a unified bilevel programming framework for price based market clearing under marginal pricing market clearing in restructured power systems is mostly implemented through an offer based setting with the goal of maximizing social welfare this approach leads to sound results from an economic viewpoint when generation offers reflect true production costs however offers may significantly differ from actual costs in practice thus yielding undesired distortion under a marginal pricing scheme this paper presents a general bilevel programming framework for alternative market clearing procedures dependent on market clearing prices rather than on offers the resulting nonlinear mixed integer bilevel programming formulation is transformed into an equivalent single level mixed integer linear program suitable for efficient off the shelf software the bilevel formulation is investigated through a particular instance of price based market clearing driven by consumer payment minimization this problem has recently received considerable attention due to the open challenges posed from both modeling and computational perspectives numerical results are provided to illustrate the performance of the proposed approach

is the price level tied to the m2 monetary aggregate in the long run a long run link between money and prices is evident for the united states since the korean war if the m2 measure of money is used and the velocity of m2 v2 is modeled as a mean reverting series this link between m2 and prices is the basis for a dynamic model of inflation that compares favorably in forecasting exercises with phillips curve and more typical monetarist approaches the behavior of v2 is examined from 1870 to the present providing a basis for reconsidering previous findings that v2 follows a random walk copyright 1991 by american economic association

re examining the buffer stock model of money this paper critically examines recent papers in the buffer stock or supply side disequilibrium models of money the paper first investigates the assumptions at the m icroeconomic level and concludes that even with these assumptions aggregate behavior does not necessarily follow buffer stock models in which excess cash balances are held involuntarily in a simple model with uncertain cash flows it is shown that in the aggregate short run involuntary cash holdings are negligible if the buffer stock story is applicable it is to a broader definition of money than used in most empirical work the second part of the paper examines empirical work and argues that the buffer stock idea cannot be implemented using single equation techniques and that when viewed appropriately current empirical result s refute the buffer stock idea as it is currently modeled copyright 1987 by royal economic society

the changing empirical definition of money some estimates from a model of the demand for money substitutes interest bearing checkable deposits are examined to test whether they should be included in measures of the u s money stock both divisia and traditional simple sum aggregates are constructed on the basis of tests for weak separability in a model of the demand for financial assets using nonparametric demand analysis we find that several groups of assets are compatible with aggregation theory we find empirical support for a narrow measure consisting of the components of current mia in tests based on a st louis equation and in terms of controllability a divisia aggregate performs better than the simple sum mia measure

the empirical relationship between money prices and income revisited this article investigates the relationship between sum divisia and monetary velocity money prices and income using the notion of granger 1969 causality this is achieved by evaluating empirically using dickey fuller unit root tests whether the macroeconomic time series under consideration are trend stationary or difference stationary and by conducting tests using three different ad hoc lag lengths 8 6 and 4 quarters as well as a statistically determined using akaike s 1969a b final prediction error criterion lag structure

thermal plant bids and market clearing in an electricity pool minimization of costs vs minimization of consumer payments the spanish wholesale electricity market started on january 1st 1998 though it is based on simple price quantity bids it incorporates some provisions to take thermal plant running requirements into account this paper presents these rules and its mathematical treatment focusing on a possible implementation of the minimum income condition which allows thermal generators to declare minimum stable loads it also shows another key point in the debate whether the algorithm should minimize costs or consumer payments

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

optimization based approach for price multiplicity in network constrained electricity markets this paper addresses the problem of price multiplicity in network constrained pool based electricity markets under marginal pricing this problem consists in the existence of multiple vectors of locational marginal prices for the same optimal market clearing dispatch solution as a consequence delicate conflicts of interest may arise among market participants price multiplicity may take place even in auction designs based on convex formulations for the market clearing procedure an effective duality based solution approach is proposed in this paper to handle the issue of price multiplicity once the optimal market clearing dispatch is known we propose the subsequent solution of a simple pricing problem in order to determine the vector of locational marginal prices unlike previously reported methodologies the proposed approach presents two salient features 1 it is based on sound mathematical programming and 2 it is computationally inexpensive since it relies on the solution of a linear program numerical results are provided to illustrate the performance of the proposed tool

measurement matters recent results from monetary economics reexamined inferences about the effects of money on economic activity may depend importantly on the choice of a monetary index because simple sum aggregates cannot internalize pure substitution effects this hypothesis is investigated by replicating five recent studies that have challenged an aspect of the conventional wisdom about the effects of money on aggregate activity in four of the five cases the qualitative inference in the original study is reversed when a simple sum monetary aggregate is replaced by a divisia index of the same asset collection the results are mixed in the fifth case

on the solution of revenue and network constrained day ahead market clearing under marginal pricing part ii case studies this paper presents the numerical analysis of the bilevel programming approach for revenue and network constrained market clearing developed in its companion paper the impact of minimum revenue conditions and minimum declared profits on generation and consumption levels as well as on locational marginal prices for energy is examined in detail through three case studies first the results from an illustrative example including minimum revenue conditions are comprehensively analyzed the second case study is based on the ieee reliability test system and considers minimum declared profits in the third case study a modified version of the ieee 118 bus system is tested while accounting for minimum revenue conditions in addition the computational behavior of the proposed approach is illustrated with several case studies including the ieee 300 bus system numerical results show the effectiveness of the proposed approach to handle revenue constraints as well as its superiority over the heuristic currently implemented in the iberian electricity market moreover simulations reveal that unlike previous works in the literature generation revenue constraints can be precisely incorporated in day ahead market clearing while explicitly considering the standard economic dispatch based marginal pricing scheme and without requiring price uplifts

