a transmission cost based model to estimate the amount of market integrable wind resources in the pursuit of the large scale integration of wind power production it is imperative to evaluate plausible frictions among the stochastic nature of wind generation electricity markets and the investments in transmission required to accommodate larger amounts of wind if wind producers are made to share the expenses in transmission derived from their integration they may see the doors of electricity markets closed for not being competitive enough this paper presents a model to decide the amount of wind resources that are economically exploitable at a given location from a transmission cost perspective this model accounts for the uncertain character of wind by using a modeling framework based on stochastic optimization simulates market barriers by means of a bi level structure and considers the financial risk of investments in transmission through the conditional value at risk the major features of the proposed model which is efficiently solved using benders decomposition are discussed through an illustrative example

tracking the new economy using growth theory to detect changes in trend productivity abstract the acceleration of productivity after 1995 prompted a debate over whether the economy s underlying growth rate would remain high in this paper we draw on growth theory to identify variables other than productivity namely consumption and labor compensation to help estimate trend productivity growth we treat that trend as a common factor with two regimes high and low growth our analysis picks up striking evidence of a return in 1997 to the high growth regime nearly 25 years after a switch from high to low growth we find that both the common factor and regime switching aspects of the model are important for identifying changes in trend productivity and also show that the trend breaks are more difficult to detect with per capita as opposed to per hour based data because of persistent labor supply shifts finally we argue that our methodology is effective in detecting changes in trend in real time in the case of the 1990s the methodology would have signaled the regime switch by 1999 or within roughly six quarters of when it occurred according to the full sample

monetary policy in the presence of asymmetric wage indexation we study optimal monetary policy in the presence of asymmetric wage indexation we find that the monetary authorities do not react to small output shocks and that their reaction to large shocks is asymmetric insofar as they absorb positive shocks more than negative ones as a consequence we observe that asymmetric wage indexation can be contractionary it has ambiguous effects on expected inflation and welfare relative to an equivalent symmetric indexation optimal symmetric inflation however always outperforms optimal asymmetric indexation

presidents and the u s economy an econometric exploration the us economy has performed better when the president of the united states is a democrat rather than a republican almost regardless of how one measures performance for many measures including real gdp growth our focus the performance gap is large and significant this paper asks why the answer is not found in technical time series matters nor in systematically more expansionary monetary or fiscal policy under democrats rather it appears that the democratic edge stems mainly from more benign oil shocks superior total factor productivity tfp performance a more favorable international environment and perhaps more optimistic consumer expectations about the near term future jel d72 e23 e32 e65 n12 n42 an extensive and well known literature of scholarly research documents and explores the fact that macroeconomic performance is a strong predictor of us presidential election outcomes scores of papers find that better performance boosts the vote of the incumbent s party 1 in stark contrast economists have paid scant attention to predictive power running in the opposite direction from election outcomes to subsequent macroeconomic performance the answer while hardly a secret is not nearly as widely known as it should be 2 the us economy performs much better when a democrat is president than when a republican is

friedman s plucking model of business fluctuations tests and estimates of permanent and transitory components in milton friedman s model output cannot exceed a ceiling level but occasionally is plucked downward by recession implying fluctuations are asymmetric recessions transitory and recessions duration dependent though expansions are not the empirical literature lends support but formal modeling has been absent the econometric model presented here encompasses both plucking and symmetric fluctuations around a stochastic trend we find gdp is well characterized by the plucking model implied recessions correspond to nber reference cycles and no role for symmetric cycles decomposition of the unemployment rate reveals a corresponding asymmetry and timing paths of ceiling output and trend unemployment are presented

bi level game approaches for coordination of generation and transmission expansion planning within a market environment the main purpose of this paper is to develop methodologies for simultaneous generation and transmission expansion planning problem of power networks while investigating interactions between these two important sections in the proposed methodologies a transmission operator to operating under different incentives decides about investment in transmission network while anticipating the outcome of a purely competitive electricity market where several rival generation firms complete with each other to determine operating level of their generators amount of their sales and amount of their investment in generation capacity the proposed methodologies rely on bi level programming models whose upper level model represent the problem of investment in transmission by to and the lower level problems represent market outcomes obtained from clearing the market these bi level models are reduced to mixed integer linear and nonlinear programming using the duality theory and karush kuhn tucker kkt optimality conditions the results of the proposed models are analyzed and compared using two illustrative examples

