capital inflows financial structure and housing booms we use a panel var to study the effect of shocks to capital inflows which are identified using sign restrictions on the housing market in oecd countries to explore how effects of these shocks change with the structure of the mortgage market and the degree of mortgage securitization we allow the var coefficients to vary with mortgage market characteristics our results indicate that capital inflow shocks have a significant and positive effect on real house prices real credit available to the private sector and real residential investment the responses of these variables are stronger in countries with more developed mortgage markets and in countries where securitization is allowed

forward contracts for the operation of an electricity industry under spot pricing a study is reported of the use of forward contracts as risk instruments for electricity industries operating under spot pricing forward contracts involve financial transactions or commitments which relate to a physical trade at a later time instance price setting and appropriate participant responses are discussed simulation studies are used to demonstrate that forward contracts offer participants an opportunity to reduce their risk exposure without removing the incentive to respond to higher spot prices

time varying dynamics of the real exchange rate an empirical analysis summary we use a time varying structural vector autoregression to investigate evolving dynamics of the real exchange rate for the uk euro area and canada we show that demand and nominal shocks have a substantially larger impact on the real exchange rate after the mid 1980s real exchange rate volatility relative to fundamentals also shows a marked increase after this point in time however there is some evidence suggesting a closer business cycle co movement of the real exchange rate and fundamentals simulations from an open economy dsge model show that these results are consistent with a decline in exchange rate pass through copyright 2012 john wiley sons ltd

money and liquidity effects separating demand from supply in the canonical monetary policy model money is endogenous to the optimal path for interest rates and output but when liquidity provision by banks dominates the demand for transactions money from the real economy money is likely to contain information for future output because of its impact on financial spreads and so we decompose broad money into primitive demand and supply shocks we find that supply shocks have played a significant role in the time series in each of the usa uk and eurozone in the short to medium term we further consider to what extent the supply of broad money is related to policy or to liquidity effects from financial intermediation

evidence on the relationship between housing and consumption in the united states a state level analysis we estimate the dynamic effects of u s housing market shocks on state level spending and home prices from a dynamic common factor model and identify housing demand and supply shocks using a sign restrictions approach while state level spending and house prices gradually respond positively and persistently to aggregate housing demand shocks there is significant variation across states in the magnitude of these responses cross state regressions of the estimated responses on an index of mortgage market development suggest that spending in states with greater opportunities for home equity borrowing is more sensitive to housing demand shocks than in states with fewer opportunities which is consistent with the prominence of a collateral channel over a wealth channel in explaining the link between housing and the overall economy

identification of financial factors in economic fluctuations we estimate demand supply monetary investment and nancial shocks in a var identified with a minimum set of sign restrictions on us data we find that financial shocks are major drivers of fluctuations in output stock prices and investment but have a limited effect on inflation in a second step we disentangle shocks originating in the housing sector shocks originating in credit markets and uncertainty shocks in the extended set upfinancial shocks are even more important and a leading role is played by housing shocks that have large and persistent effects on output

optimization based generation asset allocation for forward and spot markets one of the most important daily decisions that a genco has to make is to allocate generation assets between the forward and spot markets that is how much capacity should be contracted in the forward market and how much should be kept to bid in spot market this paper focuses on generation asset allocation between monthly forward contracts such as bilateral contracts futures contracts options contracts and daily spot markets considering operating costs and constraints of generating units as well as spot price risk the problem is to find the optimal hedging position based on the known forward price and the forecasted hourly spot prices and is formulated based on the model of pjm market the double dynamic programming method is applied to solve this optimal asset allocation problem with all the short term operating constraints of the generating unit satisfied three types of forward contracts that are commonly used in practice are considered and their impact on generation asset allocation are analyzed and compared the analytic relationship between the optimal contract quantity of a particular type and spot generation is established based on this relationship the applicability and characteristics of a particular type of contract are discussed furthermore with the solution to the generation asset allocation problem as a basis the pricing strategy in the forward market is analyzed a nash game model is established and an iterative process is developed to determine the equilibrium pricing of futures contracts numerical testing shows that the method for the generation asset allocation is effective various factors influencing the decision of generation asset allocation and the relationship between futures contract price and spot price are tested and analyzed

asset prices news shocks and the trade balance we analyze the relationship between asset prices and the trade balance estimating a bayesian var for a broad set of 38 industrialized and emerging market countries to derive model based identifying restrictions we model asset price shocks as news shocks about future productivity in a two country dynamic stochastic general equilibrium model such shocks are found to exert sizable effects on the trade balance moreover the effects are highly heterogeneous across countries for instance following a news shock that implies on impact a 10 increase in domestic equity prices relative to the rest of the world the u s trade balance will worsen by up to 1 0 percentage points but much less so for most other economies we find that this heterogeneity appears to be linked to the financial market depth and equity home bias of countries moreover the channels via wealth effects and via the real exchange rate are important for understanding the heterogeneity in the transmission

