losses of up to 10 these heterogeneous welfare effects cause estimated net migration of 1 9 of the population to the european geographic center implying that the dismantling of trade barriers in europe has led to a more homogeneous spatial distribution of economic activity with regard to the brexit we find moderate welfare losses for the united kingdom of 1 05 in the most pessimistic scenario while continental europe s welfare declines by 0 41 jel f15 r12 r13 r23

commodity price stabilization in imperfect or cartelized markets most studies of commodity price stabilization assume that all agents behave competitively however many commodities suitable for stockpiling are produced by countries with a significant share of the world market and commodity agreements themselves often result in cartelization of the market the paper explores the consequences of market power for the choice of storage rule and the degree of price stabilization it finds that with linear demand dominant producers choose more stable prices than under perfect competition and price stability increases with their market share with constant elastic demand the competitive degree of price stabilization is achieved

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

determinants of the environmental kuznets curve considering economic activity sector diversification in the opec countries abstract sectors contribute differently to the total level of co2 emissions per capita since they are heterogeneous in terms of gdp structure this work investigates the environmental kuznets curve hypothesis considering a set of twelve of the fourteen opec countries it contributes to previous literature exploring the environmental kuznets curve relationship by analysing how economic activity sector diversification impacts the relationship between economic growth and carbon emissions addressing an important identified gap to address this gap annual data from 1992 to 2015 is used a panel cross section analysis is provided between countries and for the seven considered sectors is estimated through panel corrected standard errors and convergence estimations are presented conclusions point to the relocation of pollution intensive sectors to almost all of the opec countries for all countries a u shaped relationship is evidenced implying that economic growth in oil producing and exporting countries increases environmental degradation while energy consumption increases environmental damage trade openness seems to have a significant and negative effect over emissions leading to environmental improvements this study points out that opec countries will have increased challenges facing them in terms of environmental degradation and only a few economic activity sectors can conduct environmental improvements through growth the inclusion of oil prices increased coefficients magnitude probably these sectors are already allocating more labour and capital in projects and investments on renewable energy energy efficiency and energy savings substituting fossil fuels like oil

comparative advantage and the welfare impact of european integration this paper investigates the welfare gains from european trade integration and the role of comparative advantage in determining the magnitude of those gains we use a multi sector ricardian model implemented on 79 countries and compare welfare in the 2000s to a counterfactual scenario in which east european countries are closed to trade for west european countries the mean welfare gain from trade integration with eastern europe is 0 16 ranging from zero for portugal to 0 4 for austria for east european countries gains from trade are 9 23 at the mean ranging from 2 85 for russia to 20 for estonia for eastern europe comparative advantage is a key determinant of the variation in the welfare gains countries whose comparative advantage is most similar to western europe tend to gain less while countries with technology most different from western europe gain the most andrei a levchenko and jing zhang

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

the shadow economy as an equilibrium outcome abstract we construct a dynamic general equilibrium model of tax evasion where agents choose to report some of their income unreported income requires using a payment method that avoids recordkeeping in some markets cash trade using cash to avoid taxes is the shadow economy in our model we then calibrate our model using money interest rate and gdp data to back out the size of the shadow economy for a sample of countries and compare our measures to traditional reduced form estimates

the mismatch between local voting and the local economic consequences of brexit abstractthe mismatch between local voting and the local economic consequences of brexit regional studies this paper reveals that in the 2016 uk referendum regarding whether to remain in or leave the european union the regions that voted strongly for leave tended also to be those same regions with greatest levels of dependency on european union markets for their local economic development this observation flies in the face of pro leave narratives that posited that the major beneficiaries of european union membership were the metropolitan elites of london economic geography dominated the observed voting patterns and geography will also certainly dominate the post brexit economic impacts but not necessarily in a way that voters anticipated or wished for

the erosion of colonial trade linkages after independence high trade between countries with colonial ties may be explained by government policies that establish preferential access or as a consequence of networks formed through social interactions using bilateral trade data from 1948 to 2003 we examine the eect of independence on post colonial trade the severing of formal colonial relations can lead to an immediate reduction in trade as preferential access is eliminated as well as a gradual reduction corresponding to the deterioration of trading networks our results reveal that independence reduces colonial trade with its colonizer metropole the reduction cumulates over a 30 year period and the disruption is particularly severe for hostile separations we also find that overall colonial trade falls subsequent to independence but to a lesser extent than trade with the metropole