reserve requirements to efficiently manage intra zonal congestion the security constrained unit commitment problem schedules power generators to minimize cost subject to operating constraints reserve requirements ensure that reserve is available to re balance the system following a contingency but do not guarantee reliability in congested systems where reserve activation is limited by transmission constraints operators improve reserve deliverability by limiting power flows and controlling the location of reserves zones are used to address inter zonal congestion but operators lack efficient ways to handle intra zonal congestion we propose dynamically relating minimum reserve levels to transmission stress in a computationally efficient approach that complements existing reserve models from the literature analysis on the ieee rts 96 test case demonstrates the approach can mitigate intra zonal congestion more economically than traditional reserve policies

an admissible monetary aggregate for the united kingdom this paper evaluates the performance of a monetary aggregate that is constructed from principles of economic and index number theory results from tests for weak separability indicate that wholesale deposits should not be aggregated with other u k financial assets they currently are included however in broad monetary aggregates published by the bank of england financial asset groupings passing the weak separability tests then were aggregated using both simple sum and divisia weights in each case the divisia aggregates were more closely related to the growth of nominal gdp and had stable demand for money functions copyright 1991 by mit press

neoclassical consumer demand theory and the demand for money m friedman 1956 suggests that the demand for money should be analyzed in terms of consumer demand theory although often the interpretation of empirical results from studies using aggregate data appears to be in terms of the motives approach i e transactions precautionary and speculative motives the authors develop friedman s ideas within an explicit model of consumer theory and find that they provide a consistent framework for analyzing portfolio choice and offer greater insights into results from aggregate studies of the demand for money than the motives approach in particular the authors provide a new interpretation of the role of nominal interest rates inflation and a hicksian measure of wealth in the demand for money function copyright 1991 by royal economic society

revenue adequate bidding strategies in competitive electricity markets energy trading in a competitive electricity market can be modeled as a two level optimization at the top level a centralized economic dispatch ced uses a priority list method to solve the fundamental problem of reliable market clearing with price discovery the lower level consists of a set of decentralized bidding db subproblems the db model uses a self unit scheduling simulator based on parametric dynamic programming to produce hourly bid curves for the central dispatch coordinator unit operating constraints and costs such as the unit minimum up and minimum down times ramp rates and the unit start up no load and sunk capital costs are internalized in the bid curves through the simulator a special algorithm is presented to solve the revenue adequacy problem for marginal units both ced and db models are based on the revenue maximization in contrast with the cost minimization criteria used in the conventional unit commitment uc the proposed method has been tested in a study case and some interesting results have been demonstrated

which road leads to stable money demand this paper denies that the demand for money function is any more unstable than other demand functions and maintains that the controversies regarding unstable money demand are produce by poor methodology that is not shared by other areas of the field of economics when investigating demand function properties this abstract was borrowed from another version of this item

notes on the microfoundations of monetary economics it is important to keep two closely related distinctions in mind when discussing the microeconomics of money that between the social arrangement known as monetary exchange and those assets known as money and that between what patinkin 1957 called the market experiment and individual experiment this abstract was borrowed from another version of this item

a dynamic baumol tobin model of money demand this note considers a stochastic version of the baumol tobin model of the demand for money a dynamic demand function is derived for the case in which independent variables change to new steady state values the s s inventory policy is shown to give rise to an aggregate partial adjustment equation with a variable adjustment speed the methodology is that introduced to target threshold models by milbourne buckholtz and wasan 1983 in their study of the miller orr model

shirking or work morale abstract standard economics assumes that rational agents shirk and that they have to be disciplined by monitoring and regulating however under specific circumstances regulating systematically worsens workers morale and thereby negatively affects their behavior when a principal attributes a lower work morale to the agents than they actually have an implicit contract is unilaterally violated and agents reduce their excess morale this reaction is theoretically and empirically well supported by the notions of reciprocity and of overjustification the theoretical propositions are applied to a specific employment relationship but hold more generally they are consistent with empirical observations

the determinants of manufacturing inventories in the uk the authors examine the determinants of inventory holding by the u k manufacturing sector over the period 1968 89 they find that inventory levels respond positively to output and its conditional variance and negatively to the level of gearing tehnological innovation in the form of computerized inventory control leads to a fall in the stock output ratio epirical results for inventories are examined in a cointegration and a general to specific error correction model with conditional variances estimated using an arch framework a backward looking error correction model is found to outperform a forward looking model although the latter also provides a reasonable fit to the data copyright 1993 by royal economic society

toward an economic model of the japanese firm i owe a great deal to professor moses abramovitz who suggested that i write this article i appreciate his constant encouragement and guidance which aided me throughout its preparation i am also indebted to three anonymous referees of the journal and to professors ryutaro komiya and michael riordan for their critical comments and helpful suggestions needless to say i am solely responsible for the views expressed in this paper

modeling the demand for narrow money in the united kingdom and the united states abstract despite the importance of well specified empirical money demand functions for inference forecasting and policy problems in modeling have arisen concerning the economic theories of money demand the data institutional frameworks financial innovation and econometric implementation by developing constant data coherent m 1 demand equations for the u k and the u s we investigate these issues and explain such puzzles as missing money the great velocity decline and the recent explosion in m 1 the endogeneity of money the lucas critique and the non invertibility of our m 1 models are also discussed

production cost minimization versus consumer payment minimization in electricity pools algorithms that involve some kind of optimization have been adopted by several electricity pools as a tool to clear the market traditionally this kind of models were used on a cost minimizing basis but recent papers have pointed out that alternative dispatches may be obtained that even with higher production costs result in lower electricity prices for consumers this paper studies this new payment minimization approach including the long term economic signals that it provides and their impact on future investments the authors results show that minimizing consumer payment results in discriminatory scheduling for certain generation resources and may cause in the long run higher prices for consumers

