market fundamentals competition and natural gas prices after the liberalisation of the gas industry trading hubs have emerged in europe although these hubs appear to be liquid market places fostering gas to gas competition the efficiency of the gas market remains a topic of interest as a fair share of gas is still traded through long term contracts with prices linked to the oil price while the number of gas suppliers to the european market is limited in order to assess the efficiency of the gas market we analyse the day ahead spot price at the dutch gas hub over the period 2011 2014 we find that the oil price had a small positive impact on the gas price changes in the concentration on the supply side did not affect the movement in gas prices the availability of gas in storages and the outside temperature negatively influenced the gas price we also find that the gas price was related to the production of wind electricity overall we conclude that the day ahead gas prices are predominantly determined by gas market fundamentals policies to further integrate gas markets within europe may extend this gas to gas competition to a larger region

optimal state dependent rules credibility and inflation inertia abstract we use a state dependent model where pricing rules are optimal to examine the costs of a money based disinflation under various assumptions about the credibility of the policy change our analysis allows us to relate actual credibility and future inflation inertia to the asymmetry of the price deviation distribution an important implication of our state dependent setting is that disinflation can be attained without substantial cost even in a situation of low credibility provided that a mechanism of price alignment eliminates the asymmetry of the price deviation distribution we also develop an analytical framework for analyzing intermediate imperfect credibility cases

distinguishing between equilibrium and integration in spatial price analysis this article introduces a new spatial price analysis methodology based on maximum likelihood estimation of a mixture distribution model incorporating price transfer cost and trade flow data this method permits differentiation between market integration and competitive market equilibrium and derivation of intuitive measures of intermarket tradability competitive market equilibrium perfect integration segmented equilibrium and segmented disequilibrium one can also use these estimates to derive semiparametric measures of time varying regime probabilities to track changing market conditions an application to trade in soybean meal among pacific rim economies demonstrates the usefulness of the method copyright 2002 oxford university press

parity reversion in real exchange rates during the post bretton woods period abstract a common view among recent studies on purchasing power parity is that the post bretton woods period is far too short to reveal any significant parity reversion in individual series of real exchange rates is this really so the answer this study shows depends very much on the statistical test being used two efficient univariate unit root tests are applied to uncover parity reversion these tests require much shorter sample sizes than conventional tests to attain the same statistical power empirical results show that parity reversion can be unveiled over the modern float if an efficient unit root test is applied

disinflation with imperfect credibility abstract this paper presents a theory of the real effects of disinflation as in new keynesian models price adjustment iis staggered across firms as in new classical models credibility is imperfect the monetary authority may not complete a promised disinflation the combination of imperfect credibility and staggering yields more plausible results than either of these assumptions alone in particular an announced disinflation reduces expected output if credibility is sufficiently low

can the us shale revolution be duplicated in continental europe an economic analysis of european shale gas resources abstract over the past decade the rapid increase in shale gas and shale oil production in the united states has profoundly changed energy markets in north america and has led to a significant decrease in american natural gas prices the possible existence of large shale deposits in continental europe mainly in france denmark the netherlands and germany has fostered speculation on whether the u s shale revolution could be duplicated in europe however a number of uncertainties notably geological technological regulatory and relating to public acceptance make this possibility unclear we present a techno economic model of shale gas production amenable to direct estimation on historical production data to analyze the main determinants of the profitability of shale wells and plays we contribute an in depth analysis of an extensive production dataset covering 40 000 wells and accounting for nearly 90 of shale gas production in the six main plays of the continental united states from 2004 to 2014 we combine this analysis with a discussion of the main differences between the american and european contexts to calibrate our model and conduct monte carlo simulations this enables us to estimate the distribution of breakeven prices for shale gas extraction in continental europe we find a median gross breakeven price before taxes and royalties of 10 1 per mmbtu this would make extraction unprofitable in europe in the current natural gas price environment with

the impact of natural disaster on energy consumption international evidence abstract this research shows that natural disasters may hurt energy consumption by using data on 123 countries over the period 1990 2015 and classifying them according to their economic development level and region based on world development indicators we employ a two step system gmm method to examine the effect of natural disasters on energy consumption presenting findings that support our hypotheses in the models and show a strong negative effect for low income countries or those in the africa region after considering an alternative proxy for natural disaster we implement quantile regression methods their results find that natural disasters exhibit a negative and significant impact on oil renewable and nuclear energy consumptions the quantile regression models used in the robustness check present that the effects are stronger for low level energy consumption economies

monetary shocks in models with inattentive producers we study models where prices respond slowly to shocks because firms are rationally inattentive producers must pay a cost to observe the determinants of the current profit maximizing price and hence observe them infrequently to generate large real effects of monetary shocks in such a model the time between observations must be long and or highly volatile previous work on rational inattentiveness has allowed for observation intervals that are either constant but long e g caballero 1989 or reis 2006 or volatile but short e g reis s 2006 example where observation costs are negligible but not both in these models the real effects of monetary policy are small for realistic values of the duration between observations we show that non negligible observation costs produce both of these effects intervals between observations are infrequent and volatile this generates large real effects of monetary policy for realistic values of the average time between observations

macroeconomic features of the french revolution this paper describes aspects of the french revolution from the perspective of theories about money and government budget constraints we describe how unpleasant fiscal arithmetic gripped the old regime how the estates general responded to reorganize france s fiscal affairs and how fiscal exigencies impelled the revolution into a procession of monetary experiments ending in hyper inflation

toward the integration of european natural gas markets a time varying approach abstract over the past fifteen years european gas markets have radically changed in order to build a single european gas market a new regulatory framework has been established through three european gas directives the purpose of this article is to investigate the impact of the reforms in the natural gas industry on consumer prices with a specific focus on gas prices for industrial use the strength of the relationship between the industrial gas prices of six western european countries is studied by testing the law of one price for the period 1991 2009 estimations were carried out using both cointegration analysis and time varying parameter models results highlight an emerging and on going process of convergence between the industrial gas prices in western europe since 2001 for the six eu member states the strength and the level of convergence differ widely between countries strong integration of gas markets in continental europe except for the belgian market has been established it appears that the convergence process between continental countries and the uk is not completed thus the integration of european gas markets remains an open issue and the question of how far integration will proceed will still be widely discussed in the coming years