a theory of the bureaucratic value of federal reserve operating procedures beginning in the mid 1960s and continuing since there has raged a prolonged argument over the proper method or operating strategy for carrying out open market operations this argument has led the federal reserve to experiment with and abandon a number of strategies however until the most recent experiment which began in october 1979 all these strategies had one common component all utilized some money market interest rate as the immediate target of omo undoubtedly the federal reserve s reluctance to give up its money market target was founded on economic theoretic grounds the keynesian model which was dominant throughout the 1950s and 1960s and into the 1970s concentrated on interest rates not monetary aggregates economists trained in this tradition naturally would be slow to discard the received knowledge of the era this paper sets out another reason for the fed s tenacity in holding to the money market mode of operation it analyzes the federal reserve system as a bureau run by individuals who seek to maintain the autonomy of their organization from this perspective the choice of an operating strategy will be made not only on economic grounds but also on political since the political attractiveness of various strategies may differ considerably the fed may be substantially influenced by non economic factors in its choice of methods section 1 sets out the theory of bureaucracy used to analyze federal reserve behavior section 2 describes a model of federal reserve information provision developed by b m friedman 1978 the third section briefly reviews the history of federal reserve open market operations since the 1950s paying special attention to the fed s choice of operating strategies and the criticisms of those strategies by insiders and outsiders section 4 presents evidence that the policy followed by the fed during the 1970s did indeed provide considerable information about future plans enabling the

what does a financial shock do first international evidence in this paper we attempt to evaluate the quantitative impact of financial shocks on key indicators of real activity and financial conditions we focus on financial shocks as they have received wide attention in the recent literature and in the policy debate after the global financial crisis we estimate a panel var for 21 advanced economies based on quarterly data between 1985 and 2011 where financial shocks are identified through sign restrictions we find robust evidence that financial shocks can be separately identified from other shock types and that they exert a significant influence on key macroeconomic variables such as gdp and particularly investment but it is unclear whether these shocks are demand or supply shocks from the standpoint of their macroeconomic impact the financial development and structure of a given country is found not to matter much for the intensity of the propagation of financial shocks moreover we generally find that these shocks play a role not only in crisis times but also in normal conditions finally we discuss the implications of our findings for monetary policy fabio fornari and livio stracca

does the source of oil price shocks matter for south african stock returns a structural var approach abstract in this paper we investigate the dynamic relationship between different oil price shocks and the south african stock market using a sign restriction structural var approach for the period 1973 01 to 2011 07 the results show that for an oil importing country like south africa stock returns only increase with oil prices when global economic activity improves in response to oil supply shocks and speculative demand shocks stock returns and the real price of oil move in opposite directions the analysis of the variance decomposition shows that the oil supply shock contributes more to the variability in real stock prices the main conclusion is that different oil price shocks affect stock returns differently and policy makers and investors should always consider the source of the shock before implementing a policy and making investment decisions

what lies beneath a time varying favar model for the uk transmission mechanism we use a time varying factor augmented var to investigate changes in the transmission mechanism of economic shocks in the uk our estimates demonstrate the importance of time variation and suggest that monetary policy shocks had a bigger impact on inflation equity prices and the exchange rate during the inflation targeting period changes in the transmission of policy shocks to bond yields point to more efficient management of long run inflation expectations finally we investigate responses of disaggregated prices with the median becoming more negative and cross sectional patterns consistent with a decrease in the role of cost channels

investments and cleaner energy production a portfolio analysis in the italian electricity market abstract the recent climate change global warming environmental disasters and the economic crisis are only the first signs of the failure of an economic system that for too long shows an uncontrolled utilization of the planet wealth the italian electricity market which is strongly dependent on hydrocarbons only in recent years has seen a first attempt to change towards renewable resources for electricity production aimed at self consumption and for feeding into the grid this paper presents an economic analysis whose purpose is to evaluate the profitability of investments in renewable technologies for the production of electricity each renewable source has its own profitability dependent on a number of factors and subject to market fluctuations cost and frequent changes in the incentive policies applying portfolio theory is possible to select the right mix of renewable energy sources and simulate its evolution moreover the presented analysis can be useful for energy planners to select future green scenarios finalized to the reduction of emissions and energy imports through the increasing use of renewable energy