the stability of the m2 demand function evidence from an error correction model this note presents an error correction model of m2 demand the chow test indicates that the m2 demand function is stable over the sample period 1953q1 to 1991q2 copyright 1993 by ohio state university press

optimal transmission switching sensitivity analysis and extensions in this paper we continue to analyze optimal dispatch of generation and transmission topology to meet load as a mixed integer program mip with binary variables representing the state of the transmission element line or transformer previous research showed a 25 savings by dispatching the ieee 118 bus test case this paper is an extension of that work it presents how changing the topology affects nodal prices load payment generation revenues cost and rents congestion rents and flowgate prices results indicate that changing the topology to cut costs typically results in lower load payments and higher generation rents for this network computational issues are also discussed

non parametric tests of consumer behaviour the neoclassical model of consumer behaviour postulates that a consumer s choice behaviour can be described as deriving from utility maximization subject to a budget constraint one is then naturally led to ask what this model implies about observed behaviour this question has been addressed from two quite distinct approaches the first approach originating in the work of slutsky 1915 and antonelli 1886 derives necessary and sufficient conditions involving the derivatives of the demand functions the second approach originating in the work of samuelson 1938 1947 1948 derives algebraic conditions on the demand functions implied by maximizing behaviour

monetary economic myth and econometric reality few of the main macro economic forecasting systems can produce sensible forecasts without the tender loving care of their proprietors many econometric equations in com mon use show significant deterioration in the accuracy with which they characterise data as time passes and many economists are sceptical about empirical evidence feeling it lacks credibility monetary relationships have the dubious distinction of being among the leaders in this field as witnessed by the very large mispredictions of m1 models in the usa over what is now known as the missing money period 1973 76 as well as during the recent great velocity decline 1979 82 in the uk models of m1 and m3 demand experienced large structural breaks following the competition and credit control regu lation changes and the move to floating exchange rates perhaps it is no surprise that goodhart s law should have been formulated with respect to money demand equations

the demand for m1 in the u s a 1960 1988 estimated u s m1 demand functions appear unstable regularly breaking down over 1960 1988 e g missing money great velocity decline m1 explosion we propose a money demand function whose arguments include inflation real income long term bond yield and risk t bill interest rates and learning curve weighted yields on newly introduced instruments in m1 and non transactions m2 the model is estimated in dynamic error correction form it is constant and with an equation standard error of 0 4 variance dominates most previous models estimating alternative specifications explains earlier breakdowns showing the model s distinctive features to be important in accounting for the data

coordination in markets with nonconvexities as a mathematical program with equilibrium constraints part ii case studies this paper is the second of a two paper series it is concerned with the numerical study of the solution procedure derived in to solve the coordination problem that arises in a new equilibrium model which for the purpose of this presentation applies to a static no time coupling costs or constraints electricity pool market with price inelastic demand and no network the new equilibrium model has the following main properties i every scheduled generator satisfies its minimum surplus or bid profit condition ii the energy price is a system marginal cost a lagrange multiplier associated with the power balance constraint in the related economic dispatch problem where all of the discrete variables are fixed to their optimal values iii the power balance and all of the generators technical constraints are satisfied we present some numerical results based on three test systems a simple three generating unit system that can be solved by hand a 32 generating unit system that consists of piecewise linear offer curves and a large system of 768 generating units with monotone and nonmonotone piecewise linear offer curves some of which are set as must run units the results demonstrate that the proposed procedure is more efficient than a heuristic approach both in terms of solution quality and computational efficiency

the demand for m1 in the united states a comment on baba hendry and starr a recent paper by y baba d hendry and r starr 1992 presents an error correction model of the demand for m1 in the united states which shows a dramatic improvement in both fit and stability over earlier models this note estimates an alternative model with the same data set and draws two conclusions that the improvements are due more to the use of complex dynamics than to the introduction of variables representing financial innovation and that some of the economic properties are not robust with respect to minor changes in specification copyright 1993 by royal economic society

the demand for m1 in the united states a reply to james m boughton using general to simple methods j m boughton 1993 develops an econometric model that fits almost as well as y baba d f hendry and r m starr bhs 1992 but differs in economic implications and dynamic adjustments he claims the new model is constant is not encompassed by bhs but does not encompass bhs he concludes that the new variables in bhs do not matter for fit or constancy the authors replicate boughton s findings but their simplification encompassing test confirms the importance of the novel variables in bhs and shows that bhs encompasses his model an explanation is offered for its constancy when previous studies suffered predictive failure

reducing public private sector pay differentials the single spine pay policy as a natural experiment in ghana empirical studies have documented the existence of the public private pay differentials in both developed and developing countries the implementation of policies aiming to reduce this gap has however been mitigated or inconclusive this paper exploits the single spine pay policy sspp in ghana as a natural experiment to examine the effectiveness of wage policies in developing countries the sspp was implemented in 2010 by the government of ghana to address the public private sector wage gap and improve productivity in the public sector using a quantile treatment effect approach based on a difference in difference did estimation we show that the sspp has yet to reduce the wage gap between the public and private sectors across the entire distribution of earnings in ghana the improvement observed is only at the lower tail of the distribution of earnings however the sspp has a larger effect on the earnings of female workers than that of males in the education and health services sector suggesting that the policy was successful in reducing the gender wage gap in that sector moreover the sspp has decreased the productivity of workers across the distribution of earnings mainly due to a decrease in the effort of female public sector workers nevertheless the sspp has had some successes and could be improved by putting in place a good managerial quality in the government agencies in addition it is important that the government pays much attention to various macroeconomic factors that have challenged the success of the sspp