short and long run elasticities of gasoline demand in india an empirical analysis using cointegration techniques abstract in developing countries like india consumption of petroleum products has implications on its balance of payments economic growth and fiscal deficit gasoline is one of the prime petroleum products in this paper the relationship between gasoline demand national income and price of gasoline is empirically examined using cointegration and error correction techniques the time frame of the analysis is from 1972 1973 to 1993 1994 it has been found that gasoline demand is likely to increase significantly for a given increase in the gross domestic product the increase will be larger in the long run 2 682 than in the short run 1 178 gasoline demand is relatively inelastic to price changes both in the long and short terms the error correction model has shown that gasoline demand adjusts to their respective long run equilibrium at a relatively slow rate with about 28 of adjustment taking place in the first year

trade wars and trade talks when governments meet in the international arena their actions reflect the political situations at home previous studies of trade relations have focused on governments that are immune from political pressures and that act as benevolent servants of the public interest here we introduce domestic politics into the analysis of international economic relations we study the interactions between national leaders who are concerned both with providing a high standard of living to the general electorate and collecting campaign contributions from special interest groups our analysis sheds light on the determinants of the structure of protection in non cooperative and cooperative policy equilibria

on money as a medium of exchange we analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo nash equilibria in trading strategies are characterized certain goods emerge endogenously as media of exchange or commodity money depending both on their intrinsic properties and on extrinsic beliefs there are also equilibria with genuine fiat currency circulating as the general medium of exchange we find that equilibria are not generally pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare velocity acceptability and liquidity are discussed

leakage welfare and cost effectiveness of carbon policy policymakers fear that a unilateral carbon policy will reduce competitiveness increase imports and lead to higher carbon emissions elsewhere leakage in fullerton karney and baylis 2012 we show that it may actually reduce emissions in other sectors negative leakage but reducing emissions in both sectors may merely reflect welfare costs of carbon policy that reduce real income and thus reduce consumption of both outputs these possibilities capture the concern that unilateral carbon policy might have a high cost per global unit of carbon abated that is low cost effectiveness based on harberger 1962 the two input two output analytical general equilibrium model of fullerton karney and baylis 2012 could represent two countries or two sectors of a closed economy each sector has some initial carbon tax or price and the paper solves for the effect of a small increase in one sector s carbon tax on the quantity of emissions in each sector but it does not solve for welfare effects here we use the same model but derive expressions for the costeffectiveness of a unilateral carbon tax the welfare cost per ton of emission reduction we show that higher leakage does not always mean lower welfare if one sector is already taxed at a higher rate then an increase in the other sector s tax might reduce deadweight loss from preexisting misallocations thus abatement can have negative cost the welfare cost most directly depends on the relative levels of tax in the two sectors we show that negative leakage always corresponds to a negative income effect but negative income

brown backstops versus the green paradox abstract anticipated climate policies are ineffective when fossil fuel owners respond by shifting supply intertemporally the green paradox this mechanism relies crucially on the exhaustibility of fossil fuels we analyze the effect of anticipated climate policies on emissions in a simple model with two fossil fuels one scarce and dirty e g oil the other abundant and dirtier e g coal we derive conditions for a green orthodox anticipated climate policies may reduce current emissions the model can also be used to analyze spatial carbon leakage calibrations suggest that intertemporal carbon leakage from 0 to 8 is a relatively minor concern

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

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

liquidity monetary policy and the financial crisis a new monetarist approach a model of public and private liquidity integrates financial intermediation theory with a new monetarist monetary framework nonpassive fiscal policy and costs of operating a currency system imply that an optimal policy deviates from the friedman rule a liquidity trap can exist in equilibrium away from the friedman rule and there exists a permanent nonneutrality of money driven by an illiquidity effect financial frictions can produce a financial crisis phenomenon that can be mitigated by conventional open market operations working in an unconventional manner private asset purchases by the central bank are either irrelevant or they reallocate credit and redistribute income jel e13 e44 e52 e62 g01 liquidity is a class of assets that is useful in exchange some of these liquid assets are government liabilities federal reserve notes treasury bills and treasury notes some are private liabilities the deposit liabilities of banks and some asset backed securities for example conventional wisdom holds that the main role of a central bank is to manage public liquidity in a manner that controls inflation and enhances the provision of private liquidity and credit however the mechanism by which central bank actions work to perform this role still appears to be poorly understood as has been highlighted by the financial crisis and the ensuing policy responses the purpose of this paper is to build a model of public and private liquidity that captures the features of modern economies essential to the analysis of monetary policy and that can be used to shed light on some current monetary policy problems and questions what is a liquid asset and what roles do privately provided and publicly provided liquid assets play in exchange in a model where we capture these roles for liquid assets what are the implications for monetary policy under what circumstances can a liquidity trap occur how does monetary policy work when there is a positive quantity of excess reserves held by banks what does a financial crisis do to the supply of private liquidity and what should monetary policy do in response