the long run phillips curve a structural var investigation both cointegration methods and non cointegrated structural vars identified based on either long run restrictions or a combination of long run and sign restrictions are used in order to explore the long run trade off between inflation and the unemployment rate in the post wwii u s u k euro area canada and australia overall neither approach produces clear evidence of a non vertical trade off the extent of uncertainty surrounding the estimates is however substantial thus implying that a researcher holding alternative priors about what a reasonable slope of the long run trade off might be will likely not see her views falsified

portfolio applications in electricity markets review private investor and manager perspective trends abstract the private sector plays a major role in the expansion and operation of power systems in most countries especially those running liberalized electricity markets policymakers have the task of inducing private agents through their regulatory designs to make decisions that point toward social welfare maximization conversely it is a task of private agents to protect themselves against the risks of the sector including regulatory risks international fuel price uncertainty climate change policies natural resource availability electricity demand uncertainty co2 clearance prices etc instead of hiding all of these risks within the total project costs and losing competitiveness private agents can use diversification as a strategy to deal with them this paper presents a review of the main applications voids and challenges of portfolio optimization for two key agents of the private sector investors and managers the problem of the investor is to design a technology portfolio to invest in that maximizes its expected returns and limits risks while the manager has to design a portfolio of financial physical instruments long term contracts futures etc to sell buy electricity and hedge against price risks we have found two fundamental issues in the literature the first and most important is excessive confidence in historical data and statistical analysis for predicting future price behavior for a changing future in detriment of more structural analysis structural analysis can include particularities of modern power systems such as future transmission changes congestion operational constraints ramps new entrants new technologies and new demand grow patterns that cannot be taken into account by simply analyzing price historical values the second is the omission of renewable complementarities which is a proven characteristic of dispersed renewable plants that may have important risk mitigation effects although it has largely been ignored in portfolio analysis due to insufficient data modeling limitations and computational complexity

the effects of fiscal shocks on employment and the real wage we study the transmission of fiscal shocks in the labor market we employ a structural var and base identification on the restrictions that shocks to government consumption investment and employment must raise output and deficits these restrictions hold in both prototype real business cycle rbc and new keynesian models shocks to government consumption and investment increase real wages and employment contemporaneously both at state level and in the aggregate the dynamics in response to employment shocks are mixed increases in government employment raise the real wage and total employment in the aggregate however in one third of the states they reduce total employment

drawing conclusions from structural vector autoregressions identified on the basis of sign restrictions abstract this paper discusses the problems associated with using information about the signs of certain magnitudes as a basis for drawing structural conclusions in vector autoregressions we also review available tools to solve these problems for illustration we use dahlhaus and vasishtha s 2019 study of the effects of a u s monetary contraction on capital flows to emerging markets we explain why sign restrictions alone are not enough to allow us to answer the question and suggest alternative approaches that could be used

financial optimization in the turkish electricity market markowitz s mean variance approach abstract electricity constitutes the input into many products that produced by industry and used by people hence it can be considered as a product or service that has vital importance in human life and economy since it has such special properties of instantaneous production and consumption obligation and unfeasible storage electricity market is not like other markets in a competitive electricity market generation company faces price risks and delivery risks so that risk management is an important part of a generation company and can deeply effect companies profitability this paper focuses on electricity generation asset allocation between bilateral contracts such as forward contracts and daily spot market considering constraints of generating units and spot price risks the problem is to find the optimal portfolio based on known electricity generation total costs bilateral contract prices it employed turkish historical balanced market hourly system marginal and day ahead hourly market prices between of 2006 and 2011 there are limited studies about portfolio optimization in electricity markets in literature and this paper should be considered frontier study taking spot market s hourly prices separately as risky assets markowitz mean variance optimization which is claimed to be the beginning of modern portfolio theory in financial sector is used to demonstrate this approach mean variance optimization has been successfully applied to all cases that modeled for electricity market some suggestions for future work are also listed in this paper

the value of forecasts quantifying the economic gains of accurate quarter hourly electricity price forecasts abstract we propose a multivariate elastic net regression forecast model for german quarter hourly electricity spot markets while the literature is diverse on day ahead prediction approaches both the intraday continuous and intraday call auction prices have not been studied intensively with a clear focus on predictive power besides electricity price forecasting we check for the impact of early day ahead da exaa prices on intraday forecasts another novelty of this paper is the complementary discussion of economic benefits a precise estimation is worthless if it cannot be utilized we elaborate possible trading decisions based upon our forecasting scheme and analyze their monetary effects we find that even simple electricity trading strategies can lead to substantial economic impact if combined with a decent forecasting technique