the economics of vocation or why is a badly paid nurse a good nurse abstract given the longstanding shortage of nurses in many jurisdictions why could not nursing wages be raised to attract more people into the profession we tell a story in which the status of nursing as a vocation implies that increasing wages reduces the average quality of applicants attracted the underlying mechanism accords with the notion that increasing wages might attract the wrong sort of people into the profession and highlights an in efficiency wage mechanism particular to vocations which makes wages sticky up wards the analysis has implications for job design in vocation based sectors such as nursing and teaching

coordination in markets with nonconvexities as a mathematical program with equilibrium constraints part i a solution procedure this paper is concerned with developing an algorithm for solving the coordination problem that arises in a new equilibrium model which for the purpose of this presentation applies to a static no time coupling costs or constraints electricity pool market with price inelastic demand and no network the new equilibrium model has the following main properties i every scheduled generator satisfies its minimum surplus or bid profit condition ii the energy price is a system marginal cost lagrange multiplier associated with the power balance constraint in the related economic dispatch problem where all of the discrete variables are fixed to their optimal values iii the power balance and all the generators technical constraints are satisfied to solve the coordination problem which is a subproblem of the new equilibrium model it is mathematically convenient to cast the former as a three level nested optimization problem we substitute the ensuing lower level subproblems with an equivalent set of explicit algebraic equalities and inequalities hence we obtain a one level problem which is a discrete continuous mathematical program with complementarity or equilibrium constraints mpec finally we transform the one level mathematical program into mixed integer linear form by substitution of the complementarity terms and the remaining nonlinear terms

on the solution of revenue and network constrained day ahead market clearing under marginal pricing part i an exact bilevel programming approach the first of this two paper series addresses a practical day ahead auction model where generation revenue constraints are explicitly incorporated in the problem formulation as routinely done in several national electricity markets across europe the revenue constrained market clearing procedure includes the effect of the transmission network inter temporal constraints associated with generation scheduling demand side bidding and marginal pricing this auction design is an instance of price based market clearing which features two major complicating factors first locational marginal prices become decision variables of the optimization process in addition producer revenues are formulated as bilinear and highly nonconvex products of power outputs and market clearing prices the resulting problem is formulated as a mixed integer nonlinear bilevel program with bilinear terms for which available solution techniques rely on heuristics approximations or modeling simplifications this paper presents a novel and exact methodology whereby the original problem is recast as an equivalent single level mixed integer linear program as a consequence finite convergence to optimality is guaranteed and the use of standard commercial software is allowed the proposed transformation is based on duality theory of linear programming karush kuhn tucker optimality conditions and integer algebra results in the second part of this two paper series numerical results from several case studies illustrate the effective performance of the proposed solution approach

the demand for divisia money in the united states a dynamic flexible demand system this paper applies the anderson and blundell 1982 approach to the analysis of the demand for money and attempts to establish the nature of the relationship between divisia money defined from narrow to broad and the nested like assets at different levels of aggregation this is achieved by conducting the analysis within a microtheoretical framework utilizing the demand system approach and by estimating a sequence of nested dynamic specifications and performing tests of the nested structures as well as on economic theory to establish the most restrictive dynamic specification acceptable to the data copyright 1991 by ohio state university press

the demand for money a dynamic rational expectations model macroeconomic modelling generally has widely adopted the use of forwardlooking variables in behavioural relationships studies of the demand for money being something of an exception the aim of this paper is to provide preliminary empirical results of a model which explicitly incorporates expectations of the future into the demand function for narrow money the approach adopted is the modelling of the demand for money within a multi period costs of adjustment framework under the assumption of rational expectations agents are assumed to pursue a target or long run level of money balances which is itself a function of prices income and interest rates this results in an empirical specification which consists of both backwardlooking and forward looking components the model is estimated using uk data for the period i963i i983iii the remainder of the paper is divided into four sections in section i we outline the framework in which our model is derived in the following section we discuss the econometric techniques used and in section iii we present our empirical results a final section concludes

the price is right but are the bids an investigation of rational decision theory the television game show the price is right is used as a laboratory to conduct a preference free test of rational decision theory in an environment with substantial economic incentives it is found that contestants strategies are transparently suboptimal in response to this evidence simple rules of thumb are developed that are shown to explain observed bidding patterns better than rational decision theory further learning during the show reduces the frequency of strategic errors this is interpreted as evidence of bounded rationality finally there is no evidence that a concern for fairness significantly alters bidding behavior copyright 1996 by american economic association

signaling and screening of workers motivation abstract this paper develops a model in which workers are heterogeneous in their intrinsic motivation to work at a firm we characterise optimal incentive schemes and examine how the firm can attract and select highly motivated workers to fill a vacancy when workers motivation is private information while posting a higher wage increases the probability of filling the vacancy it decreases the expected average quality of job applicants because less motivated workers are induced to apply the optimal wage scheme entails a trade off between the probability of filling the vacancy the rents left to the worker and the expected worker s motivation

the long run stability of the demand for money italy 1861 1996 this paper examines the stability of the demand for money in italy using a newly extended data set for the period 1861 1996 we examine how the evolution of the financial system in italy and policy shifts have affected the behavior of the long run demand for money and present tests of structural stability we find the demand for broad money to be remarkably stable despite periods of considerable economic turbulence in addition we present evidence on the monetary transmission mechanism our results shed light on attempts to model long run relationships in other countries such as the uk and the us