the relationship between spot and contract gas prices in europe abstract following deregulations in the european gas market spot trading of natural gas has been established in the uk belgium and the netherlands while long term contracts remain the dominant pricing process in continental europe in this paper we investigate the degree of market integration between the three spot markets the contract gas price in germany and the oil price the results indicate a highly integrated market and there is no evidence of an independent price determination process for natural gas

high public debt the italian experience introduction is there a public debt problem in italy luigi spaventa the end of large public debts alberto alesina monetary and fiscal policy coordination with a high public debt guido tabellini the management of public debt and financial markets marco pagano capital controls and public finance the experience in italy alberto giovannini public debt and households demand for monetary assets in italy andrea bollino and nicola rossi

the theory of sovering debt and spain under philip ii this paper examines lending by a genoese led cartel to philip ii of spain 1556 98 from the perspective of theory on sovereign debt models in this literature suggest that the genoese linked specie deliveries from spain to the low countries to lending in order to create a penalty to enforce their loans the king tried to renege the genoese applied the penalty and the king ultimately repaid when the episode is used to examine theory the crown s observed debt ceiling and estimates of its cost of enduring the penalty and its ability to repay are in line with predctions of bulow and rogoff the nature of the penalty has the flavor of gole and kehoe s model its observation on the path of play is suggestive of atkeson s model

comment on stopping inflations big and small response to article in this issue p 759 dynamic effects of monetary policy to interpret observations on the apparent output losses associated with stabilizing large and small inflations peter ireland constructs and calibrates a model with occasional costs of adjusting nominal prices in interpreting the observations with this model ireland takes for granted that the stabilizations described in papers by robert gordon and myself were responses to credible deflations credible in the sense that once they began they were anticipated as ireland stresses the assumption that these stabilizations were anticipated is critical in diiterentiating the adjustment dynamics presented in the current paper from the very diiterent dynamics exhibited in a companion paper ireland 1995 ireland 1995 follows fischer 1986 in interpreting an adaptive expectations scheme as a shorthand description of what application of bayes law might imply in the context of an equilibrium analysis in which the public is unsure of the monetary authority s purposes for example its type and uses the history of what the government does gradually to infer its purpose its type thus ireland and fischer interpreted adaptive expectations in terms of a learning scheme with cho and matsui s 1995 inductive property through particular patterns of behavior the government can eventually manipulate the key state variable the public s beliefs about inflation ireland 1995 describes how this specification aitects a government s optimal plan for stabilizing a high inherited inflation economy the induction property discourages gradualism and rewards policies that rapidly persuade the public of the government s intentions to sustain low inflation these dynamics are entirely driven by the process of acquiring credibility the present paper studies an opposite case in which the government so freely sets the public s beliefs that they disappear as state variables the only reason that prices appear as state variables is ireland s specification of the technology for setting nominal prices ireland s specification is designed to build in a short term trade oit between inflation and output and an impact eitect of monetary expansion it would be easy to undo the nonneutrality by tampering with ireland s specification of the price setting technology for example by letting firms set the pair pt pt l during

fiscal deficits exchange rate crises and inflation this paper extends earlier work on unsustainable monetary policies by endogenizing the regime switch that ultimately restores sustainability within this framework we analyse exchange rate based stabilization programmes and show how constraints on central bank borrowing during an exchange crisis influence timing and nature of the post collapse equilibrium such constraints introduce non neutralities more restrictive pre collapse credit policies increase the post collapse inflation rate external shocks can destroy consistency between fiscal programmes and inflation targets causing reserve losses exchange rate changes and higher inflation balance of payments crises are the mechanism through which fiscal imbalances translate into higher inflation rather than an alternative explanation of it this paper deals with inflation fiscal deficits and exchange rate policy in high inflation countries the experience of the past decade has presented a series of puzzles for example countries attempting to stabilize inflation through an exchange rate freeze often saw inflation accelerate after the collapse of the experiment to levels well above those observed before the programme was implemented another puzzle concerns the relation between inflation and balance of payments crises in many countries a bop crisis forcing a change in exchange rate policy often led to a persistent increase in inflation liviatan and piterman 1984 this has led to doubts about the relevance of fiscal deficits in explaining inflationary episodes leading many to see bop crises as an independent explanation of inflation but this apparent relation is a puzzle a bop crisis cum devaluation can at most explain a jump in the price level but not a sustained increase in inflation in this paper we demonstrate that these puzzles can be explained fully by drawing on the public finance approach to inflation initiated by phelps 1973 thus the fiscal versus bop controversy is not a real one our analysis shows that bop crises and exchange rate shifts are part of the mechanisms through which fiscal imbalances translate into higher inflation rather than alternative explanations to make these points we present a simple open economy model to analyse the transition to a fixed exchange rate regime discuss sustainability and demonstrate what happens when policy measures are inconsistent and the fixed regime unsustainable we also demonstrate how the constraints under which the central bank has to operate the exchange rate regime influence the timing of the attack the post collapse inflation rate and the effects of pre collapse fiscal policy on the post collapse equilibrium the analysis builds on the work of sargent and wallace 1982 and liviatan 1984 on unsustainable monetary policies cf buiter 1988 1989 and drazen and helpman 1987 for open economy variants contrary to this literature we link the timing of the regime switch towards sustainable policies to rational speculative behaviour rather than assuming it to be exogenous the introduction of rational speculators forcing a regime switch draws on the literature on speculative attacks on central bank reserves initiated by 8i

