The impact of restructuring and deregulation on gas rates

This article evaluates the impact of consumer choice programs, price caps, and sliding scale plans on consumer prices of gas using a custom survey of public service commissions and data from the Department of Energy. A seemingly unrelated regressions model estimates residential, commercial and industrial prices jointly, controlling for potentially endogenous demand. Consumer choice programs are estimated to lower residential and commercial prices significantly, by bringing competition to markets with smaller consumers. Prices fall even before deregulation as utilities build consumer loyalty and fight competition. Sliding scale plans are estimated to lower prices of small consumers while raising industrial prices. Price caps lead to overall higher prices, with unclear ranking across consumer classes.      

Post‐Laspeyres: The Case for a New Formula for Compiling Consumer Price Indexes

Consumer price indexes (CPIs) are commonly compiled at the higher (weighted) level using Laspeyres‐type arithmetic averages. This paper questions the suitability of such formulas and considers two counterpart alternatives that use geometric averaging, the Geometric Young and the (price‐updated) Geometric Lowe. The paper provides a formal decomposition and understanding of the differences between the two. Empirical results are provided using United States CPI data. The findings lead to an advocacy of quite simple variants of a hybrid formula suggested by Lent and Dorfman that use the same data as Laspeyres‐type indexes but substantially reduce their bias.     

Consumption patterns in Sri Lanka: a decomposition analysis

Knowing consumer reaction to changes in prices and income is important in formulating microeconomic policies, such as public utility prices and commodity taxation. This paper analyses the consumption patterns of consumer goods grouped into eight broad commodities in Sri Lanka during the period 1975–2016, using a system-wide framework. The analysis indicates that Sri Lankan consumers allocate more than half of their income to food and nearly four fifths of their income to food, housing, and transport combined. The estimated income and own-price elasticities reveal that food, housing, medical care, and transport are necessities; clothing, durables and recreation are luxuries; and demand for all commodities is price inelastic except for recreation. To investigate the consumption growth pattern, we decomposed the growth in consumption and change in budget shares of the eight commodities into income, relative price, and change in taste. We also simulated per capita consumption expenditure of the eight commodities under various policy scenarios and found that income growth has played a significant role in Sri Lankan consumption patterns.     

中国房地产价格上涨的影响因素分析

从影响一种商品价格的需求—供给方面;成本问题的土地价格上涨、建造成本上升、开发企业融资的成本提高方面;国家拉动内需等方面分析了影响中国近期房地产价格持续高涨的一些因素。     

Commodity prices and related equity prices

This paper shows that commodity‐sensitive stock price indices have strong power in predicting nominal and real commodity prices at short horizons (one‐month‐ahead predictions) using both in‐ and out‐of‐sample tests. The forecasts based on commodity‐sensitive stock price indices are able to significantly outperform naïve no‐change forecasts. For example, the one‐month‐ahead forecasts for nominal commodity prices reduce the mean squared prediction error by between 1.5% (for natural gas prices) and 20% (for copper prices). Moreover, the one‐month‐ahead directional forecast is found to perform significantly better than a 50:50 coin toss. As stock prices are not subject to revision, the proposed variable, which reflects timely and readily available market information, can potentially be a valuable predictor and thereby help to improve the accuracy of commodity price forecasts.     

Modelling price pressure in financial markets

We present experimental evidence that, unlike traditional assumptions in economic theory, security prices do not respond to pressure from their own excess demand. Instead, prices respond to excess demand of all securities, despite the absence of a direct link between markets. We propose a model of price pressure that explains these findings. In our model, agents set order prices that reflect the marginal valuation of desired future holdings, called “aspiration levels.”In the short run, as agents encounter difficulties executing their orders, they scale back their aspiration levels. Marginal valuations, order prices, and hence, transaction prices change correspondingly. The resulting price adjustment process coincides with the Global Newton Method. The assumptions of the model as well as its empirical implications are fully borne out by the data. Our model thus provides an economic foundation for why markets appear to search for equilibrium according to Newton’s procedure.     

The sectorial impact of commodity price shocks in Australia

This study reports that commodity price shocks predominantly affect the mining, construction and manufacturing industries in Australia. However, the financial and insurance sectors are found to be relatively unaffected. Mining industry profits and nominal output substantially increase in response to commodity price shocks. Construction output is also found to increase significantly, especially in response to a bulk commodity shock, as a result of increased demand for resource related construction. Increased demand for construction has a positive spillover effect to the parts of the manufacturing industry that supply the construction sector with intermediate inputs, such as the non-metallic mineral sub-industry. In contrast, other manufacturing sub-industries with only tenuous links to the resources sector such as textiles, clothing and other manufacturing, are relatively unresponsive to commodity price shocks.     