the political economy of money evolution and impact of monetarism in the federal reserve system for almost a generation a vigorous debate has been underway over the conduct of monetary policy the central questions in this controversy are widely known what are the appropriate goals of monetary policy what are the linkages between actions to influence the cost and availability of money and credit and the behavior of real output employment and prices what are the best means in terms of targets and central bank operating techniques to accomplish the objectives of monetary policy the divergent answers which economists of different intellectual persuasion give to these questions have generated a sharp schism in the body of monetary theory on the one side are the keynesian and postkeynesian economists who have stressed the efficacy of fiscal policy for the purpose of economic stabilization on the other side are the members of the monetarist school who assign great weight to the role of monetary policy the aim of this paper is to sketch the evolution of monetarist thought inside the federal reserve system in this appraisal i have viewed the evidence from the vantage point of a member of the federal reserve board and of the federal open market committee fomc i concluded that a particularly promising approach was to observe the fomc at work in those rare instances when it set out especially to make substantive revisions in the form of the directive through which it gives instructions to the manager of the system open market account soma in the last decade there have been at least four such effortsin the years 1961 1964 65 1966 and 1970 while the focus was on the proposed changes in the directive language it is clear from the record that the debates were actually over the objectives and conduct of monetary policy thus the directive revision episodes present a unique opportunity to observe the impact on fomc members of competing ideas about monetary management i have relied primarily on the public record available in the minutes of the fomc for the years 1936 1965 and on the fomc record of policy actions through the meeting of september 21 1971 the last one in the public domain at this writ member board of governors of the federal reserve system this paper is a condensation of a more comprehensive version presented at the 84th annual meeting of the american economic association copies of the original paper may be obtained from the board washington d c 20551 i am indebted to a number of persons in the federal reserve system for assistance in the preparation of the original paper foremost among those are several of my fellow board members especially governors j dewey daane sherman j maisel george w mitchell and j l robertson who responded readily to my numerous questions and shared with me some of their recollections regarding internal debates in the federal open market committee fomc and at the board on the appropriate techniques of monetary management of course they bear no responsibility for the use or interpretation i have made of the information provided several members of the board s staff identified in the original version also helped in the preparation of the paper again i must stress that the views expressed here are my own and should not be attributed to my colleagues either on the board or among its staff

loan supply shocks during the financial crisis evidence for the euro area this paper employs a panel vector autoregressive model for the member countries of the euro area to explore the role of banks during the slump of the real economy that followed the financial crisis in particular we seek to quantify the macroeconomic effects of adverse loan supply shocks which are identified using sign restrictions we find that loan supply shocks significantly contributed to the evolution of the loan volume and real gdp growth in all member countries during the financial crisis however concerning both the timing and the magnitude of the shocks our results also indicate that the euro area was characterized by a considerable degree of cross country heterogeneity

technology shocks and robust sign restrictions in a euro area svar we use a model based identification strategy to estimate the impact of technology shocks on hours worked and employment in the euro area the sign restrictions applied in the vector autoregression var analysis are consistent with a large class of dynamic stochastic general equilibrium dsge models and are robust to parameter uncertainty the results are in line with the conventional real business cycle rbc interpretation that hours worked rise as a result of a positive technology shock by comparing the sign restrictions method to the long run restriction approach of gali quaterly journal of economics 1992 709 38 we show that the results do not depend on the stochastic specification of the hours worked series or the data sample but only on the identification scheme

hedging with futures contracts in a deregulated electricity industry this paper is a statistical study of direct and cross hedging strategies using futures contracts in an electricity market a comparison of the strategies is based on the standard deviation or risk of the values of the hedging positions results indicate that the use of electricity futures contracts is superior to using other related futures contracts such as crude oil

portfolio optimization under lower partial moments in emerging electricity markets evidence from turkey abstract optimization of the electricity markets under modern portfolio theory has a crucial role for financial decision makers power suppliers in deregulated electricity markets need to optimize their generation capacities and bidding strategies so as to effectively participate in bilateral contract and spot markets market players have to deal with continuously changing electricity prices in competitive electricity market environment during their daily routine system operations electricity not like the others is a unique product service and cannot be stored economically however it should be generated and consumed simultaneously in addition to all power suppliers face with fuel price water regime delivery and network risks in view of the scene described above prudent decision making methodologies are of critical importance to maximize profit while minimizing managing risks this paper presents a comprehensive comparison of mean variance down side and semi variance methods for optimization in electricity markets and the corresponding methodologies to maximize the return while minimizing risk real turkish day ahead market data set between december 2009 and december 2012 is used in numerical calculations generation cost data of hydraulic plants lignite coal fired thermal power plants and natural gas combined cycle power plants are taken into consideration in the course of optimization evaluations in the present of real data these methods can also be applied to renewable energy generation types these three methods were able to be applied to all case scenarios effectively and produced efficient frontiers optimal minimal portfolios and utility functions successfully the results have revealed that the methods significantly provide decisions for power suppliers with different risk aversion levels and for various instruments to maximize the profit while minimizing the associated market risks and to meet generation obligations consequently financial optimization under lower partial moments constraints would give notable results in analyzing the efficient frontiers for electricity markets in turkey

