Long Term Dynamics in CO2 Allowance Prices and Carbon Capture Investments

In this paper we analyse the behaviour of the EU market for CO2 emission allowances; specifically, we focus on the contracts maturing in the Kyoto Protocol's second period of application (2008 to 2012). We calibrate the underlying parameters for the allowance price in the long run and we also calibrate those from the Spanish wholesale electricity market. This information is then used to assess the option to install a carbon capture and storage (CCS) unit in a coal-fired power plant. We use a two-dimensional binomial lattice where costs and profits are valued and the optimal investment time is determined. In other words, we study the trigger allowance prices above which it is optimal to install the capture unit immediately. We further analyse the impact of several variables on the critical prices, among them allowance price volatility and a hypothetical government subsidy. We conclude that, at current permit prices, from a financial point of view, immediate installation does not seem justified. This need not be the case, though, if carbon market parameters change dramatically and/or a specific policy to promote these units is adopted.

Forecasting Multivariate Time Series under Present-Value-Model Short- and Long-run Co-movement Restrictions

This paper has two original contributions. First, we show that the present value model (PVM hereafter), which has a wide application in macroeconomics and fi nance, entails common cyclical feature restrictions in the dynamics of the vector error-correction representation (Vahid and Engle, 1993); something that has been already investigated in that VECM context by Johansen and Swensen (1999, 2011) but has not been discussed before with this new emphasis. We also provide the present value reduced rank constraints to be tested within the log-linear model. Our second contribution relates to forecasting time series that are subject to those long and short-run reduced rank restrictions. The reason why appropriate common cyclical feature restrictions might improve forecasting is because it finds natural exclusion restrictions preventing the estimation of useless parameters, which would otherwise contribute to the increase of forecast variance with no expected reduction in bias. We applied the techniques discussed in this paper to data known to be subject to present value restrictions, i.e. the online series maintained and up-dated by Shiller. We focus on three different data sets. The fi rst includes the levels of interest rates with long and short maturities, the second includes the level of real price and dividend for the S&P composite index, and the third includes the logarithmic transformation of prices and dividends. Our exhaustive investigation of several different multivariate models reveals that better forecasts can be achieved when restrictions are applied to them. Moreover, imposing short-run restrictions produce forecast winners 70% of the time for target variables of PVMs and 63.33% of the time when all variables in the system are considered.

The long-run impact of Information and Communication Technology on economic output: The case of Australia

This paper investigates the cointegration and causal relationships between Information and Communication Technology (ICT) and economic output in Australia using data for about five decades. The framework used in this paper is the single-sector aggregate production function, which is the first comprehensive approach of this kind to include ICT and non-ICT capital and other factors to examine long-run Granger causality. The empirical evidence points to a cointegration relationship between ICT capital and output, and implies that ICT capital Granger causes economic output and multifactor productivity, as does non-ICT capital.

Long Run Trends in the Price of Energy and Energy Services

4 p.

Divergences in the Long Run Trends in the Price of Energy and of Energy Services

32 p.

Long Run Trends in Energy-Related External Costs

30 p.

The Long Run Demand for Lighting: Elasticities and Rebound Effects in Different Phases of Economic Development

25 p.

Long Run Demand for Energy Services: the Role of Economic and Technological Development

36 p.

Long-Wave Dynamics of Sea Level Variations during Indian Ocean Dipole Events

Long-wave dynamics of the interannual variations of the equatorial Indian Ocean circulation are studied using an ocean general circulation model forced by the assimilated surface winds and heat flux of the European Centre for Medium-Range Weather Forecasts. The simulation has reproduced the sea level anomalies of the Ocean Topography Experiment (TOPEX)/Poseidon altimeter observations well. The equatorial Kelvin and Rossby waves decomposed from the model simulation show that western boundary reflections provide important negative feedbacks to the evolution of the upwelling currents off the Java coast during Indian Ocean dipole (IOD) events. Two downwelling Kelvin wave pulses are generated at the western boundary during IOD events: the first is reflected from the equatorial Rossby waves and the second from the off-equatorial Rossby waves in the southern Indian Ocean. The upwelling in the eastern basin during the 1997-98 IOD event is weakened by the first Kelvin wave pulse and terminated by the second. In comparison, the upwelling during the 1994 IOD event is terminated by the first Kelvin wave pulse because the southeasterly winds off the Java coast are weak at the end of 1994. The atmospheric intraseasonal forcing, which plays an important role in inducing Java upwelling during the early stage of an IOD event, is found to play a minor role in terminating the upwelling off the Java coast because the intraseasonal winds are either weak or absent during the IOD mature phase. The equatorial wave analyses suggest that the upwelling off the Java coast during IOD events is terminated primarily by western boundary reflections.

Estimation of long-run parameters in unbalanced cointegration

This paper analyses the asymptotic properties of nonlinear least squares estimators of the long run parameters in a bivariate unbalanced cointegration framework. Unbalanced cointegration refers to the situation where the integration orders of the observables are different, but their corresponding balanced versions (with equal integration orders after filtering) are cointegrated in the usual sense. Within this setting, the long run linkage between the observables is driven by both the cointegrating parameter and the difference between the integration orders of the observables, which we consider to be unknown. Our results reveal three noticeable features. First, superconsistent (faster than √ n-consistent) estimators of the difference between memory parameters are achievable. Next, the joint limiting distribution of the estimators of both parameters is singular, and, finally, a modified version of the ‘‘Type II’’ fractional Brownian motion arises in the limiting theory. A Monte Carlo experiment and the discussion of an economic example are included.

Essays on Vietnam’s Financial Reforms: Foreign Exchange Statistics and Evidence of Long-Run Equilibrium

In this paper, we examine exchange rates in Vietnam’s transitional economy. Evidence of long-run equilibrium are established in most cases through a single co-integrating vector among endogenous variables that determine the real exchange rates. This supports relative PPP in which ECT of the system can be combined linearly into a stationary process, reducing deviation from PPP in the long run. Restricted coefficient vectors ß’ = (1, 1, -1) for real exchange rates of currencies in question are not rejected. This empirics of relative PPP adds to found evidences by many researchers, including Flre et al. (1999), Lee (1999), Johnson (1990), Culver and Papell (1999), Cuddington and Liang (2001). Instead of testing for different time series on a common base currency, we use different base currencies (USD, GBP, JPY and EUR). By doing so we want to know the whether theory may posit significant differences against one currency? We have found consensus, given inevitable technical differences, even with smallerdata sample for EUR. Speeds of convergence to PPP and adjustment are faster compared to results from other researches for developed economies, using both observed and bootstrapped HL measures. Perhaps, a better explanation is the adjustment from hyperinflation period, after which the theory indicates that adjusting process actually accelerates. We observe that deviation appears to have been large in early stages of the reform, mostly overvaluation. Over time, its correction took place leading significant deviations to gradually disappear.