Price forecasting in the day-ahead Iberian electricity market using a conjectural variations Arima model

Price forecast is a matter of concern for all participants in electricity markets, from suppliers to consumers through policy makers, which are interested in the accurate forecast of day-ahead electricity prices either for better decisions making or for an improved evaluation of the effectiveness of market rules and structure. This paper describes a methodology to forecast market prices in an electricity market using an ARIMA model applied to the conjectural variations of the firms acting in an electricity market. This methodology is applied to the Iberian electricity market to forecast market prices in the 24 hours of a working day. The methodology was then compared with two other methodologies, one called naive and the other a direct forecast of market prices using also an ARIMA model. Results show that the conjectural variations price forecast performs better than the naive and that it performs slightly better than the direct price forecast.

European Union emissions trading scheme impact on the Spanish electricity price during phase II and phase III implementation

The European Union Emissions Trading Scheme (EU ETS) is a cornerstone of the European Union's policy to combat climate change and its key tool for reducing industrial greenhouse gas emissions cost-effectively. The purpose of the present work is to evaluate the influence of CO2 opportunity cost on the Spanish wholesale electricity price. Our sample includes all Phase II of the EU ETS and the first year of Phase III implementation, from January 2008 to December 2013. A vector error correction model (VECM) is applied to estimate not only long-run equilibrium relations, but also short-run interactions between the electricity price and the fuel (natural gas and coal) and carbon prices. The four commodities prices are modeled as joint endogenous variables with air temperature and renewable energy as exogenous variables. We found a long-run relationship (cointegration) between electricity price, carbon price, and fuel prices. By estimating the dynamic pass-through of carbon price into electricity price for different periods of our sample, it is possible to observe the weakening of the link between carbon and electricity prices as a result from the collapse on CO2 prices, therefore compromising the efficacy of the system to reach proposed environmental goals. This conclusion is in line with the need to shape new policies within the framework of the EU ETS that prevent excessive low prices for carbon over extended periods of time.

Strategic trade policy and signaling costs with differentiated goods

We consider a trade policy model, where the costs of the home firm are private information but can be signaled through the output levels of the firm to a foreign competitor and a home policymaker. We compute the separating equilibrium and the Bayesian Nash equilibrium, and we compare the subsidies, firms’ expected profits and home government’s welfare in both equilibria, for different values of the own price effect parameter.

Inter-temporal Price Discrimination when Imports are Restricted by Quotas

A dominant firm holding import quota engages in inter-temporal price discrimination when facing a competitive fringe engaged in seasonal production. This causes a welfare loss that comes in addition the loss attributable to limitation of imports below the free trade level.

The Backing of Government Debt and the Price Level

This paper studies the interdependence between fiscal and monetary policies, and their joint role in the determination of the price level. The government is characterized by a long-run fiscal policy rule whereby a given fraction of the outstanding debt, say d, is backed by the present discounted value of current and future primary surpluses. The remaining debt is backed by seigniorage revenue. The parameter d characterizes the interdependence between fiscal and monetary authorities. It is shown that in a standard monetary economy, this policy rule implies that the price level depends not only on the money stock, but also on the proportion of debt that is backed with money. Empirical estimates of d are obtained for OECD countries using data on nominal consumption, monetary base, and debt. Results indicate that debt plays only a minor role in the determination of the price level in these economies. Estimates of d correlate well with institutional measures of central bank independence.

The Transmission of Monetary Policy in a Multi-Sector Economy

This paper constructs and estimates a sticky-price, Dynamic Stochastic General Equilibrium model with heterogenous production sectors. Sectors differ in price stickiness, capital-adjustment costs and production technology, and use output from each other as material and investment inputs following an Input-Output Matrix and Capital Flow Table that represent the U.S. economy. By relaxing the standard assumption of symmetry, this model allows different sectoral dynamics in response to monetary policy shocks. The model is estimated by Simulated Method of Moments using sectoral and aggregate U.S. time series. Results indicate 1) substantial heterogeneity in price stickiness across sectors, with quantitatively larger differences between services and goods than previously found in micro studies that focus on final goods alone, 2) a strong sensitivity to monetary policy shocks on the part of construction and durable manufacturing, and 3) similar quantitative predictions at the aggregate level by the multi-sector model and a standard model that assumes symmetry across sectors.

Durable Goods, Inter-Sectoral Linkages and Monetary Policy

Barsky, House and Kimball (2007) show that introducing durable goods into a sticky-price model leads to negative sectoral comovement of production following a monetary policy shock and, under certain conditions, to aggregate neutrality. These results appear to undermine sticky-price models. In this paper, we show that these results are not robust to two prominent and realistic features of the data, namely input-output interactions and limited mobility of productive inputs. When extended to allow for both features, the sticky-price model with durable goods delivers implications in line with VAR evidence on the effects of monetary policy shocks.