a three level static milp model for generation and transmission expansion planning we present a three level equilibrium model for the expansion of an electric network the lower level model represents the equilibrium of a pool based market the intermediate level represents the nash equilibrium in generation capacity expansion taking into account the outcomes on the spot market and the upper level model represents the anticipation of transmission expansion planning to the investment in generation capacity and the pool based market equilibrium the demand has been considered as exogenous and locational marginal prices are obtained as endogenous variables of the model the three level model is formulated as a mixed integer linear programming milp problem the model is applied to a realistic power system in chile to illustrate the methodology and proper conclusions are reached

extracting nonlinear signals from several economic indicators summary we develop a twofold analysis of how the information provided by several economic indicators can be used in markov switching dynamic factor models to identify the business cycle turning points first we compare the performance of a fully nonlinear multivariate specification one step approach with the shortcut of using a linear factor model to obtain a coincident indicator which is then used to compute the markov switching probabilities two step approach second we examine the role of increasing the number of indicators our results suggest that one step is generally preferred to two steps especially in the vicinity of turning points although its gains diminish as the quality of the indicators increases additionally we also obtain decreasing returns of adding more indicators with similar signal to noise ratios using the four constituent series of the stock watson coincident index we illustrate these results for us data copyright 2014 john wiley sons ltd

an unobserved components model that yields business and medium run cycles we generalize the unobserved components uc model to allow the permanent component to have different dynamics than the transitory components when decomposing u s economic activity using a multivariate uc model of log output consumption and investment we find that these proposed dynamics in the permanent component are statistically significant and distinct from those of the transitory components our approach provides an alternative explanation for the growth cycles identified by comin and gertler 2006 that is related to the cyclical movements in technology in a framework consistent with the beveridge and nelson 1981 decomposition

the theory of taxation for developing countries tax policy has far reaching implications for economic development and public administration this book which presents a modern theory of public finance brings together many of the most distinguished economists who have written on the subject they provide coherent principles for tax design and a systematic framework for the analysis of practical questions of tax reform and pricing policy in developing countries the book is especially timely as countries experience increasing shortages of government revenue and the distortions brought about by poorly designed tax systems it pays particular attention to the special problems of developing countries such as the taxation of agriculture the aim throughout is to develop techniques that can be quantitatively applied given the data available and empirical case studies illustrate the methods in action the authors analyze the links between tax theory social cost benefit analysis and the pricing of publicly supplied goods and services they also explore the empirical and econometric problems of identifying the tradeoffs between equity and efficiency other topics treated include the analysis of labor markets the taxation of foreign private investment and of fuel and the pricing of education although the models used concentrate on developing countries most of the methods and discussion apply as well to the problems of more affluent countries

household bargaining and the design of couples income taxation this paper studies the design of couples income taxation when consumption and labor supply decisions within the couple are made by maximizing a weighted sum of the spouses utilities bargaining weights are given but specific to each couple information structure and labor supply decisions follow the mirrleesian tradition however while the household s total consumption is publicly observable the consumption levels of the individual spouses are not observable with a utilitarian social welfare function we show that the expression for a spouses marginal income tax rate includes a pigouvian paternalistic and an incentive term the pigouvian term favors a marginal subsidy tax for the high weight low weight spouse whose labor supply otherwise tends to be too low high the sign and the magnitude of the incentive term depends on the weight structure across couples in some cases both terms have the same sign and imply a positive marginal tax for the low weight spouse who may be female and a negative one for the high weight spouse possibly the male this is at odds with the traditional boskin and sheshinski results our conclusions can easily be generalized to more egalitarian welfare functions finally we present numerical simulations based on a calibrated specification of our model the calculations confirm that the male spouse may well have the lower and possibly even negative marginal tax rate

