Does final energy demand in Portugal exhibit long memory? A fractional integration analysis

In this paper, we measure the degree of fractional integration in final energy demand in Portugal using an ARFIMA model with and without adjustments for seasonality. We consider aggregate energy demand as well as final demand for petroleum, electricity, coal, and natural gas. Our findings suggest the presence of long memory in all of the components of energy demand. All fractional-difference parameters are positive and lower than 0.5 indicating that the series are stationary, although with mean reversion patterns slower than in the typical short-run processes. These results have important implications for the design of energy policies. As a result of the long-memory in final energy demand, the effects of temporary policy shocks will tend to disappear slowly. This means that even transitory shocks have long lasting effects. Given the temporary nature of these effects, however, permanent effects on final energy demand require permanent policies. This is unlike what would be suggested by the more standard, but much more limited, unit root approach, which would incorrectly indicate that even transitory policies would have permanent effects.     

(S, s) Inventory Policies in General Equilibrium

We study the aggregate implications of (S, s) inventory policies ina dynamic general equilibrium model with aggregate uncertainty. Firms in themodel's retail sector face idiosyncratic demand risk, and (S, s) inventory policies are optimal because of fixed order costs. The distribution ofinventory holdings affects the aggregate outcome in two ways: variation inthe decision to order and variation in the rate of sale through the pricingdecisions of retailers. We find that both mechanisms must operate toreconcile observations that orders are more volatile than, and inventoryinvestment is positively correlated with, sales, while remaining consistentwith other salient business cycle characteristics. The model exhibits strongamplification for some shocks and persistence to a limited extent.     

Interpreting fluctuations in output growth in China

Unlike in OECD countries, fluctuations in output growth in China are not straightforward in their interpretation. On the one hand, they reflect the business cycle, which results from shocks to aggregate demand. On the other hand, they also reflect the structural transformations that have accompanied China’s transition to a market economy. Demand shocks can be identified by virtue of the persistence of their impact. This paper decomposes the variance in provincial, regional, and national output growth according to its persistence characteristics. The results suggest that during the reform period, only a minority of output growth variance can be attributed to demand shocks and business cycle fluctuations. It is also found that there is substantial heterogeneity in the persistence characteristics of output growth across provinces. Implications of the findings for macroeconomic policy are discussed.     

Assessing the role of aggregate demand and supply shocks in China’s macroeconomic fluctuation

The combination of a high growth rate and low information has been observed since the late 1990s in the Chinese economy. Should the fact be considered as a result of greatly improved supply capability or should the fact reflect the improvement in the government’s aggregate demand management? In this paper, we try to assess the role of aggregate demand and supply shocks in China’s macroeconomic fluctuation. We use a bivariate structural VAR model to investigate macroeconomic dynamics for China within the aggregate-demand and aggregate-supply framework, using the quarterly data in the period of 1996Q1–2005Q4. Our principal findings are following: (1) China’s high growth shall be associated more with greatly improved supply capability, especially after its WTO entrance. The expansionary aggregate demand policies may have limited effects to raise the growth rate in the post-1996 in China. This result suggests that we need a more pro-growth policy stance in order to maintain a high and stable growth. (2) The low inflation in that period is driven primarily by weak aggregate demand rather than supply factors.     

UNEMPLOYMENT PERSISTENCE AND THE NAIRU: A BAYESIAN APPROACH

This paper estimates the United States and euro area NAIRU in a Bayesian framework. We set out a simple structural model explaining unemployment by demand and supply factors, which are treated as unobserved variables that have observable effects on measured unemployment, output and inflation. The model allows for unemployment persistence and a time-varying core inflation rate. The results show that although cyclical shocks are very persistent, most of the increase in European unemployment is driven by structural factors. The degree of persistence is lower in the United States but demand shocks seem to be more important in explaining variation in unemployment.     