electricity market near equilibrium under locational marginal pricing and minimum profit conditions this paper provides a tool to determine the near equilibrium of an electric energy market this market works under locational marginal pricing i e generating units and demand loads are paid and pay respectively the locational marginal prices corresponding to the nodes they are connected to the near equilibrium is defined as the energy transaction levels for which generating companies maximize their respective profits and consumption companies maximize their respective utilities an independent system operator clears the market maximizing the social welfare conditions that ensure minimum profit for generating units can be included however these conditions may render a generating unit uncompetitive and expel it from the market demands are taken to be non constant and values are determined as part of the solution the near equilibrium is obtained through the solution of a mixed integer quadratic problem equivalent to a mixed linear complementarity problem that includes the minimum profit conditions it is important to note that the near equilibrium concept presented in this paper does not solve a market equilibrium when indivisibilities such as start up costs or the like are present lastly we validate the proposed model on a case study using data from the ieee reliability test system

the role of money supply shocks in the short run demand for money abstract previous money demand models are either inconsistent with contemporaneous adjustment of the price level to expected changes in the nominal money supply or imply implausible interest rate fluctuations in response to innovations in nominal money we propose a shock absorber money demand model in which money supply shocks affect the synchronization of asset transactions and so engender a temporary increase or decrease in desired money holdings expected changes do not engender such fluctuations in real money inventories in simultaneous estimates for eight industrial countries the shock absorber model proved empirically superior

microfoundations and the demand for money the reader should note that i write this piece in a style that aims to be accessible to that much neglected representative agent the woman on the eurostar train hence unlike the man on the clapham omnibus i assume my intrepid traveller has reasonable knowledge of monetary economics and econometrics but not of the details of the demand for money space constraints force me to indulge in a certain amount of poetic licence but i hope this results in poetic justice there have been many wars fought on this particular battlefield some with almost religious zeal on the theoretical side of the debate we sometimes have the equivalent of religious fundamentalists be they muslims jews christians etc who would dismiss almost any evidence unless it were associated with a strong microtheoretic basis as laid down in the koran talmud or bible the empirical side encompasses agnostics atheists as well as born again econometricians pure theorists inhabit the sunlit uplands while applied economists and policymakers flounder in the muddy plain below occasionally gaining solace from their copy of zen and the art of motorcycle maintenance in general in economics we do not have the luxury of controlled experiments as is the case in the natural sciences what distinguishes good microfoundations from bad and how to weight priors and statistical evidence is subject to much dispute leamer i983 hendry et al i990 as in religion sometimes there is the occasional miracle proclaimed after a suitable interval a new saint may be declared and disciples flock to the new shrine later doubts may arise as to whether a miracle really did occur human behaviour is difficult to explain let alone predict so the search for the equivalent of the holy grail ark of the covenant etc is bound to be arduous in scholarly journals we generally read of the success of the demand for money like diplomats who are sent abroad to lie for the good of their country publication may require applied economists to be somewhat economical with the actualite lovell i983 leamer i983 in this article i want to be as honest as possible about our success and failures in this area the prior information an armchair economist would consider when thinking about the demand for money over the past 40 years in western industrialised countries which have experienced moderate inflation might

a theoretical derivation of the functional form of short run money holdings this paper considers the short run adjustment of money holdings towards their desired levels a rationale for short run money holdings is given which allows for uncertainty in cash flows and it is shown how the adjustment to desired money balances will occur following a change in some of the economic variables the model generates a particular form for the short run demand for money function which is shown to be econometrically superior to the standard ad hoc formulation the chief theoretical novelty is the derivation of the appropriate transient probability density of money holdings

consumer payment minimization in power pool auctions this paper presents a new methodology within the framework of centralized optimization for calculating optimal generation schedules that minimize energy payments by power pool consumers this paper addresses issues related to market structure and the operation of power pools such as bid evaluation generator no load and start up cost recovery generator unit operating constraints and market clearing price determination unlike conventional unit commitment algorithms that minimize total energy production costs the method presented here minimizes payments by power pool consumers a payment minimization objective leads to a different unit commitment and dispatch solution and lower market clearing prices additionally optimal allocation of generator no load and start up costs over the scheduling period is integrated in the bid evaluation process leading to a further reduction in consumer payments

monetary anticipation and the demand for money in the u k testing rationality in the shock absorber hypothesis the carr darby shock absorber hypothesis that unanticipated changes in the money supply cause changes in real balances but anticipated changes have a unit impact on the price level and therefore leave real balances unchanged is tested using two step and joint estimation techniques for the u k two step methods appear to support the shock absorber hypothesis but the superior joint estimation technique decisively rejects the hypothesis particularly the implicit rational expectations cross equation restrictions

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

are price equations really money demand equations on their heads it is often argued that the dependent variable in money demand functions is really the price level the money stock itself being exogenous a recent approach which stresses the theme is the buffer stock hypothesis in which money supply shocks explicitly appear in the demand for money function because prices and interest rates do not adjust rapidly enough to bring about short run equilibrium in the money market although this approach has been adopted by a number of authors it is not been subjected to much econometric testing in this paper we outline the economic and econometric issues involved in testing the exogenous money buffer stock hypothesis and subject it to a variety of tests using three different data sets none of our results supports the hypothesis fundamental restrictions are rejected at very high levels of significance and a reasonably good money demand equation is seen to be badly misspecified if interpreted as a price equation this abstract was borrowed from another version of this item

why do so few hold stocks the authors investigate why 75 percent of u s households do not hold stocks despite the equity premium and predictions of expected utility models the question is relevant for privatization asset pricing and tax progressivity issues they show that risk aversion per se heterogeneity of beliefs habit persistence time nonseparability and quantity constraints on borrowing do not account for the phenomenon a wedge between borrowing and lending rates and minimum investment requirements are plausible but empirically weak factors more promising explanations are inertia and departures from expected utility maximization there is also qualified support for nondiversifiable income risk as a contributing factor copyright 1995 by royal economic society