Effects of mineral-commodity price shocks on monetary policy in developed countries

This article investigates effects of changes in mineral commodity prices on monetary policy. Using macroeconomic data from three mineral-producing countries (Australia, Canada and New Zealand) and two non-mineral-resource countries (USA and UK), I estimate the impulse response functions of the policy interest rates and the core consumer price index (CPI) inflation rates to mineral-commodity price shocks. I find that the central banks in both groups of the examined countries significantly respond to mineral-commodity price shocks. In responses to an unexpected 10% increase in mineral commodity prices, the central banks are estimated to increase their policy interest rates by approximately 0.8 percentage points. Moreover, the central banks seem to take anticipatory policy reactions to control core CPI variations triggered by these shocks. Thus, mineral commodity prices would act as important determinants of the monetary policies in both groups of the examined countries. These findings would be useful for analysing Taylor rules in their countries. However, effects of the increase in their policy interest rates on core CPI inflation cannot be identified for the examined countries.     

The benefits of storage and non‐renewable resource price dynamics

Abstract Both the Theory of Storage and the Hotelling model play a prominent role in the study of non‐renewable resource prices. This paper combines these approaches by modifying the Hotelling model to allow firms to hold inventory in addition to in‐ground reserves, contributing three new results. First, inventory is more likely to be held if future demand and/or the marginal cost of extraction are uncertain. Second, the market price of the commodity is based on the Theory of Storage when inventory is held. Third, the optimal extraction of the resource is based on the Hotelling model.     

Cross market predictions for commodity prices

This paper shows that commodity prices can be predicted from cross-market information by establishing long-run cross-market commodity price equilibrium models, which are characterized by a linear relation between prices across different markets. Using data from five representative commodity markets (oil, copper, gold, corn, and cattle) during the period 2005–2018, we demonstrate that oil and industrial metal markets have formed a long-run price equilibrium with other markets across different commodity families. However, agriculture and gold markets do not tend to have long-run price equilibrium relations with other commodity markets. Furthermore, we show that the absence of a price equilibrium is due to the cross-market liquidity interference effect. After we control for the liquidity effect, long-run cross-market commodity price equilibrium relations are reestablished for agriculture and gold markets. These results can aid in demonstrating that liquidity can capture most of the missing information that is not reflected in price dynamics in less liquid markets, such as agriculture and gold markets. Therefore, less liquid commodity price predictions require both prices and liquidity levels from cross-markets, while liquid commodity prices (oil and metal) can be predicted based solely on cross-market prices.     

Invariance, price indices and estimation in almost ideal demand systems

Two issues are addressed in this paper. First, we explore the issue of price index invariance in the linearized Almost Ideal demand system. We establish that the Stone index, which lacks invariance, and the recently proposed invariant Laspeyres, Paasche and Tornqvist indices all generate biased and inconsistent estimators. Monte Carlo evidence shows that invariance does not necessarily lead to better estimates of price and income elasticities insofar as the Stone and Paasche indices are unambiguously inferior to the Laspeyres and Tornqvist indices, especially if prices are not strongly positively correlated. Second, we examine the merits of the widely used conditional ML estimator of the non-linear Almost Ideal system in which a prior value is chosen for the “subsistence” parameter. We find that the bias and trace mean square error increases induced by conditional estimation are modest. The choice between the linearized and the non-linear models favors the latter although in some cases linear methods are as good as non-linear. First Version Received: January 1999 / Final Version Received: March 2000     

A differentiated tolls system – an effective transport policy tool for Slovenia?

We provide an econometric model of passenger and freight transportation demand based on panel data for 10 sections of toll roads in Slovenia. Transportation demand on Slovenian motorways is price inelastic. The price elasticity of transportation demand statistically varies among different parts of the toll sections, so it would seem sensible to introduce a differentiated toll system that would allow the simultaneous achievement of multiple objectives, such as increasing the internalization of the external costs of transport, increasing transportation demand management on the basis of price and increasing cost recovery for the maintenance and development of toll roads in Slovenia. Transportation demand is even more responsive to changes in fuel price than changes in tolls, so transportation policy can manage transportation demand using differences in fuel prices. Based on estimates of demand models differentiated according to several geographical groups of road sections, we also find that growth in the price elasticity of transportation demand in Slovenia can be achieved through the expansion of the transport supply by increasing the competitiveness of rail transport and alternative transportation routes.     

Energy price shocks and milk price adjustments

Much previous research on energy price transmission sheds light on the relationship between oil prices and aggregate commodity prices, such as for agricultural products, or food price indexes. This letter uses data from 12 U.S. cities between 2001 and 2011 to examine how energy prices are transmitted to fluid milk products at the retail level. Results indicate the existence of an asymmetric energy pass-through (a rise is transmitted faster than a fall in prices) and that private label milk products are more insulated from energy price shocks and adjust at similar rate with national manufacturer brands.     

