long forward and zero coupon rates can never fall in frictionless markets having no arbitrage the asymptotic zero coupon rate never falls the same is true of the long forward rate the long par coupon rate can rise and fall due to forward rate movements at short maturities this article relates the three types of interest rates and formalizes and proves the impossibility results for falling asymptotic rates these results can be tested in a parametric term structure specification that is rich enough to identify a time series of long rates the results show that it is not possible to specify arbitrarily the long forward or zero coupon rate process copyright 1996 by university of chicago press

the second fundamental theorem of asset pricing a new approach this article presents a new definition of market completeness that is independent of the notions of no arbitrage and equivalent martingale measures our definition has many advantages all shown herein first it preserves the second fundamental theorem of asset pricing even in complex economies second under our definition the market can be complete yet arbitrage opportunities exist this is important in practice and stands in contrast to the traditional definitions third under the assumption of no arbitrage and when used in the standard models our definition is equivalent to the traditional one

bond pricing and the term structure of interest rates a new methodology for contingent claims valuation this paper presents a unifying theory for valuing contingent claims under a stochastic term structure of interest rates the methodology based on the equivalent martingale measure technique takes as given an initial forward rate curve and a family of potential stochastic processee for its subsequent movements a no arbitrage condition restricts this family of processes yielding valuation formulae for interest rate sensitive contingent claims which do not explicitly depend on the market prices of risk examples are provided to illustrate the key results in relation to the term structure of interest rates arbitrage pricing theory has two purposes the first is to price all zero coupon default free bonds of varying maturities from a finite number of economic fundamentals called state variables the second is to price all interest rate sensitive contingent claims taking as given the prices of the zero coupon bonds this paper presents a general theory and a unifying framework for understanding arbitrage pricing theory in this context of which all existing arbitrage pricing models are special cases in particular vasicek 1977 brennan and schwartz 1979 langetieg 1980 ball and torous 1983 ho and lee 1986 schaefer and schwartz 1987 and artzner and delbaen 1988 the primary contribution of this paper however is a new methodology for solving the second problem i e the pricing of interest rate sensitive contingent claims given the prices of all zero coupon bonds the methodology is new because i it imposes its stochastic structure directly on the evolution of the forward rate curve ii it does not require an inversion of the term structure to eliminate the market prices of risk from contingent claim values and iii it has a stochastic spot rate process with multiple stochastic factors influencing the term structure the model can be used to consistently price and hedge all contingent claims american or european on the term structure and it is derived from necessary and more importantly sufficient conditions for the absence of arbitrage the arbitrage pricing models of vasicek 1977 brennan and schwartz 1979 langetieg 1980 and artzner and delbaen 1988 all require an iformerly titled bond pricing and the term structure of interest rates a new methodology

the impacts of petroleum price fluctuations on income distribution across ethnic groups in malaysia crude oil price hikes have compelled governments of developing countries to let domestic prices of energy increase fiscal priorities made it impossible to fully compensate the hikes by raising energy subsidies this paper examines the potential impacts of a limited deregulation of the petroleum price on the income distribution in malaysia paying specific attention to differences in impacts on major ethnic groups we introduce an extended social accounting matrix sam model which not only incorporates substitution possibilities among production inputs and consumption goods but also allows for the exogenous determination of the price of intermediate inputs the results of simulations indicate that distributional impacts of rising petroleum prices tend to be regressive affecting poor people more severely than richer people all ethnic groups experience income loss with the real incomes of malay households which are relatively poor on average more than the chinese and indian households which are the generally richer

potential impacts of electricity price changes on price formation in the economy a social accounting matrix price modeling analysis for turkey recent reforms in the turkish electricity sector since 2001 aim to introduce a tariff system that reflects costs this is expected to affect the production and consumer prices of electricity the changes in electricity prices are then reflected in production costs in other segments of the economy subsequently producer and consumer prices will be affected the potential impact of the changes in electricity prices that the ongoing electricity reforms in turkey will bring about may have important implications on the price formation in economic activities and the cost of living for households this paper evaluates the potential impacts of changes in electricity prices from a social accounting matrix sam price modeling perspective it is found that based on the estimated price multipliers that prices in the energy producing sectors mining and iron and steel manufacturing sectors would be affected more severely than the remaining sectors of the economy consumer prices are affected slightly less than producer prices