optimal taxation with consumption time as a leisure or labor substitute abstract this paper studies the optimal commodity taxation problem when time taken in consumption is a perfect substitute for either labor or leisure it shows that while labor substitutability affects the optimal tax structure leisure substitutability leaves the classical optimal tax results intact in the ramsey tax framework with linear income taxes whether the consumers have the same or different earning abilities labor substitutes tend to be taxed at a higher rate than leisure substitutes with the tax differential being increasing in consumption time this is not necessarily the case when one allows for nonlinear income taxation

markov switching stochastic trends and economic fluctuations abstract i investigate cointegrating relationships such that even though the long run attractors are assumed to be linear the dynamics of the equilibrium errors depends on the business cycle i postulate a markov switching common stochastic trends model to study both the short run responses to permanent shocks and the effects of recessions in the long run growth i apply these findings to explore the short and long run asymmetric relationships among output consumption and investment

economic externalities in transmission network expansion planning abstract this paper discusses investing in transmission capacity and its link with investing in generation capacity since opportunity costs in transmission and generation capacity are dependent externalities arise when investment decisions are decentralized externalities are market failures which appear when a decision of a particular agent changes another agent s welfare but not vice versa when generation and transmission investment decisions are made separately generation investment introduces negative externalities to transmission planning a centralized multistage stochastic model is formulated for finding the pareto optimal solution of investments in transmission and generation capacity using the model we show some examples of externalities in transmission planning for the ieee 24 bus test system and the peruvian system finally we found that for the peruvian system simultaneous optimal planning of generation and transmission capacity gave significant savings around 585 million which represents 10 of the total cost

the economics of planning electricity transmission to accommodate renewables using two stage optimisation to evaluate flexibility and the cost of disregarding uncertainty abstract aggressive development of renewable electricity sources will require significant expansions in transmission infrastructure we present a stochastic two stage optimisation model that captures the multistage nature of transmission planning under uncertainty and use it to evaluate interregional grid reinforcements in great britain gb in our model a proactive transmission planner makes investment decisions in two time periods each time followed by a market response uncertainty is represented by economic technology and regulatory scenarios and first stage investments must be made before it is known which scenario will occur the model allows us to identify expected cost minimising first stage investments as well as estimate the value of information the cost of ignoring uncertainty and the value of flexibility our results show that ignoring risk in planning transmission for renewables has quantifiable economic consequences and that considering uncertainty can yield decisions that have lower expected costs than traditional deterministic planning methods in the gb case the value of information and cost of disregarding uncertainty in transmission planning were of the same order of magnitude approximately 100 m in present worth terms further the best plan under a risk neutral decision criterion can differ from the best under risk aversion finally a traditional sensitivity analysis based robustness analysis also yields different results than the stochastic model although the former s expected cost is not much higher

a bilevel approach to transmission expansion planning within a market environment we present a bilevel model for transmission expansion planning within a market environment where producers and consumers trade freely electric energy through a pool the target of the transmission planner modeled through the upper level problem is to minimize network investment cost while facilitating energy trading this upper level problem is constrained by a collection of lower level market clearing problems representing pool trading and whose individual objective functions correspond to social welfare using the duality theory the proposed bilevel model is recast as a mixed integer linear programming problem which is solvable using branch and cut solvers detailed results from an illustrative example and a case study are presented and discussed finally some relevant conclusions are drawn

a characteristics approach to optimal taxation line drawing and tax driven product innovation real world tax legislation assigns goods to different categories of tax rates on the basis of observable characteristics allowing the tax system to handle a constantly evolving set of available goods we recast the theory of optimal taxation in the language of characteristics and we show how to optimally draw lines that delineate tax rate regimes such lines are associated with notches in tax liability as a function of characteristics creating incentives to introduce goods with new combinations of characteristics in order to reduce tax liability with a restricted set of tax instruments such notches are in general part of the second best optimal tax system

markov switching models and the unit root hypothesis in real us gdp abstract i find that real us gdp is better characterized as a trend stationary markov switching process than as having a regime dependent unit root i examine the effects of both assumptions on the analysis of business cycle features and their implications for the persistence of the dynamic response of output to a random disturbance