european market integration for gas volume flexibility and political risk this is a copy of an article originally published by elsevier in energy economics see http www sciencedirect com science journal 03014215 2002 elsevier science b v

assessing target zone credibility mean reversion and devaluation expectations in the erm 1979 1992 abstract the paper presents estimates of devaluation expectations for six erm currencies relative to the deutsche mark for the period march 1979 april 1992 both the simplest test and the drift adjustment method are used the simplest test adjusts interest rate differentials for the maximum and minimum expected rate of depreciation within the exchange rate band the drift adjustment method adjusts interest rate differentials by the estimated expected rate of depreciation within the band the latter method gives more precise estimates especially for short horizons and allows statistical inference and hypothesis testing expected rates of devaluation have generally fallen during the period still some devaluation expectations relative to the deutsche mark remain in 1992 except for the belgian luxembourg franc and the netherlands guilder expected rates of devaluation have fluctuated more than interest rate differentials

time consistent fiscal policy and government cash flow abstract this short paper provides an interpretation and some extensions of lucas and stokey s results on optimal fiscal policy the discussion relies heavily on the concept of government cash flow which is related but not equal to the budget surplus time consistency of the optimal policy requires that a positive cash flow is used to buy up some debt of each maturity and contingency

convergence of european natural gas prices abstract over the period 2015 2050 the consumption of natural gas of european oecd countries is expected to grow more than the consumption of any other energy source although these countries are interconnected and in most cases share a common currency their wholesale national gas markets are highly heterogeneous we study the determinants of cross country convergence of natural gas prices for industrial consumers in fourteen european countries our empirical analysis is based on the notions of pairwise relative and convergence we show that there is evidence of pairwise price convergence and that some key characteristics of gas markets such as the existence of trading hubs and the degree of interconnection are positively associated with the existence of a convergence process this result carries over to the notion of convergence and is robust to a number of changes in the implementation of the statistical tests the analysis of relative convergence points to the existence of price growth convergence while price level convergence is not supported by the data lastly we assess the short run implications of price convergence focusing on the speed of reversion to equilibrium after a system wide shock hits the cointegrating relation

a markov switching analysis of contagion in the ems abstract this paper applies the multivariate version of the forbes and rigobon 2002 contagion test as proposed by dungey et al 2005a to detect contagion effects in the exchange rate mechanism erm of the european monetary system ems crisis and non crisis observations are determined endogenously via a markov switching vector autoregression msvar we show that the msvar is suitable for this purpose as it does particularly well in identifying the 11 realignments of the erm we examine whether denmark s rejection of the maastricht treaty and italy s competitiveness problems affected other ems participants and find evidence for contagion

selection and monetary non neutrality in time dependent pricing models for a given frequency of price adjustment monetary non neutrality is smaller if older prices are disproportionately more likely to change selection for the age of prices provides a complete characterization of price setting frictions in time dependent models selection for older prices is weaker and non neutralities are larger if the hazard function of price adjustment is less strongly increasing selection is weaker if there is heterogeneity in price stickiness finally selection is weaker if durations of price spells are more variable in particular the taylor 1979 model exhibits maximal selection for older prices whereas the calvo 1983 model exhibits no selection

price setting with menu cost for multi product firms we model the decisions of a multiproduct firm that faces a fixed menu cost once it is paid the firm can adjust the price of all its products we characterize analytically the steady state firm s decisions in terms of the structural parameters the variability of the flexible prices the curvature of the profit function the size of the menu cost and the number of products sold we provide expressions for the steady state frequency of adjustment the hazard rate of price adjustments and the size distribution of price changes all in terms of the structural parameters we study analytically the impulse response of aggregate prices and output to a monetary shock the size of the output response and its duration both increase with the number of products they more than double as the number of products goes from 1 to 10 quickly converging to the response of taylor s staggered price model

why are prices sticky preliminary results from an interview study this paper reports preliminary results from a large research project on business pricing which is currently underway the idea is to use interviews with actual price setters to assess the validity of a dozen theories of price stickiness the rather unorthodox for economists methodology is defended the research design is described briefly and a few results based on the first 72 interviews out of a projected 200 are presented this sample suggests that the median firm changes its price annually and that price adjustments typically lag 3 4 months behind shocks to demand or cost this abstract was borrowed from another version of this item

the democratic advantage institutional foundations of financial power in international competition despite their presumed liabilities institutions associated with democracy serve as a source of power in prolonged international competition by increasing the financial resources that states can bring to bear the theory of sovereign debt suggests that a state s ability to raise money through public borrowing is enhanced when debtholders have mechanisms for sanctioning state leaders in the event of default institutions associated with liberal government provide such mechanisms all other things being equal states that possess these institutions enjoy superior access to credit and lower interest rates than do states in which the sovereign has more discretion to default unilaterally liberal states can not only raise more money from a given economic base but can also pursue tax smoothing policies that minimize economic distortions the ability to finance competition in a manner that is consistent with long term economic growth generates a significant advantage in prolonged rivalries these claims are explored by analyzing the anglo french rivalry 1688 1815 and the cold war

time dependent or state dependent wage setting evidence from periods of macroeconomic instability administrative data on monthly wages in iceland during 1998 2010 provide new insight into nominal wage rigidity unlike the data used in previous work ours have a higher frequency minimal measurement error and a long sample including a period of substantial macroeconomic instability we find that the monthly frequency of nominal wage changes is 13 percent although nominal wage cuts are rare their frequency rises following a large macroeconomic shock timing of wage changes is both time dependent and state dependent we find evidence of synchronization of adjustment and contracts of fixed duration but also that inflation and unemployment over the wage spell affect the timing of adjustment

why are stabilizations delayed when a stabilization has significant distributional implications e g tax increases to eliminate a large budget deficit socioeconomic groups may attempt to shift the burden of stabilization onto other groups the process leading to stabilization becomes a war of attrition each group attempting to wait the others out and stabilization occurring only when one group concedes and bears a disproportionate share of the burden the authors solve for the expected time of stabilization in a model of rational delay and relate it to several political and economic variables they motivate this approach and its results by comparison to historical and current episodes copyright 1991 by american economic association