realism underlabouring and institutions despite recent advances economic methodology has found it difficult to transcend certain positivist premisses and concerns we argue that developments in philosophy and social theory under the heading of critical realism are particularly significant with respect to overcoming these problems to illustrate we focus upon various themes that arise in a recent collection concerned with economic methodology and institutionalist economics relating these themes to relevant aspects of this realist position in so doing we argue that an economic methodology restricted to description and an institutionalism committed to some form of methodological individualism are not only unnecessary but problematic

the genesis of positive economics and the rejection of monopolistic competition theory a methodological debate in the methodology of positive economics 1953 milton friedman linked the adoption of a falsificationist methodology to the rejection of monopolistic competition as a valid assumption thus elaborating a point made earlier by george stigler in monopolistic competition in retrospect 1949 both failed to demonstrate that the alternative assumption of perfect competition would perform better under falsificationist rules these rules themselves are an expression of the ambition to establish an economic science rather than a convincing framework for research monopolistic competition theory became the main target of attack as it highlighted the problematic nature of empirical research interested in perfectly generalizable results

assessing the influence of manufacturing sectors on electricity demand a cross country input output approach abstract the production and consumption of electricity is a major source of co2 emissions in europe and elsewhere in turn the manufacturing sectors are significant end users of electricity in contrast to most papers in the literature which focus on the supply side this study tackles the demand side of electricity an input output approach combined with a sensitivity analysis has been developed to analyse the direct and indirect consumptions of electricity by eighteen manufacturing sectors in fifteen european countries with indirect electricity demand related to the purchase of industrial products from other sectors which in turn require the consumption of electricity in their manufacturing processes we identify the industrial transactions and sectors which account for a greater share of electricity demand in addition the impact of an electricity price increase on the costs and prices of manufacturing products is simulated through a price model allowing us to identify those sectors whose manufacturing costs are most sensitive to an increase in the electricity price

the ideology of efficiency searching for a theory of policy analysis the potential pareto improvement criterion and other measures of economic efficiency do not pass the test of consistency and coherence within economic theory nor do such measures accord with what public decision makers seek in policy advice from economists such efficiency measures are nonetheless durable components of the ideology of economics in general and benefit cost analysis in particular the objectivity of the policy scientist has been confused with the objectivity of the science while economic efficiency has no claim to objectivity the policy scientist can be an objective analyst of policy choices

impacts of a rise in electricity tariff on prices of other products in vietnam abstract this study examines the impacts of increasing electricity tariff to the long run marginal cost on prices of other products using a static input output approach it is found that such an increase would drive up the prices of all other products although the aggregate price impact from such an increase is not large it would be socially difficult to implement this increase at one time particularly given that vietnam is facing high inflation rate a roadmap for electricity tariff increase is thus discussed

environmental economics an evolutionary critique and a plea for pluralism abstract environmental economics is a contradiction in terms the contradiction is intuitive to the puzzled lay person inquiring about the nature of our subdiscipline it is explicit to those who think of environmental systems in terms of complex evolving interconnectedness and identify the economic model with the atomistic and mechanistic assumptions of classical mechanics within the subdiscipline we try to resolve the contradiction by internalizing externalities by matching market feedbacks with environmental relations while acknowledging that insights can be drawn from the market view of environmental problems i argue in this essay that 1 the contradiction is nerver resolved 2 multiple incongruous perspectives are all we have for understanding the interface between economic and environmental systems and 3 environmental economics will thrive with a return to philosophical pluralism to the open acceptance of the contradiction

a one factor model of interest rates and its application to treasury bond options 1990 a one factor model of interest rates and its application to treasury bond options financial analysts journal vol 46 no 1 pp 33 39

stochastic volatilities and correlations of bond yields i develop an interest rate model with separate factors driving innovations in bond yields and their covariances it features a flexible and tractable affine structure for bond covariances maximum likelihood estimation of the model with panel data on swaptions and discount bonds implies pricing errors for swaptions that are almost always lower than half of the bid ask spread furthermore market prices of interest rate caps do not deviate significantly from their no arbitrage values implied by the swaptions under the model these findings support the conjectures of collin dufresne and goldstein 2003 dai and singleton 2003 and jagnnathan kaplin and sun 2003