comovement in gdp trends and cycles among trading partners abstract it has long been recognized that business cycle comovement is greater between countries that trade more intensively with one another however nations face shocks to both the cyclical and trend components of their gdp series contrary to the result for cyclical fluctuations we find comovement of shocks to the trend component of real gdp is weaker among countries that trade more intensively with one another we simulate changes in ten year output growth correlations corresponding to the estimated effects of trade and show that the impact of trade on trend comovement is quantitatively more important than its effect on cyclical comovement

the effects of crude oil shocks on stock market shifts behaviour a regime switching approach abstract in this paper we develop a two regime markov switching egarch model introduced by henry henry o 2009 regime switching in the relationship between equity returns and short term interest rates journal of banking and finance 33 405 414 to examine the relationship between crude oil shocks and stock markets an application to stock markets of uk france and japan over the sample period january 1989 to december 2007 illustrates plausible results we detect two episodes of series behaviour one relative to low mean high variance regime and the other to high mean low variance regime furthermore there is evidence that common recessions coincide with the low mean high variance regime in addition we allow both real stock returns and probability of transitions from one regime to another to depend on the net oil price increase variable the findings show that rises in oil price has a significant role in determining both the volatility of stock returns and the probability of transition across regimes

transmission and wind power investment this paper jointly considers wind power investment and transmission reinforcement the proposed model is a mathematical program with equilibrium constraints mpec that seeks to identify the optimal wind projects to be developed and the required network reinforcements under the transmission system operator perspective this mpec seeks to minimize consumer payments and is constrained by investment conditions and the equilibria of the market under different operating conditions an array of subsidies is considered to promote independent wind power investment an example and two case studies illustrate the characteristics of the proposed model

nonlinear permanent temporary decompositions in macroeconomics and finance we suggest a method of decomposing univariate and multivariate nonlinear processes into their permanent and temporary components extending the analysis of beveridge and nelson 1981 and stock and watson 1987 we provide applications in the univariate nonlinear case to recent work on nonlinearities in the us business cycle and in the multivariate nonlinear case to recent work on asymmetric nonlinear adjustment in the term structure of interest rates for the us the business cycle results suggest that the method may be particularly useful in future research on output fluctuations

market based coordination of transmission and generation capacity planning we propose an iso model for coordinating transmission expansion planning with competitive generation capacity planning in electricity markets the purpose of the model is a holistic simulation of generation and transmission capacity expansion in the market environment the solution represents an iterative process for simulating the interactions among gencos transcos and the iso which might be terminated by the iso based on a pre specified stopping criterion the proposed model adopts a joint energy and transmission auction market and a capacity mechanism the joint auction market enables competition to occur among generation and transmission resources the capacity mechanism offers incentives for market participant investments that reflect the locational values of additional capacity transmission capacity expansion decisions are made by merchant transmission lines that recover their capacity investments through transmission marginal pricing and capacity payments transmission network security is reflected in the proposed competitive resource planning model the examples illustrate a coordinated planning of generation and transmission in restructured power systems

more and cheaper haircuts after vat cut on the efficiency and incidence of service sector consumption taxes abstract consumption tax rates targeted at specific sectors are often reformed without any empirical knowledge about the efficiency of these policies this paper sheds light on tax incidence as well as the efficiency issue the potential for welfare improving reform by studying the impact of value added taxes vat on prices and quantities of labor intensive services i utilize a vat reform targeted at a specific service sector which creates a natural experiment set up the vat for hairdressing services in finland was reduced from 22 to 8 and the previous tax treatment still applied to other labor intensive services the choice of the treatment and control groups was exogenous to circumstances in finland since these groups were selected from a wider european setting the results suggest that hairdressers cut their prices only by half of what a complete pass through would have implied and that there was hardly any adjustment in equilibrium quantity due to the reform hairdressers were able to increase their profits significantly there is important heterogeneity in the results according to firm size

