The Importance of Revenue Sharing for the Local Economic Impacts of a Renewable Energy Project: A Social Accounting Matrix Approach

As demand for electricity from renewable energy sources grows, there is increasing interest, and public and financial support, for local communities to become involved in the development of renewable energy projects. In the UK, “Community Benefit” payments are the most common financial link between renewable energy projects and local communities. These are “goodwill” payments from the project developer for the community to spend as it wishes. However, if an ownership stake in the renewable energy project were possible, receipts to the local community would potentially be considerably higher. The local economic impacts of these receipts are difficult to quantify using traditional Input-Output techniques, but can be more appropriately handled within a Social Accounting Matrix (SAM) framework where income flows between agents can be traced in detail. We use a SAM for the Shetland Islands to evaluate the potential local economic and employment impact of a large onshore wind energy project proposed for the Islands. Sensitivity analysis is used to show how the local impact varies with: the level of Community Benefit payments; the portion of intermediate inputs being sourced from within the local economy; and the level of any local community ownership of the project. By a substantial margin, local ownership confers the greatest economic impacts for the local community.

Productivity, Preferences and UIP deviations in an Open Economy Business Cycle Model

We show that a flex-price two-sector open economy DSGE model can explain the poor degree of international risk sharing and exchange rate disconnect. We use a suite of model evaluation measures and examine the role of (i) traded and non-traded sectors; (ii) financial market incompleteness; (iii) preference shocks; (iv) deviations from UIP condition for the exchange rates; and (v) creditor status in net foreign assets. We find that there is a good case for both traded and non-traded productivity shocks as well as UIP deviations in explaining the puzzles.

The Stagnation Regime of the New Keynesian Model and Current US Policy

In Evans, Guse, and Honkapohja (2008) the intended steady state is locally but not globally stable under adaptive learning, and unstable deflationary paths can arise after large pessimistic shocks to expectations. In the current paper a modified model is presented that includes a locally stable stagnation regime as a possible outcome arising from large expectation shocks. Policy implications are examined. Sufficiently large temporary increases in government spending can dislodge the economy from the stagnation regime and restore the natural stabilizing dynamics. More specific policy proposals are presented and discussed.

Complete Markets Strikes Back: Revisiting Risk Sharing Tests under Discount Rate Heterogeneity

Recent risk sharing tests strongly reject the hypothesis of complete markets, because in the data: (1) the individual consumption comoves with income and (2) the consumption dispersion increases over the life cycle. In this paper, I revisit the implications of these risk sharing tests in the context of a complete market model with discount rate heterogeneity, which is extended to introduce the individual choices of effort in education. I .nd that a complete market model with discount rate heterogeneity can pass both types of the risk sharing tests. The endogenous positive correlation between income growth rate and patience makes the individual consumption comove with income, even if the markets are complete. I also show that this model is quantitatively admissible to account for both the observed comovement of consumption and income and the increase of consumption dispersion over the life cycle.