climate change policy market structure and carbon leakage abstract the 1997 kyoto protocol on climate change obliges the industrialized countries to initiate the international effort of abating anthropogenic greenhouse gas ghg emissions if such an initiative is to be taken the associated competitive effects may lead to significant relocation of developed countries energy intensive production this paper examines this issue i adopt an oligopolistic structure combined with increasing returns to scale production technologies to represent the strategic interaction among the firms producing energy intensive products this representation is then embedded within a multi regional computable general equilibrium model which in turn is used for quantifying these relocational effects the results suggest that significant relocation of energy intensive industries away from the oecd may occur depending on the type of market structure with leakage rates as high as 130 in which case ghg control policies in the industrialized countries actually lead to higher global emissions

tear down this wall on the persistence of borders in trade why do borders still matter for economic activity the reunification of germany in 1990 provides a unique natural experiment for examining the effect of political borders on trade both in the cross section and over time with the fall of the berlin wall and the rapid formation of a political and economic union strong and strictly enforced administrative barriers to trade between east germany and west germany were eliminated completely within a very short period of time the evolution of intra german trade flows after reunification then provides new insights for both the globalization and border effects literatures our estimation results show a remarkable persistence in intra german trade patterns along the former east west border political integration is not rapidly followed by economic integration instead we estimate that it takes at least one generation between 33 and 40 years or more to remove the impact of political borders on trade this finding strongly suggests that border effects are neither statistical artefacts nor mainly driven by administrative or red tape barriers to trade but arise from economic fundamentals

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

uncertainty inflation and welfare this paper studies the welfare costs and the redistributive effects of inflation in the presence of idiosyncratic liquidity risk in a microfounded search theoretical monetary model we calibrate the model to match the empirical aggregate money demand and the distribution of money holdings across households and study the effects of inflation under the implied degree of market incompleteness we show that in the presence of imperfect insurance the estimated long run welfare costs of inflation are on average 40 to 55 smaller compared to a complete markets representative agent economy and that inflation induces important redistributive effects across households

a dynamic network analysis of the world oil market analysis of opec and non opec members abstract we characterize the dynamic network structure of major oil producing countries we examine the oil production coordination of 13 organization of the petroleum exporting countries opec and 17 non opec members we construct the dynamic network structure using the network connectedness measure of diebold and yilmaz 2009 we investigate the structural changes in connectedness of opec and non opec members additionally we study how the influence of opec members non opec countries and major oil producers evolve we find that the network structure of major oil producing countries changes significantly over time specifically the impact of changes in oil production of all opec members on global oil production declines whereas the impact of non opec on global oil production increases opec s increase decisions have a significant and positive impact on opec and non opec coordination however cut decisions do not affect coordination we find that opec countries and developing countries have significantly higher levels of connectedness additionally countries with high oil production levels have significantly more influence the empirical results provide intuition about the recent developments in global oil production

new evidence on asymmetric gasoline price responses in a 1997 paper borenstein cameron and gilbert bcg claim that gasoline prices rise quickly following an increase in the price of crude oil but fall slowly following a decrease this note estimates an error correction model with daily spot gasoline and crude oil price data over the period 1985 1998 and finds no evidence of asymmetry in wholesale gasoline prices the sources of the difference in results are twofold first we use the standard engle granger two step estimation procedure whereas bcg used a nonstandard estimation methodology second even using bcg s nonstandard specification the use of daily rather than weekly data yields little evidence of price asymmetry

opec and demand response to crude oil prices abstract this paper investigates demand response to crude oil price movements before and after the recent global financial and economic crisis it employs several market power indices to structurally estimate price elasticities a newly developed market power index for crude oil markets is implemented in this approach opec is the central player and acts as a dominant producer in the global oil market we quantify how a change in market structure such as changes in marginal cost of production would contribute to market power exercise of opec and have an ultimate impact on price elasticity of demand for oil our price elasticity predictions fall in a range reported in the literature however estimates for pre crisis deviate from the post crisis ones in fact demand response to crude oil prices has almost doubled during the crisis this severe change in price response can be associated with record price levels caused by supply shortages and surge in alternative renewable energy resources the key advantages of this methodology over the existing literature are that it is simple to use and estimates price elasticity using a competition framework without specifying demand supply function s and utilizes commonly observable market variables that can be applied to any admissible data frequency