all for the best the federal reserve board s 60th annual report reserve fr documents we virtually pounce on them we criticize everything from the frailest economic argument to the color scheme and quality of the binding except for newsy details necessary to keep our preachments up to date the issues we raise seldom change decade after decade we upbraid the fed about the responsibilities for economic statesmanship that accompany its statutory independence its unwillingness to specify an explicit model of how it believes that its policies impact on economic variables its special concern for cushioning its effects on the money markets the inevitable ineptness of its interventions into specific markets and its extraordinary penchant for humbug fed officials must long have wondered

energy planning and modern portfolio theory a review abstract modern portfolio theory mpt stands as a widely accepted methodology to meet the challenges associated with the definition of energy planning for a particular territory or region energy planning is thus framed as an investment selection problem mpt is characterized by having a wider capacity and conceptual richness than the other previously used methodologies such as the individual least cost alternative the portfolio approach is based on solving for an objective function that seeks to minimize either the cost or the risk of the portfolio subject to different constraints considering that real electricity generation assets can be defined in terms of cost or return and economic risk for each alternative technology the relevant portfolios are the result of solving the optimization model to determine the efficient cost risk frontier the work presented here consists of an exhaustive review of the literature in relation to the application of mpt methodology to the field of energy planning and electricity production a new classification is proposed from a financial perspective of the selection of investments from the preceding studies it delves deeper into the explanation of the limits to the methodology and into the concept of risk which is key from both a financial and an energy perspective the main methodological contributions found in the literature are examined that are aimed at improving the capacity of the model and adjusting it to the reality of the electricity market finally conclusions are provided from the works analyzed in terms of renewable technologies and the policy implications derived from them in most studies a preference has been shown for the inclusion of renewable technologies in the efficient portfolios however in order to implement the decision to increase the share of renewable technologies greater flexibility in the interconnection capacity between states and in storage capacity is needed

managing price risk in a multimarket environment in a competitive electricity market a generation company genco can manage its trading risk through trading electricity among multiple markets such as spot markets and contract markets the question is how to decide the trading proportion of each market in order to maximize the genco s profit and minimize the associated risk based on the mean variance portfolio theory this paper proposes a sequential optimization approach to electric energy allocation between spot and contract markets taking into consideration the risks of electricity price congestion charge and fuel price especially the impact of the fuel market on electric energy allocation is analyzed and simulated with historical data in respect of the electricity market and other fuel markets in the u s simulation results confirm that the proposed analytic approach is consistent with intuition and therefore reasonable and feasible for a genco to make a trading plan involving risks in an electricity market

the european low carbon mix for 2030 the role of renewable energy sources in an environmentally and socially efficient approach abstract the european union s commitment to increase the presence of renewable energy sources in its portfolio has resulted in better levels of security of supply competitiveness and environmental sustainability this proposed work reviews european legislation regarding the promotion of renewable energy sources as well as the bibliography that applies portfolio theory methodology to energy policy this double revision gives rise to the question whether the share limits of renewable energy technologies anticipated for the european power mix in 2020 and 2030 are actually efficient the optimization model corrects for the attractiveness of renewable energy sources as opposed to conventional sources in terms of costs risks and pollutant gas emissions this model successfully and explicitly identifies the positive effect on the environment that is represented by the inclusion of renewable energy sources in the portfolio the goal is to minimize the cost and risk that society must bear to produce electricity in addition to compliance with european pollutant gas co2 so2 nox and pm objectives the results for 2020 indicate that the eu would not be able to reach its emissions reduction goals with the anticipated shares of renewable energy sources in 2030 achieving a lower emissions portfolio would not mean taking on greater costs although it would be necessary to assume a greater level of risk the anticipated shares of renewable energy sources 5 and fossil fuel technologies 15 would be overdimensioned in the forecasts analyzed in terms of technologies both nuclear and wind energy stand out both with shares above 20 on the contrary biomass and solar photovoltaic energies would be unnecessary in order to reach efficiency in any case one thing is clear the eu would be the master of its energy future if it prioritizes the importance of renewable energy sources in its efficient portfolio