Sectoral Price Rigidity and Aggregate Dynamics

In this paper, we study the macroeconomic implications of sectoral heterogeneity and, in particular, heterogeneity in price setting, through the lens of a highly disaggregated multi-sector model. The model incorporates several realistic features and is estimated using a mix of aggregate and sectoral U.S. data. The frequencies of price changes implied by our estimates are remarkably consistent with those reported in micro-based studies, especially for non-sale prices. The model is used to study (i) the contribution of sectoral characteristics to the observed cross sectional heterogeneity in sectoral output and inflation responses to a monetary policy shock, (ii) the implications of sectoral price rigidity for aggregate output and inflation dynamics and for cost pass-through, and (iii) the role of sectoral shocks in explaining sectoral prices and quantities.

Do Inflation-Targeting Central Banks Implicitly Target the Price Level?

This paper reports graphical and statistical evidence that the inflation targeting regimes in Canada and the UK - but not in Australia, New Zealand, or Sweden - actually resemble price-level targeting. In particular, the price level closely tracks the path implied by the inflation target, and the time-series predictions of the "bygones-are-bygones" version of inflation targeting are rejected by the data in favor of those implied by price-level targeting. These results indicate heterogeneity in the actual application of inflation targeting across countries and, for Canada and the UK, imply that the characterization of inflation targeting as a policy where shocks are accommodated is at odds with the data. Moreover, up to extent that their current policies already resemble price-level targeting, the welfare gains of replacing inflation with (explicit) price-level targeting are likely to be small.

Essays on oil price fluctuations and macroeconomic activity

Dans cette thèse, je me suis intéressé aux effets des fluctuations du prix de pétrole sur l'activité macroéconomique selon la cause sous-jacente ces fluctuations. Les modèles économiques utilisés dans cette thèse sont principalement les modèles d'équilibre général dynamique stochastique (de l'anglais Dynamic Stochastic General Equilibrium, DSGE) et les modèles Vecteurs Autorégressifs, VAR. Plusieurs études ont examiné les effets des fluctuations du prix de pétrole sur les principaux variables macroéconomiques, mais très peu d'entre elles ont fait spécifiquement le lien entre les effets des fluctuations du prix du pétrole et la l'origine de ces fluctuations. Pourtant, il est largement admis dans les études plus récentes que les augmentations du prix du pétrole peuvent avoir des effets très différents en fonction de la cause sous-jacente de cette augmentation. Ma thèse, structurée en trois chapitres, porte une attention particulière aux sources de fluctuations du prix de pétrole et leurs impacts sur l'activité macroéconomique en général, et en particulier sur l'économie du Canada. Le premier chapitre examine comment les chocs d'offre de pétrole, de demande agrégée, et de demande de précaution de pétrole affectent l'économie du Canada, dans un Modèle d'équilibre Général Dynamique Stochastique estimé. L'estimation est réalisée par la méthode Bayésienne, en utilisant des données trimestrielles canadiennes sur la période 1983Q1 à 2010Q4. Les résultats montrent que les effets dynamiques des fluctuations du prix du pétrole sur les principaux agrégats macro-économiques canadiens varient en fonction de leurs sources. En particulier, une augmentation de 10% du prix réel du pétrole causée par des chocs positifs sur la demande globale étrangère a un effet positif significatif de l'ordre de 0,4% sur le PIB réel du Canada au moment de l'impact et l'effet reste positif sur tous les horizons. En revanche, une augmentation du prix réel du pétrole causée par des chocs négatifs sur l'offre de pétrole ou par des chocs positifs de la demande de pétrole de précaution a un effet négligeable sur le PIB réel du Canada au moment de l'impact, mais provoque une baisse légèrement significative après l'impact. En outre, parmi les chocs pétroliers identifiés, les chocs sur la demande globale étrangère ont été relativement plus important pour expliquer la fluctuation des principaux agrégats macroéconomiques du Canada au cours de la période d'estimation. Le deuxième chapitre utilise un modèle Structurel VAR en Panel pour examiner les liens entre les chocs de demande et d'offre de pétrole et les ajustements de la demande de travail et des salaires dans les industries manufacturières au Canada. Le modèle est estimé sur des données annuelles désagrégées au niveau industriel sur la période de 1975 à 2008. Les principaux résultats suggèrent qu'un choc positif de demande globale a un effet positif sur la demande de travail et les salaires, à court terme et à long terme. Un choc négatif sur l'offre de pétrole a un effet négatif relativement faible au moment de l'impact, mais l'effet devient positif après la première année. En revanche, un choc positif sur la demande précaution de pétrole a un impact négatif à tous les horizons. Les estimations industrie-par-industrie confirment les précédents résultats en panel. En outre, le papier examine comment les effets des différents chocs pétroliers sur la demande travail et les salaires varient en fonction du degré d'exposition commerciale et de l'intensité en énergie dans la production. Il ressort que les industries fortement exposées au commerce international et les industries fortement intensives en énergie sont plus vulnérables aux fluctuations du prix du pétrole causées par des chocs d'offre de pétrole ou des chocs de demande globale. Le dernier chapitre examine les implications en terme de bien-être social de l'introduction des inventaires en pétrole sur le marché mondial à l'aide d'un modèle DSGE de trois pays dont deux pays importateurs de pétrole et un pays exportateur de pétrole. Les gains de bien-être sont mesurés par la variation compensatoire de la consommation sous deux règles de politique monétaire. Les principaux résultats montrent que l'introduction des inventaires en pétrole a des effets négatifs sur le bien-être des consommateurs dans chacun des deux pays importateurs de pétrole, alors qu'il a des effets positifs sur le bien-être des consommateurs dans le pays exportateur de pétrole, quelle que soit la règle de politique monétaire. Par ailleurs, l'inclusion de la dépréciation du taux de change dans les règles de politique monétaire permet de réduire les coûts sociaux pour les pays importateurs de pétrole. Enfin, l'ampleur des effets de bien-être dépend du niveau d'inventaire en pétrole à l'état stationnaire et est principalement expliquée par les chocs sur les inventaires en pétrole.

