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.     

Investment-specific shocks and external balances in a small open economy model

Abstract.  We set up a standard small open economy business cycle model driven by government spending shocks, neutral productivity (TFP) shocks, and investment-specific shocks. The model is calibrated to quarterly Canadian data and its predicted moments and sample paths are compared with their Canadian counterparts. We find that the model captures the dynamics in investment and in the trade balance better than special cases of the model where either one of the productivity shocks is omitted. More specifically, the model matches the variance of the trade balance-output ratio, its correlation with output and its autocorrelation. It also matches the output-investment correlation.     

The contemporaneous correlation between price shocks and output shocks

Until the 1990s, prices were believed to be procyclical. Several researchers have since presented evidence of counter-cyclical prices. This evidence proved robust, but its interpretation has varied. Some have argued that the contemporaneous correlation between output and prices reflects both the source of the current shock and the adjustment process from short-run to long-run equilibrium; the adjustment to the long run imparts a bias towards a negative price-output correlation. The issue of dynamics is addressed by estimating price shocks and output shocks. The sign of the correlation between these shocks does not reveal anything about the relative importance or frequency of demand versus supply shocks; however, some understanding is gained from the time-series of the product of the shocks. In periods when the product is negative, supply shocks must have been either relatively large or relatively important. In periods when the product is positive, demand shocks must have been either relatively large or relatively important. The data suggest that the economies of the USA, Canada and the UK were buffeted by both demand and supply shocks in about equal portions.     

Cartel instability and periodic price shocks

The paper explains periodic commodity price shocks in a market with a cartelized supply side. It is shown how the interactions of sluggish demand and the inherent instability of the cartel create cyclical behavior and price shocks. The theoretical model is applied to the world petroleum market.I am indebted to two referees for helpful comments and critique. None of them is responsible for any deficiencies of the paper.     

Structural oil price shocks and policy uncertainty

Increases in the real price of oil not explained by changes in global oil production or by global real demand for commodities are associated with significant increases in economic policy uncertainty and its four components (the volume of newspaper coverage of policy uncertainty, CPI forecast interquartile range, tax legislation expiration, and federal expenditures forecast interquartile range). Oil-market specific demand shocks account for 31% of conditional variation in economic policy uncertainty and 22.9% of conditional variation in CPI forecast interquartile range after 24 months. Positive oil shocks due to global real aggregate demand for commodities significantly reduce economic policy uncertainty. Structural oil price shocks appear to have long-term consequences for economic policy uncertainty, and to the extent that the latter has impact on real activity the policy connection provides an additional channel by which oil price shocks have influence on the economy. As a robustness check, structural oil price shocks are significantly associated with economic policy uncertainty in Europe and energy-exporting Canada.     

Asset price fluctuations without aggregate shocks

We analyze the pricing of a productive asset in a class of dynamic exchange economies with heterogeneous, infinitely-lived agents, and self-enforcing intertemporal trades. Individual incomes fluctuate and are correlated; preferences, dividends and aggregate income are fixed. Almost all economies in this class have a unique stationary Markovian equilibrium with fluctuations in asset prices. As the set of unrationed households changes over time and states, excess demand functions shift, asset returns fluctuate, and some households are shut out of asset markets. Examples suggest that the amplitude of these movements is negatively correlated with the productivity of the asset and with the penalty for default.     

The contribution of food and energy price shocks to relative price variability

Food and energy shocks are shown to be significant sources of variation in relative prices of personal consumption expenditures during 1931–1980. This conclusion follows even after recognizing the impact of other shocks based on exports, government spending, money supply, and numbers of military personnel.     

Coordination and price shocks: an empirical analysis

This paper outlines a new technique, which makes optimal control in a stochastic minimum variance framework computationally feasible. The new approach is then used to evaluate gains to policy coordination in the context of a macroeconometric model for the G-3. More specifically, we consider policy responses to a temporary price shock in a single country and in multi-country cases. The results show that coordination brings about a striking improvement in the overall control of inflation and a reduction in output costs.     

Estimating the price deflator for nominal cash balances

A differential money demand equation is used to estimate the weight given to each commodity group in the price index which transforms nominal into real cash balances. The results indicate that food receives the largest weight and that the CPI is a good proxy for the true deflator.     

Foreign borrowing and macroeconomic adjustment to external shocks

This paper analyzes the impact of anticipated and unanticipated external shocks on the evolution of macroeconomic variables, particularly foreign borrowing, and on steady-state stocks of capital and debt. We find that the desired mode of adjustment to a shock is highly sensitive to its nature. Intertemporal substitution effects often dominate the pure wealth loss effect. External disturbances will typically be intertemporally correlated in the real world; the paper analyses the resulting implications for the dynamic smoothing of adjustment.     

Industrial sector fuel price elasticities following the first and second major oil price shocks

Estimated fuel price elasticities are consistent with reactions following the second major oil shock, having been significantly different from reactions to its predecessor. In turn, elasticities for both sub-periods are not well represented by those estimated for 1960–1982 as a whole.     