money and velocity during financial crises from the great depression to the great recession abstract this study models the demand for a broad monetary aggregate m2 from the great depression through the great recession key to the model is the interaction between a measure of time variation in economic agents perceived financial risk and an index of the cost of portfolio adjustment the finding of a useful money demand relationship suggests that skepticism regarding the indicator role of a broad liquid money aggregate as a policy guide may be exaggerated further our model provides some guidance for policymakers who face the challenge of unwinding large balance sheets as risk premia return to normal and velocity adjusts

credit cards and money demand a cross sectional study this study investigates credit card holding and the household demands for several monetary assets in a simultaneous equations framework it exploits the detailed data on household assets as well as demographic and preference characteristics in the 1983 survey of consumer finances a key finding is that consistent with theory a higher probability of credit card ownership implies lower demand for transaction balances with no effect on small time deposit balances copyright 1995 by ohio state university press

divisia aggregation and substitutability among monetary assets in this paper the authors estimate the degree of substitutability among the services of money checkable deposits savings deposits and time deposits in a quasi homothetic translog utility framework for canada the four composites mentioned are formed by aggregating more basic assets such as checkable deposits at banks checkable deposits at trust companies etc traditionally the simple sum aggregation has been used in this context the authors investigate both this alternative and divisia aggregation of the assets they find a low degree of substitution among the services of monetary assets and provide some evidence favoring divisia aggregation over simple sum aggregation copyright 1986 by ohio state university press

disequilibrium buffer stock models a survey abstract this paper surveys the growing literature on buffer stock models of the monetary transmission process the first part indicates the basic issue of how assumed exogenous changes in the money supply work their way through the economic system via disequilibrium in the money market after a brief historical development buffer stock models are divided into four types depending upon whether the disequilibrium arises in stocks and or flows and to whether changes in the money stock are purely exogenous the empirical implications including how buffer stock models explain the recent behaviour of money demand functions are given theoretical and empirical criticisms of the models are presented in terms of the classification system the survey concludes that whilst the buffer stock notion is an interesting idea the current models do not lend themselves to empirical testing and those models which do have performed poorly

monetary anticipations and the demand for money in the u s further results a flourishing debate has arisen in the literature concerning both the interpretation of the original carr darby 1 c d shock absorber approach to the demand for money and the choice of an appropriate estimation technique for empirical tests of the hypothesis the c d shock absorber hypothesis holds that unanticipated shocks to the money supply are partially accommodated by a temporary increase in short run real money balances whilst anticipated monetary movements are reflected in the current price level and so are neutral with respect to the level of real money holdings c d test this proposition by generating monetary anticipations series by fitting univariate arima processes which are then substituted into fairly standard partial adjustment money demand equations using this two step technique they find empirical support for the shock absorber hypothesis for a number of countries mackinnon and milbourne 13 m m argue that the c d method may be subject to a simultaneity bias which can be corrected by an appropriate reparameterisation they then produce empirical evidence using their reparameterisation which appears to overturn the c d results at least for u s data in a rejoinder to m m carr darby and thornton 2 c d t argue that standard monetary economics and indeed the logic of the c d shock absorber hypothesis suggests that the money stock should be taken as exogenous at the aggregate level and that the aggregate money demand equation is in fact a price equation if this is the case then the money variable appears on the left hand side of the aggregate money demand equation merely to impose price level homogeneity and in particular the augmented or shock absorber money demand equation can be consistently estimated by ordinary least squares ols assuming the exogeneity of other regressors we argue below that the shock absorber hypothesis does not make sense unless money is taken as exogenous

a stochastic programming model for a day ahead electricity market with real time reserve shortage pricing we present a multi period stochastic mixed integer programming model for power generation scheduling in a day ahead electricity market the model considers various scenarios and integrates the idea of reserve shortage pricing in real time instead of including all the possible scenarios we parsimoniously select a certain number of scenarios to limit the size of the model as realistic size models are still intractable for exact methods we propose a heuristic solution methodology based on scenario rolling that is capable of finding good quality feasible solutions within reasonable computation time

the failure of competition in the credit card market the bank credit card market containing 4 000 firms and lacking regulatory barriers casually appears to be a hospitable environment for the model of perfect competition nevertheless this article reports that credit card interest rates have been exceptionally sticky relative to the cost of funds moreover major credit card issuers have persistently earned from three to five times the ordinary rate of return in banking during the periods 1983 88 the failure of the competitive model appears to be partly attributable to consumers making credit card choices without taking account of the very high probability that they will pay interest on their outstanding balances copyright 1991 by american economic association

an extreme point subdifferential method for convex hull pricing in energy and reserve markets part i algorithm structure prices in electricity markets are given by the dual variables associated with the supply demand constraint in the dispatch problem however in unit commitment based day ahead markets these variables are not easy to obtain a common approach relies on re solving the dispatch problem with the commitment decisions fixed and utilizing the associated dual variables this avenue may lead to inadequate revenues to generators which has led to the introduction of uplift payments made by the market operator for further compensating the generators an alternative pricing mechanism known as convex hull pricing has been proposed to reduce or eliminate uplift payments computation of these prices requires the global maximization of an associated lagrangian dual problem in this paper we present an extreme point based procedure for obtaining a global maximizer unlike standard subgradient schemes where an arbitrary subgradient is used we present an extreme point subdifferential epsd algorithm this is a novel technique in which the steepest ascent direction is constructed by solving a continuous quadratic program the epsd algorithm initiates a move along this direction employing an a priori constant steplength with the intent of reaching the boundary of the face a backtracking scheme selects a steplength that ensures descent with respect to a suitably defined merit function as most electricity markets today co optimize energy and reserves an extension of the proposed convex hull pricing algorithm is provided for such integrated markets under suitable assumptions we compare outcomes of energy only and energy reserve co optimized markets under different pricing and uplift rules in these examples pricing rules have a major impact on the total payment while the uplift payment only accounts for a small portion of it we also observe that it remains unclear whether marginal cost pricing or convex hull pricing leads to higher total payment