asymmetry in business fluctuations international evidence on friedman s plucking model abstract friedman s plucking model of business fluctuations suggests that output cannot exceed a ceiling level and it is occasionally plucked downward by recession output has depth and steepness this study uses a sample of 12 industrial and emerging economies and finds some evidence that negative shocks are largely transitory while positive shocks are mostly permanent in a few cases as implied by the plucking model output fluctuations tend to be asymmetric recessions are transitory and duration dependent although expansions are not there is however serial correlation in almost all cases international evidence on friedman s plucking model is far from robust

household labor supply and the gains from social insurance the marginal gains from social income insurance programs are captured by the gap in the marginal utility of consumption across states of nature to identify this gap in the context of the household this paper offers a new labor supply based approach that leverages household level economic interactions and optimality conditions we demonstrate that in frameworks of efficient household allocations spousal labor supply responses to shocks have direct implications for the gains from more generous government benefits to households we show that this holds for both intensive and extensive margin responses under fairly general conditions our analysis illustrates how labor market data can be used for assessing marginal welfare gains in a general class of social insurance schemes including the large and important programs of disability insurance and survivors benefits hence household labor supply behavior and responses to shocks which are widely studied in theoretical and empirical work hold valuable information for the optimal design of social insurance

the dynamic relationship between permanent and transitory components of u s business cycles this paper investigates the dynamic relationship between permanent and transitory components of post war u s business cycles we specify a time series model for real gnp and consumption in which the two share a common stochastic trend and transitory component and markov regime switching is used to model business cycle phases in these components the timing of switches between business cycle phases is allowed to differ across the permanent and transitory components we find strong evidence of a lead lag relationship between the switches in the two components specifically switches in the permanent component leads switches in the transitory component when entering recessions

taxes and time allocation evidence from single women and men the classic model of becker 1965 suggests that labor supply decisions should be analyzed within the broader context of time allocation and market good consumption choices but most empirical work on policy has focused exclusively on measuring impacts on market work this paper examines how income taxes affect time allocation during the entire day and how these time allocation decisions interact with expenditure patterns using the panel study of income dynamics from 1975 to 2004 we analyze the response of single women s housework labor supply and other time to variation in tax and transfer schedules across income levels number of children states and time we find that when the economic reward to participating in the labor force increases market work increases and housework decreases with the decrease in housework accounting for approximately two thirds of the increase in market work analysis of repeated cross sections of time diary data from 1975 to 2004 shows that home production decreases substantially when market hours of work increase in response to policy changes data on expenditures from the consumer expenditure survey from 1980 to 2003 show some evidence that expenditures on market goods likely to substitute for housework increase in response to a greater incentive to join the labor force the baseline estimates imply that the elasticity of substitution between consumption of home and market goods is 2 61 the results are consistent with the becker model meanwhile single men show little response to changes in tax policy and we are able to rule out an elasticity of substitution between home and market goods for this group of more than 1 52

cyclical dynamics of industrial production and employment markov chain based estimates and tests abstract the purpose of this paper is to understand differences in cyclical phenomena across a broad range of developed and emerging countries based on the behavior of two key economic times series industrial production and employment the paper characterizes the series in question as a recurring markov chain univariate processes are estimated for each series individually and a composite indicator is constructed by using information on both series based on tests of equality of the estimated markov chains across countries as well as the expected times to switch between different states we find evidence that i the developed and emerging economies are de coupled from each other in terms of their cyclical dynamics and ii the behavior of industrial production and employment growth are de coupled for the emerging economies our results suggest new directions for the analysis of emerging economy cyclical fluctuations

an examination of business cycle features in uk sectoral output this article examines business cycle features of uk gross domestic product gdp sectors with regard to trends cycles and growth the empirical study adopts the kalman filter to decompose these gdp sectors into trend and cycle components the general model of this study encompasses a number of alternative specifications about trend growth therefore accommodating diverse views on growth there is reasonable support in the results for a mean reverting stochastic growth model for the uk economy the characteristics in trends and cycles of uk gdp sectors are discussed focusing on their similarities and differences around business cycles