powerful pacifists democratic states and war democracies are less likely to fight wars with each other they are also more likely to prevail in wars with autocratic states i offer an explanation of this syndrome of powerful pacifism drawn from the microeconomic theory of the state state rent seeking creates an imperialist bias in a country s foreign policy this bias is smallest in democracies where the costs to society of controlling the state are relatively low and greatest in autocracies where the costs are higher as a result of this bias autocracies will be more expansionist and in turn war prone in their relations with each other where the absence of this imperialist bias is manifest the relative pacifism of democracies appears in addition democracies constrained by their societies from earning rents will devote greater absolute resources to security enjoy greater societal support for their policies and tend to form overwhelming countercoalitions against expansionist autocracies it follows that democracies will be more likely to win wars

paralyzed by fear rigid and discrete pricing under demand uncertainty we propose a new theory of price rigidity based on firms knightian uncertainty about their competitive environment this uncertainty has two key implications first firms learn about the shape of their demand function from past observations of quantities sold this learning gives rise to kinks in the expected profit function at previously observed prices making those prices both sticky and more likely to reoccur second uncertainty about the relationship between aggregate and industry level inflation generates nominal rigidity we prove the main insights analytically and quantify the effects of our mechanism our estimated quantitative model is consistent with a wide range of micro level pricing facts that are typically challenging to match jointly it also implies significantly more persistent monetary non neutrality than in standard models allowing it to generate large real effects from nominal shocks

regime switching analysis for the impacts of exchange rate volatility on corporate values a taiwanese case a second moment regime switching model with not only a switching intercept and a switching slope but also a switching error variance is applied to examine the impacts of exchange rate volatility erv on corporate values cv for the 10 industries investigated in taiwan two different regimes categorized as strong impact and weak impact are identified the dominant power varies from one industry to another the wald statistics for the null of equality are ambiguous which show that if the markov switching ms model is plausible then the erv might not be one major factor but another factor that could switch the cv of taiwan s industries for the model s volatility influence the data of 8 out of 10 industries are shown to fit a two state model when the volatility is stimulated a two state first order ms model is appropriate for the goodness of fit analysis at the 10 significant level

costs of price adjustment and the welfare economics of inflation and disinflation this paper studies the welfare consequences of inflation and disinflation in a model in which monopol istic firms incur a fixed cost of price adjustment it is shown that a moderately increasing price level is associated with higher social welfare than a perfectly stable price level and the model therefore provides theoretical support for the widespread belief that a little bit of inflation is good for the economy nevertheless it is also tr ue that the eradication of a moderate inflation leads to an increase in social welfare copyright 1988 by american economic association

a fundamental analysis on the implementation and development of virtual natural gas hubs abstract the ongoing gas market liberalization in europe has brought up a new competitive environment in which shippers i e companies that are responsible for conveying gas from producers to consumers must adapt their behavior to the changing conditions the development of gas virtual hubs increases market interactions among shippers but the oligopolistic market structure may give room for strategic behavior the market is in addition segmented by type of costumer each shipper maximizes its profit by supplying gas to households businesses and industries conventional costumers participating in the electricity market trading in the global lng spot market and interacting with the rest of shippers in a virtual hub during the hub implementation and development the following questions arise how do shippers behave at the different levels of hub maturity and to what extent does the implementation of virtual hubs in entry exit systems diminish the barriers to entry of new market players provides more flexibility and fosters competition with this aim the decision making process of the different shippers is simulated under different market structures representing four stages of the market liberalization process at different levels of hub maturity first the proto liberalization case includes the global lng spot market which is represented as a perfectly competitive market the electricity market which is represented as an oligopoly and the conventional demand which is assumed to be captive i e monopolized second a hub is implemented which provides transparency and reduces information costs by revealing the gas price third switching rates are expected to grow as consumers have access to a transparent gas price hence the conventional demand is no longer considered as captive fourth wholesale procurement and retail activities are unbundled and a wholesale market is established where the retailers presumably buy gas from the shippers thereby wholesale and retail activities acquire importance and market transactions i e liquidity increase from the simulation and the analysis of the different market equilibria the following conclusions emerge first with the introduction of the virtual hub the marginal cost of all shippers reaches a unique value i e the transparent gas hub price second the aggregated profit of the shippers is increasing even when anticompetitive behavior is not explicitly represented due to the flexibility gained by shippers with the hub accordingly and third the hub is a necessary but not sufficient condition to increase competition the entry of new players is critical and discouraging market regulations or the anticompetitive behavior of a highly concentrated market may not facilitate it

monetary shocks in models with observation and menu costs we study economies where price stickiness arises due to the simultaneous presence of both menu and information costs we identify the relative importance of these costs using firm s survey data and analyze the response of prices and output following a permanent unexpected monetary shock for a given frequency of price adjustment we find that the information friction significantly amplifies the real effect of the shock when the shock is small or when it is not known by firms instead when the shock is large and known to firms the flexibility of prices increases and the real effects gradually vanish

choosing between time and state dependence micro evidence on firms price reviewing strategies because of recent findings based on survey data it is now well known that firms differ from each other with respect to their price reviewing strategies while some firms review their prices at fixed intervals of time others prefer to perform price revisions in response to changes in economic conditions some theories have been suggested to explain this however empirical evidence on the relative importance of the factors that determine the different strategies of firms is virtually non existent in this paper we help to fill this gap by investigating the factors that explain why firms follow time dependent state dependent or both time and state dependent price reviewing rules we find that the strategies of firms vary with firm characteristics that have a bearing on the importance of information costs with the variability of the optimal price and with the sensitivity of profits to non optimal prices