determinants of opec production implications for opec behavior we estimate models that identify the economic and organizational determinants of crude oil production by individual opec nations to clarify the interpretation of econometric results we model production with specifications that resolve the statistical ordering of variables and estimate models with techniques that can cope with stochastic trends in the time series we also analyze the short run dynamics for asymmetries that may carry important insights about opec behavior results indicate that quotas are an important determinant of production and their effects generally are symmetric which implies that opec is an organization that influences production and ultimately prices real prices generally have a positive effect on production and the size of this effect may depend on spare capacity which implies that opec behaviors also embody competitive elements finally all nations other than saudi arabia show some form of production sharing behavior which may imply that opec shares mismatches between the call for opec production and opec quotas

a contribution to the pure theory of money abstract this article analyzes a general equilibrium model with search frictions and differentiated commodities because of the many differentiated commodities barter is difficult in that it requires a double coincidence of wants and this provides a medium of exchange role for fiat currency we prove the existence of equilibrium with valued fiat money and show it is robust to certain changes in the environment rate of return dominance liquidity and the welfare implications of fiat money are discussed

the effect of the discount rate on depletion of exhaustible resources this paper argues that despite its widespread acceptance in the literature the basic proposition that a reduction an increase in the discount rate leads to greater conservation faster depletion of an exhaustible resource is not generally valid it shows that the effect of the discount rate on the rate of resource depletion depends on capital requirements for production of the substitute and extraction of the resource and on the size of the resource stock in fact it shows that there always exist at least two ranges of the resource stock size for which the effect is opposite to that conventionally believed

the time path of scarcity rent in the theory of exhaustible resources there is now a consensus in the literature on resource economics that a depletable resource should command a price in excess of its marginal extraction cost simply to reflect the opportunity cost of using a unit of it today rather that conserving it for the future but how this excess is to change along an optimal or competitive equilibrium path of resource use is still an unresolved question this might at first seem puzzling since according to the fundamental theorem of economics of exhaustible resources or hotelling i 93 i rule on an optimal path price minus marginal extraction cost also termed interchangeably as scarcity rent user cost or royalty should steadily grow over time at the social rate of discount however the literature contains sharply contrasting views on the subject for example kay and mirrlees 1975 have argued that since along an optimal path the scarcity rent grows exponentially as a finite stock of a resourcexnears exhaustion then situations in which the resource stock is still very large and yet the price greatly exceeds the marginal extraction cost should indicate that the price is significantly above its optimal level and that the resource is overconserved in stark contrast to this view heal i976 has argued that as the resource stock nears exhaustion the difference between price and marginal cost or what he termed social cost of extraction falls monotonically to zero hanson i980 analyses the same model as heal s but unlike heal who assumes the unit extraction cost to be convex he postulates it to be concave and yet like heal concludes that the scarcity rent will be monotonically declining over time solow and wan i976 analyse a still different situation where resource deposits differ in quality and the unit extraction cost increases as higher grade deposits are exhausted and extraction proceeds to lower grades they show that along an optimal path the shadow price of a resource must rise at the real rate of interest despite differential extraction costs but that the difference between price and the marginal extraction cost or what they call degradation charge declines monotonically over time to zero these sharply differing conclusions suggest that far from being resolved the question of how scarcity rent changes over time is much in want of a close scrutiny the need for such a scrutiny becomes even stronger once it is noted

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

fossil fuel reform in developing states the case of trinidad and tobago a petroleum producing small island developing state abstract trinidad and tobago is an oil exporting small island developing state sids with a 0 12 contribution to global emissions and with important socio economic challenges it has producer electricity and transport fuel subsidies it is at an interesting juncture in subsidy reform the government faces the embeddedness of distributive justice norms that are contested by fiscal prudence and environmental stewardship norms the value of the paper is twofold first it develops a subsidy intractability framework to explain reform global narratives that highlights the power of agents the nature of contested economic justice and environmental norms and the availability of mechanisms for reform second this framework is used to explain reform narratives and trajectories in trinidad and tobago using data from public documents and from a unique elite survey of former and present heads of state politicians policy makers and stakeholders even in conditions of falling oil prices and national revenue and pressures to reduce emissions where redistributive justice arguments are heavily embedded in public discourses those aspects of the subsidy that have developmental or distributive justice goals are more intractable the results of the study have implications for carbon emission reduction strategies in developing states with fossil fuel reserves