the conduct of monetary policy nowadays the central bank of a country is the monopoly supplier of legal tender currency the commercial banks are committed to making their deposits convertible at par into such currency so the banks need to keep reserves in the form of currency and deposits at the central bank the central bank primarily conducts its policy by buying and selling financial securities e g treasury bills or foreign exchange in exchange for its own liabilities i e open market operations academic economists generally regard such operations as adjusting the quantitative volume of the banks reserve base and hence of the money stock with rates prices in such markets simultaneously determined by the interplay of demand and supply central bank practitioners almost always view themselves as unable to deny the banks the reserve base that the banking system requires and see themselves as setting the level of interest rates at which such reserve requirements are met with the quantity of money then simultaneously determined by the portfolio preferences of private sector banks and non banks this difference in perceptions is discussed again in section iii whether the monetary policy operations of central banks should be viewed primarily in terms of quantity or rate setting actions though of course one is the dual of the other these had allowed inflation and inflationary expectations to become entrenched by the end of the i970s a selection of representative statistics for a number of the leading industrialised countries is given in table i below this table indicates a common pattern among the countries of interaction between interest rates inflation and the growth of output the first period i969 78 is marked by high inflation negative real interest rates and slightly above average growth the second period i979 82 by very high nominal and high real interest rates high but falling inflation and very low output growth the final period i983 7 is marked by much lower inflation lower nominal but still high real interest rates and a recovery in output growth in some cases to above average rates in contrast the relationship in these countries between the growth of their chosen key monetary aggregate and nominal incomes appears much weaker also see clinton and chouraqui i987 especially p 7 whether measured in terms of monetary growth or in terms of real interest rates i e after adjustment for prospective future inflation policy during the

the demand for money and goods in the theory of consumer choice with money when monetary balances are introduced into the consumer s utility function and budget constraint the resulting demand functions for money and for the consumption goods in general do not exhibit the standard slutsky hicks properties many researchers have studied this issue and have attempted to remedy the outcome for example see m morishima 1952 c lloyd 1964 1971 j hadar 1965 and dusansky kalman 1972 1973 their paramount goal has been to provide a neoclassical integration of money demand and consumer choice theory that will yield the traditional testable demand predictions that are the hallmark of neoclassical microeconomic theory the most recent work on this subject is by samuelson sato 1984 they convincingly demonstrate that with a weakly separable utility function it is possible to reinstate symmetry and negative semidefiniteness and to generate testable predictions in this paper however i show that these predictions are not those of traditional theory but a modification of them having alternative implications for example the assumption of a non inferior good is no longer sufficient to ensure a downward sloping own demand curve the problem is that the weak separability assumption is not sufficient to recover the traditional properties i present an alternative class of utility functions for which the commodity demand functions do exhibit the usual slutsky hicks properties this result also holds for money demand i implications of the sanuelson sato results

the translog utility function and the demand for money in the united states in recent years considerable effort has been directed towards establishing the nature of the relationship between money and nearmonies but with mixed success the approaches vary from multi interest rate single equation studies to the careful simultaneous equations studies summarized and amended by feige and pearce 1977 and extended recently by donovan 1978 offenbacher 1979 and barnett 1980 the empirical results also vary with numerous studies favoring only one interest rate see the surveys in fisher 1978 1983 some claiming that a variety of entities are close substitutes for money e g chetty 1969 and others showing that weak substitution or even complementarity may be the result of the measurement of elasticities of substitution between money and a number of other assets e g feige and pearce 1977 offenbacher 1979 and barnett 1980 the debate seems to have overshadowed a second and equally intriguing issue which centers on the establishment of an acceptable definition of money the basic idea of this study is to take an approach that takes account of the different degrees of moneyness possessed by the various monetary assets this paper produces quantitative estimates of the degree of substitutability of other monetary assets for money in the context of a flexible functional form model with a

strategic bidding under uncertainty a binary expansion approach this work presents a binary expansion be solution approach to the problem of strategic bidding under uncertainty in short term electricity markets the be scheme is used to transform the products of variables in the nonlinear bidding problem into a mixed integer linear programming formulation which can be solved by commercially available computational systems the be scheme is applicable to pure price pure quantity or joint price quantity bidding models it is also possible to represent transmission networks uncertainties scenarios for price quantity plant availability and load financial instruments capacity reinforcement decisions and unit commitment the application of the methodology is illustrated in case studies with configurations derived from the 80 gw brazilian system

unit commitment with dual variable constraints a new unit commitment model is proposed for market economies with some form of indivisibilities nonconvexities coordination in electricity pool auction markets with unit commitment is a conspicuous example this presentation applies to a single time period unit commitment with no network the new formulation includes a market coordinator who collects the sale and purchase bids and determines the optimal solution that balances the total generation with the forecast demand a solution to the new commitment model is said to be optimal if it maximizes the monetary margin of every accepted production unit while minimizing the sum of the margins of the unaccepted units that would achieve positive margins at the prevailing market price the new unit commitment model produces a market price that is the system wide marginal bid cost some preliminary results are reported considering the single period unit commitment problem which provide some insights into the adequacy of the proposed approach as well as its economic implications as a tool for managing restructured energy systems