Impact of Monetary Policy on Indian Economy in the Post-Reform Period

The present study was an attempt to analyze systematically the techniques of monetary control measures with its relevance and changing importance and to find out their effectiveness in the Indian context especially to achieve the thriving objectives of price stability and economic growth.There is definite and remarkable economic impact of monetary policy on Indian economy in the post-reform period. The importance of monetary policy has been increasing year after year. Its role is very relevant in attaining monetary objectives, especially in managing price stability and achieving economic growth. Along that, the use and importance of monetary weapons like Bank rate, CRR, SLR, Repo rate and Reverse Rate have increased over the years. Repo and Reverse Repo rates are the most frequently used monetary techniques in recent years. The rates are varied mainly for curtailing inflation and absorb the excess liquidity and hence to maintain price stability in the economy. Thus, this short-time objective of price stability is more successful on Indian economy rather than other long-term objectives of development.Monetary policy rules can be active or passive. The passive rule is to keep the money supply constant, which is reminiscent of Milton Friedman’s money growth rule. The second, called a price stabilization rule, is to change the money supply in response to changes in aggregate supply or demand to keep the price level constant. The idea of an active rule is to keep the price level and hence inflation in check. In India, this rule dominates our monetary policy. A stable growth is healthy growth.

Reviewing the EU ETS review? Report of the CEPS TAsk Force on "Does the ETS market produce the 'right' price signal"? CEPS Task Force Report, 12 November 2012

Drawing on discussions within a CEPS Task Force on the revised EU emissions trading system, this report provides a comprehensive assessment of the pros and cons of the various measures put forward by different stakeholders to address the level and stability of the price of carbon in the EU. It argues that the European Commission, the member states, the European Parliament and other stakeholders need to give serious consideration to introducing some kind of ‘dynamic’ adjustment provision to address the relatively inelastic supply. The report also suggests that there is a need to improve communication of market-sensitive information, for example by leaving the management of the ETS to a specialised body.

Monetary policy and banking supervision: coordination instead of separation. CEPS Policy Brief No. 286, 12 December 2012

Introduction. Following the June 2012 European Council decision to place the ‘Single Supervisory Mechanism’ (SSM) within the European Central Bank, the general presumption in the policy discussions has been that there should be ‘Chinese walls’ between the supervisory and monetary policy arms of the ECB. The current legislative proposal, in fact, is explicit on this account. On the contrary, however, this paper finds that there is no need to impose a strict separation between these two functions. The authors argue, in fact, that a strict separation of supervision and monetary policy is not even desirable during a financial crisis when the systemic stability of the financial system represents the biggest threat to a monetary policy that aims at price stability. In their view, the key problem hampering the ECB today is that it lacks detailed information on the state of health of the banking system, which is often highly confidential. Chinese walls would not solve this problem. Moreover, in light of the fact that the new, proposed Supervisory Board will be composed to a large extent of representatives of the same institutions that also dominate the Governing Council, the paper finds that it does not make sense to have Chinese walls between two boards with largely overlapping memberships. In addition, it recommends that some members of the Supervisory Boards should be “independents” in order to reduce the tendency of supervisors to unduly delay the recognition of losses.