Poverty and inequality under income and price dispersions

Abstract.  We introduce an analytical framework for welfare analysis that accounts for changes in the joint distribution of prices and incomes by using parametric formulae of poverty and inequality measures. We propose statistical indicators for the levels, variabilities and a statistical link of price indices and nominal living standards, which are consistent with a bivariate lognormal model. Our analysis provides intuitive insight about the social welfare impact of economic shocks affecting levels, variabilities, and correlation of prices and incomes. The roles of price and income variabilities for poverty and inequality are exhibited, with the possibility of several variation regimes. JEL classification: I32, O15, D31     

Relative importance of sectoral and aggregate sources of price changes

This paper estimates a dynamic common factor model to assess relative importance of the aggregate and the sector-specific factors that determine changes in the prices of individual products. It also examines how aggregate price changes are affected by these factors. Two different specifications of the model are estimated: the baseline model with one aggregate factor, and a second specification with two aggregate factors. In the one-actor model, the aggregate factor contributes little to the movements of changes in prices, mostly of nondurable goods whereas it seems to have important contributions to the movements of changes in prices of commodity groups mainly used as intermediate or capital goods. In the specification with two aggregate factors, the additional factor has significant effects on changes in prices of ‘farm products’ and ‘processed foods and feeds’ only. Forecast-error variance decompositions of both aggregate and disaggregate price changes suggest that sectoral factors account for most of the variability at short horizons while the contributions of the aggregate factors increase as the time horizon lengthens. The results also show that sectoral factors are not only important for relative price changes but also have significant impact on aggregate inflation. The estimated common factors have statistically significant correlations with money growth and changes in the unemployment rate.     

A Method of Calculating Regional Consumer Price Differentials with Illustrative Evidence from India

In this paper we propose a method of estimating multilateral regional price index numbers from a given household level data set on item-wise unit values/prices. The method is closely related to the Country-Product Dummy variable model of Summers (1973). This method is likely to be particularly useful in studies of regional comparisons of poverty and inequality, optimal commodity taxes and tax reforms. To illustrate the method, we use it to calculate the regional consumer price index numbers for Eastern, Western and Southern India (taking Northern India as the reference region) separately for three categories of rural and urban households, viz., all households and those below and above the poverty line, using household level unit records of the NSS 50th round (1993–94) Consumer Expenditure Survey.     

Asset arbitrage and the price of oil

It is commonly understood that macroeconomic shocks influence commodity prices and that one channel for this is the link between interest rates, expected future asset returns and stock-holding. In this paper the link is extended to the petroleum market with the recognition that recorded stocks of oil comprise a small share of annual demand and that the parallel with storable commodities is the decision to produce the oil in the first place, as opposed to holding it in the ground as reserve. Oil reserves are then a key asset in producing countries, which is arbitraged against financial assets. Thus, when the yield on financial assets falls, retaining oil reserves becomes more attractive to producing countries, which then have less incentive to accommodate demand rises, and so the oil price rises. This perspective on oil pricing is modeled in a dynamic multi-region general equilibrium framework in which regional households manage portfolios of assets that include oil reserves. When the model is calibrated to match observed data over two decades, simulation results indicate that asset arbitrage made a large contribution to the high pre-GFC oil price.     

City CPI Convergence in Mexico

This paper tests the purchasing power parity hypothesis within a single developing country currency area: Mexico. This work stems from research in comparing price movements across countries and a growing literature on price dynamics within a single currency area. The author uses city Consumer Price Index data for 34 cities in Mexico over the period 1982–2000. He followed the standard procedure of testing for I(1) processes in relative city prices, or city real exchange rates, using univariate and panel unit root tests. The main results of the paper are: First, Mexican city relative prices are stationary—the data rejects the hypothesis that city real exchange rates contain a random walk, but only using panel unit root techniques. Finally, regional demand and supply homogeneity implies stronger evidence for price parity within regions, while there is considerable evidence of regional price convergence, regional homogeneity does not guarantee faster convergence.     

Consumer welfare effects of increased food and energy prices

In this study, the authors evaluated how much price changes in food and energy – two basic living expenditures competing for consumers’ budgets – would affect consumer welfare. We first estimated a US complete demand system to quantify the interdependent demand relationships among 11 categories of consumption expenditures. Among the estimates, the own price elasticities of both food and energy are relatively inelastic, a finding that explains the dynamics of the recent soaring food and energy prices. The estimated demand elasticities were then incorporated into the measurement of Hicksian compensating variation to analyse the consumer welfare effects of price changes in food and energy. The results indicated that an increase in food and energy prices would increase compensated expenditures or incur a substantial consumer welfare loss, creating an especially heavy burden for low income households.     

Estimation of hedonic price functions with incomplete information

Existence of persistent price dispersion suggests that some buyers find lower prices through search and information acquisition, while some sellers charge higher prices by gathering information on potential buyers. If buyers are not fully informed of the lowest price available in the market they end up paying a price higher than if they had full information. Similarly, if sellers are not fully informed about the highest price they could charge, they too suffer by receiving a price lower than had they had full information. This paper develops a hedonic price model that incorporates the effects of incomplete information on both sides of the market and obtains estimates of the discrepancies between market prices and buyers’ maximum willingness to pay and sellers’ minimum willingness to accept. Correlates of such price discrepancies are also explored. We apply the technique to a data set constructed from the American Housing Survey, and find that incomplete information has had a significant impact on housing prices.