comments on arrow and on lucas such a number of interesting and provocative things are put forward in lucas and in arrow in this issue that i would like to be able to dissect them in detail for example lucas states that the problem of controlling inflation has been successfully solved in a scientific sense p s405 i am tempted to explore the limits of the set of problems that might be said to be scientifically solved in the lucas sense but i fear that this would take up a good deal of space arrow deplores the use of homogeneity assumptions as a device for adding content to otherwise inconclusive economic theories but presumably he does not believe that the sonnenschien mantel debreu theorem is the ultimate conclusion regarding the useful content of the propositions of general equilibrium theory some restrictions of intermediate strength are presumably called for and i would like to make the case that strong empirical generalizations about the nature of human actors such as those describing the biological requirements for survival are available and relevant in this connection this too would take some space to develop in detail though not as much as the first subject given the constraints i must choose a focus i will focus on what i take to be the main message that lucas has put forward regarding the relationship between adaptive behavior and the rationality assumptions employed in standard economic theory this message is recognizable as the intellectual descendant of similar discussions by friedman and machlup in the 1940s and 1950s and the ideas involved remain extremely influential in the discipline today i will present and comment on my own statement of this position which i following blaug 1980 will call the classic defense of the rationality as

behavior of the firm under regulatory constraint a recent article by akira takayama discusses an earlier paper by harvey averch and leland l johnson on fair rate of return regulation of public utilities although takayama p 255 agrees with averch and johnson s general conclusions that a firm will tend to increase its investment with the introduction of an active constraint on its rate of return he criticizes the a j argument as being confusing ambiguous and in error takayama then attempts a clarification and presents a new formulation which leads to the a j result quoted above this comment will discuss several of takayama s criticisms in addition to showing that the so called a j effect cannot be derived from the basic assumptions made by both averch and johnson and takayama 1 we will show that the very assumptions used to prove the a j effect by defining the region of x require an assumption that the a j effect exists in the first place

term structure movements and pricing interest rate contingent claims this paper derives an arbitrage free interest rate movements model ar model this model takes the complete term structure as given and derives the subsequent stochastic movement of the term structure such that the movement is arbitrage free we then show that the ar model can be used to price interest rate contingent claims relative to the observed complete term structure of interest rates this paper also studies the behavior and the economics of the model our approach can be used to price a broad range of interest rate contingent claims including bond options and callable bonds

do bonds span the fixed income markets theory and evidence for unspanned stochastic volatility most term structure models assume bond markets are complete that is that all fixed income derivatives can be perfectly replicated using solely bonds however we find that in practice swap rates have limited explanatory power for returns on at the money straddles portfolios mainly exposed to volatility risk we term this empirical feature unspanned stochastic volatility usv while usv can be captured within an hjm framework we demonstrate that bivariate models cannot exhibit usv we determine necessary and sufficient conditions for trivariate markov affine systems to exhibit usv for such usv models bonds alone may not be sufficient to identify all parameters rather derivatives are needed