budgetary deficits and ricardian equivalence the case of india 1950 1986 abstract in this paper we analyze the validity of the ricardian equivalence re theorem for a less developed country ldc i e india for the period 1950 1986 the re theorem states that it is inconsequential whether a government deficit is financed by debt issue or by tax increases since under certain conditions the effect of government consumption on aggregate demand is orthogonal to the mode of financing fiscal deficits because rational economic agents consider today s deficit financing as tomorrow s tax liabilities the use of multicointegration analysis and estimation of the rational expectations model both invalidate the re hypothesis in india there are significant crowding out effects on private consumption but such effects on private investment are insignificant because they are expected to be already included in the effect of interest rates

postwar british economic growth and the legacy of keynes the policies used by britain to finance world war ii represented a dramatic departure from the policies used to finance earlier wars and were very different from the policies used by the united states during the war following keynes s recommendations britain taxed capital income at a much higher rate than the united states during the war and for much of the postwar period we analyze quantitatively the policies designed by keneys using an endogenous growth model and the ncoclassical growth model we also evaluate the implications of tax smoothing policies we find that the welfare costs of keynes s policies were very high relative to a tax smoothing policy and argue that britain s poor macroeconomic performance in the early postwar period is a consequence of the high tax rates levied on capital income

default risk and optimal debt management the role of movements in real rates in explaining the relationship between long and short term interest rates is explored within a model of optimal government debt management the government s incentives to resort in the future to inflation and ex post debt taxation in order to reduce the real value of its nominal liabilities have an impact on term premia and hence on the short long spread in particular default risk and consequently long term interest rates increase with the size of outstanding debt and the level of real rates in the presence of short maturities indexed debt and anti inflationary governments optimal maturity either lengthens or shortens with inflation risk depending on the time profile of government expenditure while it always lengthens with default risk however when the stock of debt is extremely large the compensation for default risk required by the agents on long term bonds may be so high that only shortterm debt can be issued the implications of this model are consistent with the observed behavior of risk premia in some highly indebted countries 2000 elsevier science b v all rights reserved jel classification h63 h43

italy the real effects of inflation and disinflation over the past 15 years the italian economy has experienced rather uncommon developments by comparison with the rest of europe these developments have been described alternatively in terms of near collapses miracles or impending bankruptcy such dramatic characterizations are of little help in understanding what happened yet they somehow reflect a history of large and often unexpected changes and a sequence of policy turn arounds from a distance the italian experience still raises some issues of general interest regarding the means and the timing of an adjustment process in italy return to profitability was pursued before macroeconomic stabilization instead of resulting from it as happened elsewhere it is indeed our contention that this evolution is sometimes commendable adjustment in italy was quicker and less costly in terms of output investment and employment

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

fiscal policy debt management and exchange rate credibility lessons from the recent italian experience abstract this paper explores some potential determinants of exchange rate credibility with reference to the italian experience of the 1990s the analysis relies on a nonlinear framework emphasizing shifts between credible and non credible states and assuming a significant degree of persistence in the above regimes almost all fiscal and debt management indicators display significant effects on devaluation expectations the main policy implications of the paper are that a restrictive fiscal stance a lengthening of average debt maturity and an increase in the share of foreign denominated debt are crucial to stabilize the lira exchange rate and to qualify italy in the former group of countries which will join emu

comparing the strength of nations the political capacity of advanced societies is measured we show that politically capable governments can mobilize vast resources from the society under the stress of war but totalitarian democr

market analysis methods are our enriched toolkits well suited to enlivened markets the past fifteen years have brought historic reduction of government intervention in agricultural markets in the developing world most economists and policy makers believe these reforms enliven markets previously fettered by excessive government authority nonetheless the impact of market oriented reforms on the spatial and intertemporal extent and the competitiveness of markets remains an inherently empirical question meanwhile there also have been major innovations in methods used to analyze markets and prices due largely to the rapidly emerging time series econometric literature agricultural economists toolkits have changed nearly as rapidly and dramatically as have developing economy markets but can these enriched toolkits answer the

price points and price dynamics abstract a standard model of price setting is extended to include an important role for price points as well as sticky information it makes empirically reasonable predictions about the frequency of price adjustments the sizes of price increases and decreases the shape of the hazard function the fraction of price changes that are price increases and the relationship between price changes and inflation when the model of price setting is integrated into a small scale dsge model it implies plausible aggregate effects of monetary policy in contrast to a model with a prominent role for price points but no information rigidities

competition in gas markets abstract this paper discusses some of the current regulatory issues that arise in gas markets under perfect or imperfect competition it first presents a benchmark model of gas transportation pricing when all markets are competitive optimal prices and capacities are characterized both without and with a break even constraint for the transportation operator elaborating on this framework it then studies the appropriate dimensioning of the transportation network when an otherwise unregulated supplier exerts market power specifically it points to the possibility of building up excess transmission capacity in order to mitigate local market power

what makes the output inflation trade off change the absence of accelerating deflation in japan it is standard to model the output inflation trade off as a linear relationship with a time invariant slope we assess empirical evidence for two sets of theories that allow for endogenous variation in the slope of the short run phillips curve at an empirical level we examine why large negative output gaps in japan in the late 1990s did not lead to accelerating deflation but instead coincided with stable albeit moderately negative inflation our results suggest that this episode is most convincingly interpreted as reflecting a gradual flattening of the phillips curve we find that this flattening is best explained by models with endogenous price durations these models imply that in any economy where trend inflation is substantially lower or substantially higher today than in past decades time variation in the slope of the phillips curve has become too important to ignore

a tale of two rigidities sticky prices in a sticky information environment macroeconomic models with microeconomic foundations allow for comparisons with macro and micro empirical evidence this paper proposes a model wherein firms i acquire information infrequently generating sticky information mankiw and reis 2002 and ii face menu costs producing state dependent sticky prices i estimate parameters via indirect inference and show that under considerable real rigidity sticky prices in a sticky information environment are consistent with micro and macro evidence sticky prices not only help match micro data on price changes size and durations between adjustments they also improve the model s fit with the macro data as embodied in an empirical phillips curve