economic consequences of alternative solution methods for centralized unit commitment in day ahead electricity markets many wholesale electricity markets call on the independent system operator iso to determine day ahead schedules for generators based on a centralized unit commitment up until recently the lagrangian relaxation lr algorithm was the only practical means of solving an iso scale unit commitment problem and it was the solution technique used by most isos johnson et al 1 demonstrate however that equity incentive and efficiency issues will arise from use of lr solutions because different commitments that are similar in terms of total system costs can result in different surpluses to individual units recent advances in computing capabilities and optimization algorithms now make solution of the mixed integer programming mip formulation by means of branch and bound b b tractable often with optimality gaps smaller than those of lr algorithms which has led some isos to adopt b b algorithms and others proposing to do so with the move towards b b one obvious question is whether the use of mip will eliminate or reduce the issues with lr raised by johnson et al using actual market data from an iso we demonstrate that both lr and mip solutions will suffer the same equity issues unless the iso unit commitment problems can be solved to complete optimality within the allotted timeframe which is beyond current computational capabilities our results further demonstrate that the size of the payoff deviations are not monotone in the size of the optimality gap meaning smaller optimality gaps from b b will not necessarily mitigate the issues johnson et al raise we show that the use of make whole payments which ensure units recover any startup and no load costs not recovered by inframarginal energy rents can help to reduce surplus volatility and differences to some extent

the buffer stock notion in monetary economics not the least of harry johnson s contributions to our discipline was the series of survey papers on aspects of monetary economics which he produced during the 1960s and 1970s it is no exaggeration to say that the way in which the literature of monetary economics is organised even now follows the design which johnson first set out in 1962 and built on in the subsequent decade nevertheless the subject has not stood still and one of the more interesting developments of the last few years has involved the introduction of what has been variously described as the disequilibrium money shock absorber or as i prefer to call it the buffer stock notion into monetary economics the development of this line of thought was getting underway before johnson s untimely death much of it indeed under the auspices of his own research programme at the lse even so this did not happen early enough for the relevant ideas to be put in their proper niche by johnson himself and the buffer stock approach is not yet fully integrated into the mainstream of monetary economics much of the relevant literature is empirical concerned with modelling particular aspects of the monetary experience of specific countries hence it is fragmented and contains few papers which attempt a coherent account of just what this approach is and how it relates to other approaches to monetary analysis although essays by goodhart 1982a b and judd and scadding 1982a contain important discussions of these issues to the best of my knowledge only jonson 1976a and knoester 1979a have devoted entire papers solely to this central issue and these are relatively inaccessible and hence less widely known than they deserve to be in this lecture i shall attempt to give a brief account of the essentials of this approach first i shall sketch out its microeconomic background and then i shall discuss those theoretical characteristics which differentiate it from the neo austrian analysis of robert e lucas jr and his associates as well as from the conventional keynesian approach to monetary economics last but by no means least i shall argue that it yields simple theoretical insights into important empirical and policy related issues which are troublesome for alternative approaches in short my tribute to harry

consumer theory and the demand for money the following sections are included introductionthe definition of moneythe microeconomic theory of a monetary economythe aggregation theoretic approach to money demandindex number theorythe links between aggregation theory index number theory and monetary theoryunderstanding the new divisia aggregatesthe optimal level of monetary subaggregationeconometric considerationsapproximating the monetary services subutility functionan exampleempirical dimensionsempirical comparisons of index numbersempirical results for the demand system approachextensionsconclusions this abstract was borrowed from another version of this item

alternative approaches to analyzing economic data this paper compares two approaches to the analysis of economic data the exclusively econometric approach recommended by hendry and ericsson and the more eclectic approach that we employed in our books monetary history and monetary trends it concludes that the article by hendry and ericsson is mislabeled their article is not in any relevant sense an evaluation of our empirical model of u k money demand rather it uses one equation from our book as a peg on which to hang an exposition of sophisticated econometric techniques insofar as their empirical findings do bear on ours they simply confirm some of our principal results and contradict none jel 036 212

are perceptions of inflation rational some evidence for sweden this survey paper argues that walrasian markets and monetary exchan ge are alternative not complementary arrangements for coordinating economic activity that if one realizes this many informational anomalies and price rigidities that appear irrational in a walrasia n context can be understood as the outcome of maximizing behavior in a monetary economy and that the precautionary approach to modelin g the demand for money takes on a particular importance in this way of looking at things empirical evidence on the demand for money is cite d in support of this point of view which tends to reinstate the quantity of money as an important economic variable in contrast to the new classical vision of the economy whi ch downgrades money s importance this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

money is what money does monetary aggregation and the equation of exchange this paper develops a method for distilling the transactions role of the array of monetary assets available to the public into a single aggregate measure of effective transactions balances the result is a monetary quantity index number designated mq which corresponds closely with the monetary aggregate contemplated in the equation of exchange mv pq in general mq and the conventional aggregate m 1 exhibit strikingly similar behavior however during episodes when the behavior of m1 is abnormal relative to income and interest rates mq behaves differently from m 1 during these periods anomalies in the behavior of mq are not detectable

relative prices in the uk personal sector money demand function nonparametric demand analysis is used in order to establish admissible monetary aggregates and also to establish a potential role for relative prices in the money demand function a conventional money demand specification is then contrasted with a money demand function which contains the relative prices of durables nondurables and services as additional regressors evidence from long run cointegration analysis short run error correction models and nonnested testing all confirm a role for relative prices in the u k personal sector s money demand function copyright 1996 by royal economic society