friedman s methodology of positive economics a soft reading there are many ways to read a text and the ones most accessible to a modern are often inappropriate when applied to the past trying to transmit such lessons to students i offer them a maxim when reading the work of an important thinker look first for the apparent absurdities in the text and ask yourself how a sensible person could have written them when you find an answer when those passages make sense then you may find that more central passages ones you previously thought you understood have changed their meaning kuhn 1977 xii from time to time it is probably necessary to detach oneself from the technicalities of the argument and to ask quite naively what it is all about hayek 1937 54 milton friedman s 1953 essay the methodology of positive economics is perhaps the most influential of friedman s numerous papers 1 many theory textbooks cite it as the justification for what economic theorists do boland 1979 503 states that friedman s essay is considered authoritative by almost every textbook writer who wishes to discuss the methodology of economics 2 hammond 1990 calls it the methodological bible of most economists donald mccloskey 1989 226 asserts that sentences from milton s pen still provide the philosophical stage directions for the field at the same time most specialists in economic methodology are highly critical of it thus they complain about friedman s failure to define precisely such key terms as language prediction explanation renshaw 1988 2 about vague use of terms like facts and evidence coddington 1972 9 as well as about ambiguities and difficulties wible 1982 352 or refer to it as plagued with obscurity and as lacking coherence maki 1990 1 and as containing stultifying features rosenberg 1972 15 even nagel 1963 218 who is generally sympathetic to friedman s essay deplores an ambiguity that perhaps reflects an unresolved tension in his views on the status of economic theory but these criticisms by specialists do not seem to have affected the working economist s evaluation of friedman s essay this seems paradoxical one would expect a profession to adopt the judgment of those of its members who are specialists on the particular issue i will argue that this seeming paradox results from methodologists and working economists appraising friedman s essay by different criteria methodologists look for coherence and philosophical sophistication and evaluate friedman s essay by the exacting standards of contemporary philosophy of science not surprisingly they find it confusing and lacking in technical competence as hirsch and de marchi 1988 1 point out ideas from the philosophy of science allow the methodologist to show that from a philosophical point of view every eminent economist who has been foolish enough to say anything about economic methodology is terribly inconsistent if not downright silly eminent economists are used as mere grist for the mill of philosophical analysis to illustrate philosophical positions by contrast working economists look for heuristics that orient them in the fruitful direction and also make them feel that their work is scientific when seeking fruitful heuristics coherence and philosophical sophistication are not necessarily the dominant considerations crude intuitive notions may be perfectly adequate to point an economist in the right direction hence one s evaluation of friedman s essay depends in good part on whether one interprets it as an attempt to teach economists the latest and most sophisticated ideas in the philosophy of science or as an attempt to provide practicing economists with some useful ground rules specifically with a way of healing the unfortunate split between theoretical and empirical economics that prevailed when friedman wrote his essay since most of the writings on friedman s essay have been by methodologists their interpretation and evaluation of friedman s essay are already well represented in the literature those of the practicing economist are not

behind methodological individualism methodological individualism has become a more fashionable slogan for economistsin recent years in specific terms we are being urged to accept a doctrine within whichall explanations of social phenomena have to be couched in terms of statements aboutindividuals however the term has a wide and sometimes ambiguous usage and is beingemployed as a packaging for all kinds of methodological and theoretical prescriptions forexample it has been regarded as a commandment that thou shalt where possible placemacroeconomic statements on firm microeconomic foundations e g blaug 1980 or aninjunction against reckless aggregation particularly in regard to welfare criteria orsocial welfare functions e g kirzner 1980 littlechild 1978 or as an inspiration forrecent theoretical developments in economics with pro market policy conclusions e g furubotn and pejovich 1974 one of the further problems in discussing this topic is that often the term methodo logical individualism carries an ideological charge indeed by both advocates and itsopponents it is too frequently confused with individualism of a political variety however the connection between political and methodological individualism is merely assumed bythese supporters or critics or supported by cursory argument it is never demonstratedwith any rigour although there is a lack of uniformity in the use of the label it is argued here that the keyelement in the classic statements of methodological individualism is a refusal to examinethe institutional or other forces which are involved in the moulding of individual pref erences and purposes we are thus confronted with a remarkable optimism about thepossibility of explanation of social phenomena in terms of individuals but an extremereluctance to give even partial explanations of individual behaviour in social or evenpsychological terms this refusal is both dogmatic and as will be argued below unaccept able on analytical grounds this reduction of explanation and thereby causality solely to individuals has a furtherimplication the explanation of social phenomena proceeds even by a circuitous route

a theory of the nominal term structure of interest rates a model of the nominal term structure of interest rates is developed that has a positive and stationary process for the interest rate and delivers closed form expressions for the prices of discount bonds and european options on bonds unlike the one state variable version of the cox ingersoll and ross 1985 model this model even in its one state variable version allows the term premium to change sign as a function of the state and the term to maturity and also allows for shapes of the yield curve that are observed in the u s data but that are disallowed in the cox ingersoll and ross model article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

modeling prices in a sam structure the aim of this paper is to develop an intersectoral price model in a social accounting matrix traditionally the emphasis of the social accounting methodology has been on quantity oriented models and their income effects in contrast the authors use the social accounting matrix to develop a price model that captures the interdependence among activities households and factors and provides a complete set of accounting prices furthermore they use decomposition techniques to trace underlying general equilibrium effects copyright 1995 by mit press

the collective model of household consumption a nonparametric characterization we provide a nonparametric characterization of a general collective model for household consumption which includes externalities and public consumption next we establish testable necessary and sufficient conditions for data consistency with collective rationality that only include observed price and quantity information these conditions have a similar structure as the generalized axiom of revealed preference for the unitary model which is convenient from a testing point of view in addition we derive the minimum number of goods and observations that enable the rejection of collectively rational household behavior