monopolistic competition and the effects of aggregate demand how important is monopolistic competition to an understanding of the effects of aggregate demand on output we ask the question at three levels can monopolistic competition by itself explain why aggregate demand movements affect output can it together with other imperfections generate effects of aggregate demand in a way that perfect competition cannot if so can it give an accurate account of the response of the economy to aggregate demand movements the answers are no yes and yes

the macroeconomic effects of infrequent information with adjustment costs we extend the macroeconomic literature on ss type rules by introducing infrequent information in a kinked adjustment cost model we first show that optimal individual decision rules are both state and time dependent we then develop an aggregation framework to study the macroeconomic implications of such optimal individual decision rules in our model a vast number of agents act together and more so when uncertainty is large the average effect of an aggregate shock is inversely related to its size and to aggregate uncertainty these results contrast with those obtained with full information adjustment cost models jel classification e0 e1 e2 e3 les effets macroeconomiques de l information infrequente quand il y a des couts d ajustement les auteurs etendent la portee de la litterature specialisee sur les regles de type ss en proposant des postulats d information infrequente et de fonction de couts d ajustement pliee on montre que les regles de decision optimales des individus dependent a la fois de l etat de l environnement et du moment on developpe alors un cadre d agregation pour etudier les impacts macroeconomiques de ces regles optimales de decision dans ce modele un grand nombre d agents agissent de concert et optimales ce d autant plus que l incertitude s accroit l effet moyen d un choc au niveau global est inversement reliea son importance et au niveau d incertitude agregee ces resultats contredisent ceux qu on obtient dans des modeles de couts d ajustement avec pleine information

rational expectations econometric analysis of changes in regime an investigation of the term structure of interest rates abstract this paper is of interest both for its methodological contribution of new tools for analyzing rational expectations models and for its substantive conclusions concerning the term structure of interest rates during the monetary experiment of october 1979 the paper studies systems subject to changes in regime interpreted here as occasional discrete shifts in the parameters governing the time series behavior of exogenous economic variables the specification is shown to be quite tractable both theoretically and empirically the technique is used to analyze yields on three month treasury bills and ten year treasury bonds during 1962 to 1987 a constant parameter linear model for short term rates is shown to be inconsistent both with the univariate time series properties of short rates and with the observed bivariate relation between long and short rates under the expectations hypothesis of the term structure an alternative nonlinear model that admits the possibility of changes in regime affords a much better description of the univariate process for short rates moreover the cross equation restrictions implied by the expectations hypothesis of the term structure are consistent with the nonlinear specification indeed the residuals of the restricted relation have a standard error of only 0 8 basis points this is a third less than that of a completely unrestricted linear regression of long rates on short rates and compares with an unconditional standard deviation of long rates of 142 basis points i conclude that once the recognition by bond traders of changes in regime is taken into account the expectations hypothesis of the term structure of interest rates holds up fairly well for these data

germany and the world economy a german view germany and the world economy a round table discussion led by gerhard fels and hans peter froehlich many countries most notably the us have called for a german expansion to date germany has not acceded to these requests and fels and froehlich set out the german position they argue that large budget deficits in 1980 82 and the consequent increase in the debt burden left little alternative to a strategy of fiscal consolidation any contractionary effect on demand may have been more than offset by the favourable effect on private sector expectations the result of this fiscal austerity coupled with a tight monetary policy has been a moderation of inflation and after an initial recession a period of sustained growth any german fiscal expansion would push world real interest rates even higher but would do little to improve the us current account further germany s strongly counterinflationary policies have been an important factor in the success of the ems some easing of the fiscal stance might occur were the us to come to grips with its own deficit problems a reduction of the tax burden and a removal of trade barriers remain the best policies to sustain medium term growth germany s critics remained unconvinced olivier blanchard argued that the german recovery falls well short of that required to restore full employment and that the fiscal contraction of 1982 85 was unwarranted by the existing levels of deficits and debt there was little evidence that the laws of economics had been repealed and that fiscal austerity had actually fostered expansion in germany from a european perspective marcus miller noted that german austerity had helped underpin the anti inflation policy of ems countries however the twin pressures of a tightening us fiscal policy and a falling and more competitive dollar would require a deliberate and concerted european policy expansion if yet higher unemployment was to be avoided in europe a german u turn was especially desirable at this particular juncture

coordination commitment and enforcement the case of the merchant guild we interpret historical evidence in light of a repeated game model to conclude that merchant guilds emerged during the late medieval period to allow rulers of trade centers to commit to the security of alien merchants the merchant guild developed the theoretically required attributes secured merchants property rights and evolved in response to crises to extend the range of its effectiveness contributing to the expansion of trade during the late medieval period we elaborate on the relations between our theory and the monopoly theory of merchant guilds and contrast it with repeated game theories that provide no role for formal organization

what drives natural gas prices a structural var approach abstract in this study we develop a structural vector autoregressive model var for the german natural gas market our setup allows us to analyze the determinants of the natural gas price in a comprehensive framework in particular we illustrate the usefulness of our approach by disentangling the effects of different fundamental influences on gas prices during three recent supply interruptions the russian ukrainian gas dispute of january 2009 the libyan civil war in 2011 and the withheld russian exports in february 2012 our results show that the natural gas price is affected by temperature storage and supply shortfalls in the short term while the long term development is closely tied to both crude oil and coal prices capturing the economic climate and the substitution relationship between the different energy commodities

price interactions and discovery among natural gas spot markets in north america recent advances in modeling causal flows with time series analysis are used to study relationships among eight north american natural gas spot market prices results indicate that the canadian and us natural gas market is a single highly integrated market further results indicate that price discovery tends to reflect both regions of excess demand and supply across north america malin hub in oregon chicago hub illinois waha texas and henry hub louisiana region are the most important markets for price discovery opal hub in wyoming is an information sink in contemporaneous time receiving price information but passing on no price information aeco hub in alberta canada receives price signals from several markets and passes on information to opal and the oklahoma region