high growth recoveries inventories and the great moderation we develop a dynamic factor model to compute short term forecasts of the spanish gdp growth in real time with this model we compute a business cycle index which works well as an indicator of the business cycle conditions in spain to examine its real time forecasting accuracy we use real time data vintages from 2008 02 through 2009 01 we conclude that the model exhibits good forecasting performance in anticipating the recent and sudden downturn

the persistence of taiwan s output fluctuations an empirical study using innovation regime switching model in this article we examine the persistence nature of taiwan s aggregate output fluctuations by using the innovation regime switching irs model in which the effect of an innovation may be permanent or transitory depending on an unobservable state variable that follows a first order markov chain by applying the irs model to taiwan s real gdp data we find that during the 1961 to 2000 period 61 39 of the real output shocks are likely to have permanent transitory effects moreover the innovations in the officially identified expansion contraction are more likely to have a permanent transitory effect these results are similar to those found in many studies of us real output fluctuations e g beaudry and koop 1993 kim and nelson 1999 and kuan et al 2005 however we also find that taiwan s output dynamics have changed drastically ever since year 2000 in particular the shocks to real gdp have become more likely to have only transitory effect even during the period of post 2001 iv ex

optimal taxes and the structure of preferences if optimal tax theory is to be the basis for calculating tax rates a close understanding is required of the relationship between the structure of preferences and the configuration of optimal tax rates otherwise hypotheses chosen by the econometrician for practical convenience may completely determine the results independently of measurement this paper explores the relationship between various types of separability particularly weak and implicit separability and optimal tax rates in the various models discussed in the literature the use of distance functions and the antonelli matrix provides a significant unification of previously disparate results in the final analysis optimal tax theory should be the basis for actual calculation of tax rates although recently there have been great advances in theoretical results and in our understanding of their meaning we are still some way from a working knowledge of whether uniform commodity taxes are in practice optimal or if not which commodities should be discriminated against present theoretical formulae do not yield clear cut results except in special cases and it has recently become clear that optimal rates depend crucially on the detailed structure of consumer preferences for example atkinson and stiglitz 3 show that with an optimal nonlinear income tax discriminatory commodity taxes are only necessary to the extent that individual commodities are not weakly separable from leisure more recently deaton 6 has shown that a similar result holds for what is perhaps the most interesting of the standard models that where there are many consumers and only a linear income tax and proportional commodity taxes are allowed in this case separability between goods and leisure together with linear engel curves for goods removes the need for differential commodity taxation in consequence nothing can be learned about commodity taxes from consumer demand studies in which commodity demands are explained conditionally on total expenditure and commodity prices and which assume linear engel curves all such studies require separability from leisure as a maintained hypothesis and so are consistent with uniform commodity taxation these results suggest that the prospects for meaningful empirical calculations of tax rates are bleak econometricians estimating commodity demand and labor supply equations make generous use of separability assumptions to enable estimation at all in consequence it is likely that empirically calculated tax rates based on econometric estimates of parameters will be determined in structure not by the measurements actually made but by arbitrary untested and even unconscious hypotheses chosen by the econometrician for practical convenience to remedy this situation and as a prelude to fruitful empirical work it is necessary to have a more explicit understanding of how preference structure affects optimal tax rates such is the object of this paper three different

optimum taxation and the allocation of time abstract a theory of optimal taxation is presented building upon becker s 1965 theory of the allocation of time optimal commodity taxation is governed by factor shares in household activities any market good which requires little household time or even saves time should carry a relatively low tax rate this policy rule does not require the estimation of price elasticities and is therefore more applicable than traditional ramsey rule taxation

the asymmetric business cycle abstract the business cycle is a fundamental yet elusive concept in macroeconomics in this paper we consider the problem of measuring the business cycle first we argue for the output gap view that the business cycle corresponds to transitory deviations in economic activity away from a permanent or trend level then we investigate the extent to which a general model based approach to estimating trend and cycle for the u s economy leads to measures of the business cycle that reflect models versus the data we find empirical support for a nonlinear time series model that produces a business cycle measure with an asymmetric shape across nber expansion and recession phases specifically this business cycle measure suggests that recessions are periods of relatively large and negative transitory fluctuations in output however several close competitors to the nonlinear model produce business cycle measures of widely differing shapes and magnitudes given this model based uncertainty we construct a mode