the politics of regulation in the turkish electricity market abstract turkey began reforming the electricity market in 2001 the regulatory reform aimed to liberalize the market however the institutional and political structure was not ready for creating an efficiently working competition the independent regulator did not have both experience and will to direct the industry to a more competitive environment currently the reform has slowed down and political preferences drive the industry this paper studies the reasons for the slowdown in the reform efforts by focusing on the relationships between the government judiciary and the independent regulator we conclude that strategic behaviors of players in the market including the judiciary the government and the regulator have made the introduction of competition to the market more costly

structural path analysis and multiplier decomposition within a social accounting matrix framework the main purpose of this paper is to apply structural path analysis to a social accounting matrix sam framework because the sam is a comprehensive essentially general equilibrium data system the whole network through which influence is transmitted can be identified and specified through structural path analysis the latter provides an alternative and much more detailed way to decompose multipliers as compared with the traditional treatment of stone 1978 and pyatt and round 1979 this paper consists of five sections the first one reviews the sam framework as a basis for multiplier analysis and multiplier decomposition in particular the additive decomposition in terms of transfer open loop and closed loop effects is succinctly presented section ii applies this conventional decomposition to a sam of south korea to illustrate with eleven specific cases the effects of an exogenous injection on the endogenous accounts of the sam i e the incomes of the factors household groups and production activities section iii is devoted to the presentation of the elements of structural analysis and more particularly the transmission of economic influence within a structure finally section iv applies structural path analysis to the south korean sam and compares and contrasts the multiplier decomposition which it yields with the alternative decomposition discussed in section ii the comparison is the more significant in that the two decomposition methods are applied to the same eleven selected cases spanning a variety of sectors i e poles of origin for the injection and sectors poles of destination the empirical analysis in section iv suggests that structural path analysis applied to a sam is a potentially operationally useful technique within which a whole series of policy issues can be addressed the final section is devoted to a brief summary and conclusions

the economy wide impact of controlling energy consumption in indonesia an analysis using a social accounting matrix framework escalating oil prices and the need to control carbon emissions sound the alarm for indonesia to reduce or be more efficient in its energy use instead of eliminating the fuel oil subsidy to promote better and more efficient use of energy the indonesian government seems to be more in favour of restricting energy use by for example requiring all hotels restaurants night clubs and other business activities to close down by 1 am societies need to understand the full consequences of adopting restricting energy use and more efficient energy use strategies toward their incomes this paper aims to analyse the impact on the economy of energy policies aiming to reduce and to improve the efficiency of energy use particularly on the income of various household groups this paper will first construct a social accounting matrix for indonesia with detailed energy sectors and second utilise various multiplier analyses to observe and understand the impact of these energy policies

effects and mechanism of influence of china s resource tax reform a regional perspective abstract china s resource tax reform beginning with xinjiang as a pilot area in june 2010 marked a new stage in the progression of china s resource tax system based on the 2007 social accounting matrix sam for xinjiang constructed by ourselves this paper takes a regional perspective on china s resource tax reform to quantitatively calculate its degree of influence and qualitatively analyze its mechanism of influence by adopting an energy computable general equilibrium cge model and a sam price model the results show that the main significance of the reform lies in bolstering local government finances rather than energy conservation or carbon reduction this is because revenue will be transferred from resource enterprises and the central government to the local government while simultaneously the low tax rate narrow tax scope and unreasonable price mechanism will combine to prevent the reform from reaching its environmental goals promoting resource price mechanism reform and deepening resource tax reform will be two key elements of china s future energy strategies because resource enterprises will bear the increased burden caused by the reform the degree of sectoral price increases will be limited therefore the fear that resource tax reform will push up inflation is unnecessary and should not be a barrier to reform

on the behavioral and rational foundations of economic dynamics abstract existing uncertainties about the correct explanations for economic growth and business cycles cannot be settled by aggregative analysis within the neoclassical framework current disputes in theory rest largely on ad hoc casually empirical assumptions about departures from perfect rationality under uncertainty such disputes can only be settled by painstaking microeconomic empirical study of human decision making and problem solving microeconomic research of the kinds that are required can receive powerful guidance from the theories of human thinking that have been developed and tested over the past twenty five years by cognitive psychologists