endogenous time dependent rules and inflation inertia in this paper we endogenize fixed price time dependent rules to examine the output effects of monetary disinflation we derive the optimal rules in and out of inflationary steady states and develop a methodology to aggregate individual pricing rules which vary through time because of strategic complementarities we have to solve both problems simultaneously this allows us to reassess the output costs of monetary disinflations including aspects such as the roles of the initial level of inflation and of the degree of strategic complementarity in price finally we relax the strict assumption of pure time dependent rules by allowing price setters to re evaluate their rules at the time disinflation is announced

is firm pricing state or time dependent evidence from u s manufacturing abstract if pricing is state dependent firms are more likely to adjust whenever aggregate and idiosyncratic shocks reinforce each other and trigger desired price changes in the same direction using measures of technology shocks derived from production function estimates for four digit u s manufacturing industries i find that sectoral inflation rates are more sensitive to negative as opposed to positive technology disturbances in periods of higher economy wide inflation commodity price increases and expansionary monetary policy shocks i argue using a state dependent sticky price model that matches salient features of the u s microprice data that these results suggest that pricing is state dependent in u s manufacturing

the role of social security in an economy with asymmetric information and financial intermediaries abstract we study an overlapping generations model with production asymmetric information and competitive financial intermediaries social security may be beneficial even when it should not be used under full information unless credit rationing emerges with pooling contracts in this case social security could be welfare reducing even when the safe rate of return falls short of population growth we provide a full characterization of constrained pareto efficient allocations and prove that when the expected marginal product exceeds population growth and high risk firms have a low probability of default no tax transfer policy can support these allocations as competitive equilibria when equilibria are constrained inefficient optimal contracts are pooling and the optimal stock market value is zero

the equilibrium and optimal timing of price changes this paper studies the welfare properties of the equilibrium timing of price changes staggered price setting has the advantage that it permits rapid adjustment to firm specific shocks but the disadvantages that it causes unwanted fluctuations in relative prices and that by creating price level inertia it can increase aggregate fluctuations because each firm ignores its contribution to these problems staggering can be a stable equilibrium even if it is highly inefficient in addition there can be multiple equilibria in the timing of prices changes indeed whenever there is an inefficient staggered equilibrium there is also an efficient equilibrium with synchronized price setting

international market integration for natural gas a cointegration analysis of prices in europe north america and japan this paper investigates the degree of integration of natural gas markets in europe north america and japan in the time period between the early 1990s and 2004 the relationship between international gas market prices and their relation to the oil price are explored through principal components analysis and johansen likelihood based cointegration procedure both of them show a high level of natural gas market integration within europe between the european and japanese markets as well as within the north american market at the same time the obtained results suggest that the european respectively japanese and the north american markets were not integrated

optimal price setting with observation and menu costs we study the price setting problem of a firm in the presence of both observation and menu costs in this problem the firm optimally decides when to collect costly information on the adequacy of its price an activity which we refer to as a price review upon each review the firm chooses whether to adjust its price subject to a menu cost and when to conduct the next price review this behavior is consistent with recent survey evidence documenting that firms revise prices infrequently and that only a few price revisions yield a price adjustment the goal of the paper is to study how the firm s choices map into several observable statistics depending on the level and relative magnitude of the observation vs the menu cost the observable statistics are the frequency of price reviews the frequency of price adjustments the size distribution of price adjustments and the shape of the hazard rate of price adjustments we provide an analytical characterization of the firm s decisions and a mapping from the structural parameters to the observable statistics we compare these statistics with the ones obtained for the models with only one type of cost the predictions of the model can with suitable data be used to quantify the importance of the menu cost vs the information cost we also consider a version of the model where several price adjustment are allowed between observations a form of price plans or indexation we find that no indexation is optimal for small inflation rates

aggregation and optimization with state dependent pricing the literature on the aggregation of s s policies has ignored the impact of aggregate behavior on the individual s optimization problem in the case of pricing the feedback effects are clear not only do pricing strategies determine the evolution of the price level but the evolution of the price level also influences the optimal pricing strategies in this paper we provide a consistent treatment of aggregation and optimization we use this model to analyze three issues in the menu cost pricing literature the relationship between strategic complementarity and the real effects of money the relationship between the variance of the money supply and the correlation between money and output and the relationship between the cost of price adjustment and the size of price adjustment questions concerning the dynamics of aggregate variables such as prices employment investment and consumption represent the core of business cycle analysis one striking feature of these variables is the radical difference between properties of these aggregates and the nature of the individual behavior that underlies them the behavior of a firm s prices investment and employment and the behavior of an individual s consumption all involve frictional elements that lead to discrete adjustment at the microeconomic level heterogeneity among individuals however tends to smooth the behavior of the corresponding aggregates in recent years a large body of research has developed to examine the manner in which microeconomic frictions influence aggregate dynamics one of the centerpieces of this research has been the s s model developed by arrow harris and marschak 1951 the key element of this model is the state dependence of individual decisions agents act when a state variable crosses some critical threshold which balances the cost and benefits of adjustment the aggregate implications of this form of microeconomic behavior have been analyzed by blinder 1981 caplin 1985 and mosser 1991 in the context of inventory dynamics by caplin and spulber 1987 caballero and engel 1991 1993 and caplin and leahy 1991 in the context of prices and by bertola and caballero 1990 caballero 1993 and eberly 1994 in the context of con sumer durables one of the most limiting aspects of these models is that they focus exclusively on the impact that microeconomic inertia has on aggregate dynamics they 1we would like to thank michael harrison loannis karatzas john leahy sr andreu mas colell a co editor and four anonymous referees for helpful discussions and comments and the national science foundation and the sloan foundation for financial support