equilibria in an oligopolistic electricity pool with stepwise offer curves we study the equilibria reached by strategic producers in a pool based network constrained electricity market the behavior of each producer is modeled by a mathematical program with equilibrium constraints mpec whose objective is maximizing profit and whose complementarity constraints describe market clearing the joint solution of all these mpecs constitutes an equilibrium problem with equilibrium constraints epec the equilibria associated with the epec are analyzed by solving the strong stationarity conditions of all mpecs which can be linearized without approximation by mixed integer linear programming milp techniques the resulting mixed integer linear conditions can be reformulated as an optimization problem that allows establishing diverse objectives to differentiate among alternative equilibria

a nonlinear forecasting model of gdp growth we develop a model of gdp growth under which regime changes are triggered stochastically by an observable tension index constructed as the geometric sum of deviations of actual gdp growth from a corresponding sustainable rate within expansionary regimes the tension index tends to increase which heightens the probability of a regime change given a regime change the process becomes reversed and the tension index begins to decline along a newly established path linking the behavior of the tension index to gdp growth enables us to capture floor and ceiling effects

differentiating between business cycles and growth cycles evidence from 15 developed countries growth cycles are often mistaken for business cycles although these two have different statistical properties in order to differentiate between them in a statistically satisfactory manner the bayesian information criterion bic based model selection approach is presented business cycles are described by the cyclical trend model and growth cycles are described by the trend plus cycle model whether the observed time series is derived from business cycles or from growth cycles is determined as a result of model selection it is shown via data based simulations that the proposed method works well in most situations empirical results obtained for 15 countries suggest that the business cycle model is selected for five countries the growth cycle model is selected for two countries and the trend plus noise model is selected for eight countries

time poor working super rich abstract this paper revisits the standard model of labor supply under two additional assumptions consumption requires time and some limited amount of work is enjoyable whereas introducing each assumption without the other one does not produce novel insights combining them together does if the wage rate is sufficiently high for top earners work has a positive marginal utility at the optimum and above a critical wage level it converts into a pure consumption good their labor supply curve is first backward bending and then vertical this can justify an optimal marginal tax rate on top incomes equal to 100 top earners in the vertical half line of the labor supply curve optimally refrain from spending their entire income at the macroeconomic level this can generate a lack of effective demand with some qualifications these findings carry over to models that include savings and philanthropy

a tri level model of centralized transmission and decentralized generation expansion planning for an electricity market part ii we study a tri level integrated transmission and generation expansion planning problem in a deregulated power market environment the collection of bi level sub problems in the lower two levels is an equilibrium problem with equilibrium constraints epec that can be approached by either the diagonalization method dm or a complementarity problem cp reformulation this paper is a continuation of its part i in which a hybrid iterative algorithm is proposed to solve the tri level problem by iteratively applying the cp reformulation of the tri level problem to propose solutions and evaluating them in the epec sub problem by dm it focuses on the numerical results obtained by the hybrid algorithm for a 6 bus system a modified ieee 30 bus system and an ieee 118 bus system in the numerical instances the approximate nash equilibrium point for the sub problem can be verified by examining local concavity

can non linear time series models generate us business cycle asymmetric shape abstract fifteen univariate non linear time series models of us output are evaluated by their ability to reproduce the asymmetric shape of the us business cycle two models account for the growth being faster after a trough and slower before a peak

optimal commodity taxation and redistribution within households using a collective model of consumption we characterize optimal commodity taxes aimed at targeting specific individuals within the household the main message is that distortionary indirect taxation can circumvent the agency problem of the household essentially taxation should discourage less the consumption of a certain group of goods those for which the slope of the engel curves is larger for the targeted person