measuring global gasoline and diesel price and income elasticities abstract price and income elasticities of transport fuel demand have numerous applications they help forecast increases in fuel consumption as countries get richer they help develop appropriate tax policies to curtail consumption help determine how the transport fuel mix might evolve and show the price response to a fuel disruption given their usefulness it is understandable why hundreds of studies have focused on measuring such elasticities for gasoline and diesel fuel consumption in this paper i focus my attention on price and income elasticities in the existing studies to see what can be learned from them i summarize the elasticities from these historical studies i use statistical analysis to investigate whether income and price elasticities seem to be constant across countries with different incomes and prices although income and price elasticities for gasoline and diesel fuel are not found to be the same at high and low incomes and at high and low prices patterns emerge that allow me to develop suggested price and income elasticities for gasoline and diesel demand for over one hundred countries i adjust these elasticities for recent fuel mix policies and suggest an agenda of future research topics

money is memory abstract this paper examines the sets of feasible allocations in a large class of economic environments in which commitment is impossible following myerson 8 the standard definition of feasibility is adapted to take account of the lack of commitment the environments feature either memory or money memory is defined as knowledge on the part of an agent of the full histories of all agents with whom he has had direct or indirect contact in the past money is defined as an object that does not enter utility or production functions and is available in fixed supply the main proposition is that any allocation that is feasible in an environment with money is also feasible in the same environment with memory depending on the environment the converse may or may not be true hence from a technological point of view money is equivalent to a primitive form of memory journal of economic literature classification numbers e40 c73 d82

a test of the hotelling valuation principle time series tests of the hotelling r percent rule for natural resource prices have not been strongly supportive but the tests and the data are subject to serious difficulties we propose here an alternative testing strategy based on another but less widely known implication of the hotelling model we test this implication which we call the hotelling valuation principle by regressing the market values of the reserves of a sample of u s domestic oiland gas producing companies on their estimated hotelling values we find that the estimated hotelling values account for a significant portion of the observed variations in market values and that the hotelling measures are better indicators of the market values of petroleum properties than two widely cited publicly available alternative appraisals

opec s optimal crude oil price abstract in march 2000 opec decided to stabilise oil prices within a range of 22 28 us dollar barrel of crude oil such an oil price level is far beyond the short and long run marginal costs of oil production beyond even that in regions with particularly high costs nevertheless opec may achieve its goal if world demand for oil increases substantially in the future and oil resources outside the opec are not big enough to accordingly increase production in this case opec which controls about 78 of world oil reserves has to supply a large share of that demand increase if we assume opec will behave as a partial monopolist on the oil market which takes into consideration the reaction of the other producers to its own sales strategy it can reach its price target lower prices before 2020 are probable only if the opec cartel breaks up higher prices are possible if production outside opec is inelastic as assumed by some geologists but they would probably stimulate the production of unconventional oil based on oil sand or coal crude oil prices above 30 us dollar barrel are therefore probably not sustainable for a long period

money search and business cycles monetary models that specify explicit frictions to generate money demand have been developed over the last 20 years and have been used to address many questions in this article i investigate the short run properties of a particular model considering a number of versions based on some modeling choices all versions feature flexible prices i find that in many aspects both real and nominal the model resembles other more reduced form models some variations of the model come closer to matching some key nominal facts than a reduced form model the model also generates counter cyclical markups in line with the data

oil at risk political violence and accelerated carbon extraction in the middle east and north africa abstract what effect does the threat of expropriation have on resource extraction much of the economic literature suggests that uncertainty reduces investment but the theory of risk induced extraction suggests the opposite in this paper we test this theory in the context of political violence which poses a real threat of state destabilization and violent expropriation of property rights facing this uncertainty we find that oil producers in the middle east and north africa increase oil production in response to political violence this finding has important negative consequences for the world in terms of climate change and demonstrates a previously untested mechanism through which exhaustible resource supply is flooding the market

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

wage differentials employer size and unemployment the unique equilibrium solution to a game in which a continuum of individual employers choose permanent wage offers and a continuum of workers search by sequentially sampling from the set of offers is characterized wage dispersion is a robust outcome provided that workers search while employed as well as when unemployed the unique nondegenerate equilibrium distribution of wage offers is constructed for three cases 1 identical workers and employers 2 identical employers and an atomless distribution of worker supply prices and 3 identical workers and an atomless distribution of job productivities copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association