the rigidity of prices this paper uses evidence on individual transaction prices to analyze price behavior the evidence shows that for many transactions pricesremain rigid for periods exceeding one year the rigidity of price ispositively correlated with industry concentration for several productsthe correlation of price changes across buyers is low the paper alsoinvestigates the relationship between price rigidity price change andthe length of time a buyer and seller have been doing business together the author interprets the evidence as emphasizing the importance of nonprice rationing and the inadequacy of models in whichprice movements alone clear markets copyright 1986 by american economic association

optimum pricing policy under stochastic inflation we describe aggregate inflation as a stochastic process in which the rate of change of the price level can be positive or zero where the times spent in each state are of random duration this class of processes includes two state markov chains and renewal processes as special cases it is shown that the optimal pricing policy of a monopolistic firm with non convex costs of price adjustment is s s in its real price i e its nominal price relative to the price level a basic certainty equivalence result is proved i e the firm behaves as if it faces a certain and fixed rate of inflation higher than the actual expected rate the difference between the two rates being a risk premium which depends on the real interest rate and the parameters of the stochastic process one can thus apply previous results from the case of certainty sheshinski and weiss review of economic studies 1977 to obtain comparative static results in particular one finds that an increase in the variance of expected inflation leads firms to choose a pricing policy with larger amplitude in real price the paper also addresses the question of consistency in firms expectations when the price level is determined by the firms actions in this paper we consider pricing policies of individual firms in an inflationary environment each firm expects the general price level to increase and must determine the rate of increase of its own price it is assumed that the firm incurs an adjustment cost when it changes its nominal price consequently firms choose to change prices occasionally rather than continuously

the geopolitical impact of the shale revolution exploring consequences on energy prices and rentier states while the shale revolution was largely a us affair it affects the global energy system in this paper we look at the effects of this spectacular increase in natural gas and oil extraction capacity can have on the mix of primary energy sources on energy prices and through that on internal political stability of rentier states we use two exploratory simulation models to investigate the consequences of the combination of both complexity and uncertainty in relation to the global energy system and state stability our simulations show that shale developments could be seen as part of a long term hog cycle with a short term drop in oil prices if unconventional supply substitutes demand for oil these lower oil prices may lead to instability in rentier states neighbouring the eu especially when dependence on oil and gas income is high youth bulges are present or buffers like sovereign wealth funds are too limited to bridge the negative economic effects of temporary low oil prices

downstream integration of natural gas prices across u s states evidence from deregulation regime shifts abstract this study examines the cointegration between city gate and residential retail natural gas prices at the u s state level using monthly data from 1989 1 to 2012 12 both price series are tested for unit roots using the harris 2009 procedure to endogenously identify structural breaks related to deregulation associated with ferc order no 636 the endogenously determined structural breaks are then used in the saikkonen and lutkepohl 2000a 2000b 2000c maximum likelihood approach to test cointegration of the series tests show cointegration of the two price series for all 50 states estimates of the long run relationship in the pre and post structural break periods result in mixed evidence about the degree of perfect market integration induced by deregulation although the magnitude and variation of parameters indicate increased integration a vector error correction model is used to infer causality in the short and long run dynamics for the pre and post structural break periods for each state the post break period exhibits bidirectional causality in both short and long run dynamics for all states an indication of greater downstream integration of the natural gas market

how does the u s natural gas market react to demand and supply shocks in the crude oil market abstract in this paper we use monthly data over the period from january 1976 to december 2012 and a structural var model to disentangle demand and supply shocks in the global crude oil market and investigate their effects on the real price of natural gas in the united states we identify the model by assuming that innovations to the real price of crude oil are predetermined with respect to the natural gas market and show that close to 45 of the variation in the real price of natural gas can be attributed to structural supply and demand shocks in the global crude oil market

on inflation and output with costly price changes a simple unifying result this paper determines the real effects of credible disinflation when price setting is staggered the results are surprising a fairly quick disinflation causes a boom this finding suggests that nominal price rigidity alone does not explain why disinflation is costly in actual economies this abstract was borrowed from another version of this item

state dependent pricing and the general equilibrium dynamics of money and output economists have long suggested that nominal product prices are changed infrequently because of fixed costs in such a setting optimal price adjustment should depend on the state of the economy yet while widely discussed statedependent pricing has proved difficult to incorporate into macroeconomic models this paper develops a new tractable theoretical state dependent pricing framework we use it to study how optimal pricing depends on the persistence of monetary shocks the elasticities of labor supply and goods demand and the interest sensitivity of money demand

the message in north american energy prices how similar is the price behavior of north american natural gas fuel oil and power prices using current state of the art econometric methodology we explore the degree of shared trends across north american energy markets across these markets there appear to be effective arbitraging mechanisms for the price of natural gas and fuel oil but not for the price of electricity

disparate information and the probability of currency crises empirical evidence abstract this paper tests the impact of the distribution of information on the probability of currency crises within a markov switching framework less disparate information among domestic and foreign investors proxied by premia on country funds lowers the probability of a crisis

a shaky business natural gas extraction earthquakes and house prices the production of natural gas is strongly increasing around the world long run negative external effects of extraction are understudied and often ignored in social cost benefit analyses one important example is that natural gas extraction leads to soil subsidence and subsequent induced earthquakes that may occur only after a couple of decades we show that induced earthquakes that are noticeable to residents generate substantial non monetary economic effects as measured by their effects on house prices also when house owners are fully compensated for damage to their houses to address the issue that earthquakes do not occur randomly over space we use temporal variation in the occurrence of noticeable earthquakes while controlling for the occurrence of earthquakes that cannot be felt by house owners we find that earthquakes that are noticeable with peak ground velocities of above half a cm s lead to price decreases of 1 9 percent the total non monetary costs of induced earthquakes for groningen are about 170 million about 600 per household these results indicate that the non monetary costs are in the same order of magnitude as the monetary damage costs