nonlinearity and the permanent effects of recessions this paper presents a new nonlinear time series model that captures a post recession bounce back in the level of aggregate output while a number of studies have examined this type of business cycle asymmetry using recession based dummy variables and threshold models we relate the bounce back effect to an endogenously estimated unobservable markov switching state variable when the model is applied to us real gdp we find that the markov switching regimes are closely related to nber dated recessions and expansions also the markov switching form of nonlinearity is statistically significant and the bounce back effect is large implying that the permanent effects of recessions are small meanwhile having accounted for the bounce back effect we find little or no remaining serial correlation in the data suggesting that our model is sufficient to capture the defining features of us business cycle dynamics when the model is applied to other countries we find larger permanent effects of recessions copyright 2005 john wiley sons ltd

restricted structural change and the unit root hypothesis i introduction an important issue in economics involves the long run response of macroeconomic and financial aggregates to shocks and disturbances in a classic paper nelson and plosser 1982 argued that contrary to the traditional view current shocks have permanent effects on the long run level of macroeconomic time series using statistical techniques developed by dickey and fuller 1979 they found evidence in favor of unit roots for 13 out of 14 long term annual macro series the only exception being the unemployment rate they conclude that these series behave more like a random walk than like transitory deviations from a steadily growing trend 1 nelson and plosser s findings of a unit root have been called into question on a number of grounds rudebusch 1992 1993 demonstrates that unit root tests have low power against estimated trend stationary alternatives moreover he shows that if trend stationary models are correct difference stationary models do not yield good approximations to the medium term dynamic response perron 1989 questions the ability of unit root tests to distinguish unit root from stationary processes that contain segmented or shifted trends incorporating an exogenous break point and specifying 1929 as the break date he found evidence of broken trend stationarity for 10 out of the 13 series perron s analysis was disputed by several papers most notably christiano 1992 banerjee lumsdaine and stock 1992 and zivot and andrews 1992 these authors argued that it is inappropriate to specify the break date as known as it is not reasonable to believe that the choice has been made independently of the data 2 they suggest that an appropriate procedure is to select the break date endogenously in particular zivot and andrews 1992 using a data dependent algorithm to determine the break point and finite sample critical values reject the unit root null at the 5 significance level for only 3 out of 13 nelson plosser series real gross national product gnp nominal gnp and industrial production 3 once this is done there is again little evidence against the unit root hypothesis allowing for two endogenous breaks lumsdaine and papell 1997 reexamined the unit root hypothesis for the nelson plosser data using finite sample critical values they rejected the unit root null for five series the three series found by zivot and andrews plus per capita real gnp and employment therefore finding more evidence against unit roots than zivot and andrews these studies reject the unit root hypothesis in favor of broken trend stationarity for macroeconomic aggregates but not for prices or financial variables this seems to confirm not only the common practice of macroeconomists to model movements in real gnp as stationary fluctuations around a linear deterministic trend blanchard 1981 kydland and prescott 1980 but also previous analyses which had advanced the unit root hypothesis for the velocity of money gould and nelson 1974 and stock prices samuelson 1973 results of the previous studies show that for many of the aggregate time series the estimated breaks coincide with world wars or the great depression standard macroeconomic theory however argues that while these events have long lasting transitory effects they do not have permanent effects on aggregate variables the decline in output associated with the great depression has generally been interpreted as a temporary response to a significant reduction in the money stock friedman and schwartz 1963 and the substantial increase in output that occurred during world war ii is described as the result of the huge temporary increase in government purchases caused by the war barro 1981 murray and nelson 2000 studying long term real gross domestic product gdp data argued that the fluctuations of 1930 1946 seem to have had a temporary effect on the level of output and lead to rejections of the unit root hypothesis when it is true

optimal taxation with home production abstract optimal taxes for europe and the u s are derived in a realistically calibrated model in which agents buy consumption goods and services and use home capital and labor to produce household services the optimal tax rate on services is substantially lower than the tax rate on goods specifically the planner cannot tax home production directly and instead lowers the tax rate on market services to increase the relative price of home production the optimal tax rate on the return to home capital is strictly positive and the welfare gains from switching to optimal taxes are large