modeling the term structure of interest rates a new approach abstract the term structure of interest rates is modeled as a random field with conditional volatility random field models allow consistency with the current shape of the term structure without the need for recalibration however most such models are gaussian with no conditional volatility state dependent volatility is introduced while a key property of gaussian random field models is retained each forward rate is part of a low dimensional diffusion process simplifying estimation and derivatives pricing the modeling approach also implies that in general the set of zero coupon bonds does not complete the market and term structure derivatives cannot always be priced by arbitrage

an essay on the foundations of friedman s methodology milton friedman s famous essay on methodology 1953 pp 3 43 has been presented as an instrumentalist argument for instrumentalism boland 1979 although friedman has stated that such characterization of his methodology is entirely correct he also says 1979 that his views on methods and the philosophy of economics can be aligned with those of the philosopher karl popper many students of the philosophy of science would be possibly shocked by such a claim since popper has so often criticized and rejected both instrumentalism and logical positivism 1965 thus against such background we present our examination of friedman s claim evidence which we gathered to determine the extent of the relationship between friedman s methodology and popper s view of science will be presented it will be argued that to a degree friedman s claim can be supported the major point is that friedman identifies with popper for two reasons 1 both friedman and popper reject positivism 2 friedman and his followers tend to argue indirectly in advancing a view by criticizing its alternatives presumably we either accept positivism for example paul samuelson carl hemple rudolph carnap among others or we do not obviously this line of argument considers only two among a possibly larger number of options a confrontation of competing views as it were as found in friedman s view of hypothesis testing a minor point is that friedman does not see popper dismissing instrumentalism completely in this he is correct since popper only criticizes instrumentalism as a philosophy of science while accepting it as a methodology for social policy except for a brief statement that factual evidence can never prove a hypothesis it can only disprove it 1953 p 9 nothing in friedman s essay seems to depend on popper s philosophy of science so if there is an alignment of friedman s view with popper s it will have to be found separately from the famous essay thus we examine the prospect with reference to his academic and research backgrounds including examples from his work and to his association with popper a corollary purpose of our essay is to indicate how friedman s view of the methodology of positive economics depends on his acceptance of some but perhaps not all of popper s philosophical discussions of the nature and purpose of science as we indicate friedman s early orientation in methods had no immediate background in established economics that the main and crucial elements of friedman s work came from outside may be gleaned from a review of these elements and their antecedents this emphasis reveals the following 1 that friedman has been incorrectly identified with logical positivism warren gramm pp 169 171 175 samuelson 1963 pp 82 83 a doctrine about the unity of science as formulated in vienna in the 1920 s and 2 that friedman is much less aligned than commonly presumed with the views of his chicago mentors in friedman s economics theories are partly arguments for alternative policies and or social reform an interdependent system of analytic constructions rather than isolated construction in economics is used to generate hypotheses and for predicting the effects of alternative policies contrary to the conventional views of statistical induction and logical deductions from known true assumptions as dealt with elsewhere boland 1979 pp 512 13 1981 the purpose of economic theory for friedman is prediction for purposes of testing and evaluating alternative policies these policies over friedman s career the university of florida and simon fraser university respectively we thank john chant stephen easton herbert grubel zane spindler and james f o conner for comments on an early draft milton friedman was cooperative in answering questions we raised we alone are responsible for the final product

an exact bond option formula this paper derives a closed form solution for european options on pure discount bonds assuming a mean reverting gaussian interest rate model as in vasicek 8 the formula is extended to european options on discount bond portfolios

shape factors and cross sectional risk abstract galluccio and roncoroni 2006 empirically demonstrate that cross sectional data provide relevant information when assessing dynamic risk in fixed income markets we put forward a theoretical framework supporting that finding based on the notion of shape factors we devise an econometric procedure to identify shape factors propose a dynamic model for the yield curve develop a corresponding arbitrage pricing theory derive interest rate pricing formulae and study the analytical properties exhibited by a finite factor restriction of rate dynamics that is cross sectionally consistent with a family of exponentially weighed polynomials we also conduct an empirical analysis of cross sectional risk affecting us swap euro bond and oil markets results support the conclusion whereby shape factors outperform the classical yield resp price factors i e level slope and convexity in explaining the underlying fixed income resp commodity market risk the methodology can in principle be used for understanding the intertemporal dynamics of any cross sectional data