Foreign output and price shocks and macroeconomic activity in Korea

This paper examines the effects of foreign output and price shocks on output and the price level in Korea. The framework is a nine variable VAR model which includes output, price level, interest rate, real exchange rate, money supply, government expenditures, government debt, and foreign output and price variables. Foreign output and price effects are evaluated through computation of variance decompositions and impulse response functions. The variance decompositions indicate significant effects of foreign output on domestic output and significant effects of foreign prices on domestic output and the price level. The impulse response functions indicate positive short-run effects of foreign output on domestic output but insignificant effects on the price level while foreign price shocks have significant negative effects on output and significant positive effects on the price level for approximately two years. The results indicate the importance of including foreign shock variables when modeling the Korean economy.     

Producer price adjustment to commodity price shocks: An application of threshold cointegration

During the 1980s and 1990s, most developing countries in Sub-Saharan Africa and Latin America implemented structural adjustment reforms, which included the liberalization of export crop markets and the abolition of marketing boards. The emergence of new marketing systems may have altered price transmission mechanisms, especially if collusion behaviors have appeared among domestic stakeholders along the marketing chain. I use threshold cointegration tools to analyze the dynamics of world price transmission to coffee growers in three deregulated markets. The methods I use allow me to test the presence of a threshold in both the cointegrating relationship and its corresponding error correction model. Over the pre-reform period, I detect asymmetric price adjustments that appear favorable to producers - deviations from the long-run equilibrium resulting from largest increases in world prices being eliminated relatively quickly - and disappear in the post-reform period. On the contrary over the post-reform period, the results suggest that largest decreases in world prices may be transmitted relatively quickly to growers. These results can be seen as expressions of a favorable pricing policy over the pre-reform period and an unfavorable influence of new private agents over the post-reform period, meaning that in some cases reforms may have failed to create competitive market structures.     

Monetary shocks,exchange rates and trade balances: Evidence from inflation targeting countries

This paper investigates the relationship among monetary policy shocks, exchange rates and trade balances in five Inflation Targeting Countries (ITCs). The investigation is based on Structural Vector Error Correction Models (SVECMs) with long run and short run restrictions. The findings reveal that a contractionary monetary policy shock leads to a decrease in price level, a decrease in output, an appreciation in exchange rate, and an improvement in trade balance in the very short run. Our findings contradict the findings of price, output, exchange rate and trade puzzles that have been found in many empirical studies. Furthermore they are consistent with the theoretical expectations regarding the effect of a contractionary policy. The only long run restriction that we imposed on our models is that money does not affect real macroeconomic variables in the long run, which is consistent with both Keynesian and monetarist approaches.     

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.     

Return patterns of South Korean stocks following large price shocks

This study tests the market efficiency of the South Korean stock market by examining returns on stocks of the constituents of the KOSPI 50 from 2000 to 2014 following large 1-month price decreases and increases. An exponential GARCH (EGARCH) event study framework is used to analyse the stock returns. The results show that large price shocks, positive and negative, are likely to be followed by positive market returns. Moreover, the results show an increase in the beta of stocks in the years following a large price shock. The overall results therefore support the Uncertain Information Hypothesis. However, beginning in 2008, return patterns more closely reflect those hypothesised by the Efficient Market Hypothesis, possibly due to increased participation by international investors. The observed returns following large price increases and decreases can be partially explained by changes in the Korean won to US dollar exchange rate and the trading behaviour of foreign investors.     

The effects of oil price shocks on expenditure category CPI

In this study, we apply a two-block structural vector autoregressive (VAR) model proposed by Kilian and Park (2009) in order to investigate the dynamic effects of changes in oil price on the expenditure category consumer price index (CPI) in the United States and Japan. Our results confirm that each expenditure category price index responded very differently to the same structural shock, and that whether changes in oil price function as a positive stimulus or a negative shock for the individual expenditure category prices also depends on the kind of underlying shock that drives the changes in oil price. Finally, our results also reveal that the manner in which changes in oil price affect each expenditure category price differs between the United States and Japan and these detailed-level differences may lead to aggregate-level differences in the price response of both countries to changes in oil price.     

A general equilibrium assessment of external and domestic shocks in Spain

After many years of growth, the Spanish economy plunged into the most severe and prolonged recession recorded since reliable national accounts data have been available. The main goal of this paper is to quantify the effects of the external and domestic shocks that hit the Spanish economy in 2008–2009 by employing a disaggregated general equilibrium model calibrated to a 2000 SAM elaborated by the authors. External shocks are simulated by employing the neoclassical closure (private investment is determined by domestic and external savings) and the Keynesian closure (investment is exogenous). External and domestic shocks are also jointly simulated with the Keynesian closure. The results provide a good approximation to observed changes in key macroeconomic variables.     

Energy price disparity and public welfare

The differences in the price of energy to economic sectors are linked to a number of system parameters and to public welfare. There are large disparities in energy prices within states when comparing residential and industrial prices although neoclassical economics predicts one price in markets. The large disparities between the two sectors across states negatively affects the efficiency of resource allocation, creates subsidies for those getting the cheap energy and results in unequal access to energy. These in turn lead to inefficient partitioning of energy between products and waste, higher pollution, leakage of wealth and poorer energy use efficiency, i.e. high energy intensity. States with large energy price disparities between sectors have statistically higher poverty, lower incomes, more pollution and use more energy but with less efficiency. Higher energy price disparities also result in higher throughput per unit of output thus reducing the chances for sustainability and lower public welfare.