median voters political systems and public policies an empirical test this paper tests the median voter hypothesis that variations in policies across political systems are caused by variations in median voter preferences the context of the empirical analysis is the tax policies of three groups of sub national governments in england in three time periods the results of a median voter model of tax policy variation are compared to the results of a mean voter model in different party systems and different electoral systems the evidence provides little support for the median voter hypothesis

an integrated economic and distributional analysis of energy policies most public policies particularly those in the energy sphere have not only efficiency but also distributional effects however there is a trade off between modelling approaches suitable for calculating those impacts on the economy for the former most of the studies have been conducted with general equilibrium models whereas partial equilibrium models represent the main approach for distributional analysis this paper proposes a methodology to simultaneously carry out an analysis of the distributional and efficiency consequences of changes in energy taxation in order to do so we have integrated a microeconomic household demand model and a computable general equilibrium model for the spanish economy we illustrate the advantages of this approach by simulating a revenue neutral reform in spanish indirect taxation with a large increase of energy taxes that serve an environmental purpose the results show that the reforms bring about significant efficiency and distributional effects in some cases counterintuitive and demonstrate the academic and social utility of this approximation

a parametric nonlinear model of term structure dynamics recent nonparametric estimation studies pioneered by ait sahalia document that the diffusion of the short rate is similar to the parametric function r superscript 1 5 estimated by chan et al whereas the drift is substantially nonlinear in the short rate these empirical properties call into question the efficacy of the existing affine term structure models and beg for alternative models which admit the observed behavior this article presents such a model our model delivers closed form solutions for bond prices and a concave relationship between the interest rate and the yields we show that in empirical analyses our model outperforms the one factor affine models in both time series as well as cross sectional tests article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

measuring the influence of energy prices in the price formation mechanism abstract environmental economics has proposed taxation on energy as a way of mitigating the pollution caused by the production and use of energy based on fossil fuels however it is generally assumed that energy is an important component of production costs and that taxes on energy have a detrimental impact on the economy this paper provides a method of analysing the extent to which energy prices influence the price formation mechanism the model used is based on a social accounting matrix sam the sam price model identifies the role of energy prices in the cost and price definition processes the empirical application is for the catalan economy and shows that energy prices have a considerable influence on both production and final prices and that different forms of energy exert asymmetric impacts on costs for sectors and consumers

oil prices and the south african economy a macro meso micro analysis abstract three levels of analysis are used to track the channels by which south africa and its people are impacted by an increase of oil prices namely the macro economic level the meso economic level and the micro economic household level the paper uses an economy and energy integrated approach to quantify these different channels the approach combines a household survey dataset and an input output dataset to implement the models results indicate that the impacts on the macroeconomy are negative with gross domestic product falling and the current account balance worsening all of the industries falling into the high intensive oil use group witness an increase of their input cost that is above the economy wide average the impact of doubling paraffin prices results in poor households in rural areas and among the black population in particular witnessing an increase of their cost of living which is much higher than their corresponding highest expenditure quintile groups an increase of transport fuel hits the richer households much harder the distributional impacts of rising transport cost as a consequence of high oil and oil products prices shows that median quintile expenditure groups observe the highest impact both in urban and rural areas and especially among the black population

cost function estimates scale economies and technological progress in the turkish electricity generation sector abstract turkish electricity sector has undergone significant institutional changes since 1984 the recent developments since 2001 including the setting up of a regulatory agency to undertake the regulation of the sector and increasing participation of private investors in the field of electricity generation are of special interest this paper estimates cost functions and investigates the degree of scale economies overinvestment and technological progress in the turkish electricity generation sector for the period 1984 2006 using long run and short run translog cost functions estimations were done for six groups of firms public and private the results indicate existence of scale economies throughout the period of analysis hence declining long run average costs the paper finds empirical support for the averch johnson effect until 2001 i e firms overinvested in an environment where there are excess returns to capital but this effect was reduced largely after 2002 technological progress deteriorated slightly from 1984 1993 to 1994 2001 but improved after 2002 overall the paper found that regulation of the market under the newly established regulating agency after 2002 was effective and there are potential gains from such regulation