Demand shocks and economic fluctuations

This paper studies conditions under which demand-side shocks can generate realistic business cycles in RBC models. Although highly persistent demand shocks are necessary for generating procyclical investment, variable capacity utilization and habit formation can reduce the required degree of persistence.     

Energy Consumption Changes and CO2 Emission in India During Reforms

As we know that energy consumption or fossil fuel consumption is very much linked with environmental pollution, which is known as global climate change, so more energy related activities have an adverse impact on environment.

The paper makes an analysis of the changes in India’s energy consumption and CO₂ emission during the reforms introduced by Govt. of India in mid 1991. The energy Input-Output Structural Decomposition Analysis (SDA) is used to identify the sources of energy consumption changes during the period 1991–92 to 1996–97. Results indicate that India’s energy consumption increased by 5.7% p.a. during the same period. Six different forces behind these changes are observed (i) technical changes, (ii) final demand structure, (iii) interaction term between technical change and final demand structure, (iv) changes in energy exports, (v) changes in energy imports, (vi) changes in energy change in stock. The empirical results show that the final demand structure, technical changes, and interaction term between final demand structure and technical changes have played important role. The findings of CO₂ emission revealed that the petroleum product and electricity are the dominating sectors, which are due to the direct effect of crude oil and coal respectively. So far as the intensities are concerned, electricity contributes a major part. The paper also suggests few policies for consideration.

     

SAVING ENERGY THROUGH BETTER INFORMATION: A NEW ENERGY PARADIGM?

For the past 40 years, governments, utilities, and private companies have developed increasingly efficient appliances for household use and governments have initiated policies to encourage the deployment of these technologies. To the credit of these activities, we have improved the efficiency of electricity use in the United States, but it has not been enough to overcome the increasing demand from proliferation of electricity‐using devices. In addition, penetration rates for some types of efficient equipment have remained relatively low in certain regions. U.S. electricity demand thus continues to grow. In this paper, we argue that to achieve significantly greater efficiency improvements needed to meet future demand for energy services, we should provide more information to consumers about their energy use and give them more control over this use. While more studies are needed to assess just how far these types of measures can take us, there is enough evidence to show that with better information, consumers often make choices that reduce energy use.     

Inequality and the business cycle: evidence from U.S. survey data

ABSTRACT

We study the effects of macroeconomic shocks on measures of economic inequality obtained from U.S. survey data. To identify aggregate supply, aggregate demand, and monetary policy shocks, we estimate vector autoregressions and impose sign and zero restrictions on impulse response functions. We find that the effects of the macroeconomic shocks on inequality depend on the type of shock as well as on the measure of inequality considered. Contractionary monetary policy shocks increase expenditure and consumption inequality, whereas income and earnings inequality are less affected. Adverse aggregate supply and demand shocks increase income and earnings inequality, but reduce expenditure and consumption inequality. Our results suggest that different channels dominate in the transmission of the shocks. The earnings heterogeneity channel is consistent with the inequality dynamics after monetary policy shocks, but it appears to be less crucial when the economy is hit by either aggregate supply or aggregate demand shocks. Using variance decompositions, we find that although the macroeconomic shocks account for large shares of the variation in the macroeconomic variables, their contributions to the dynamics of the inequality measures are limited.     

A dynamic econometric model of Thailand manufacturing energy demand

The purpose of this article is to employ the dynamic translog framework to model inter-factor and inter-fuel energy demand for the Thai manufacturing sector. The Denny et al. (1981) and Lynk (1989) framework, which proposes a dynamic adjustment for capital stock is employed to motivate the estimated of factor demand and fuel share equations. Three factors: energy, labour and capital; and five fuel types: fuel oil, diesel oil, liquified petroleum gas (LPG), electricity, and coal and lignite; are examined. Regression diagnostics support the empirical specification. Numerous factor and fuel substitution possibilities are identified, with some policy implications described.     

Aggregation, Persistence and Volatility in a Macro Model

We introduce firm heterogeneity into the standard monopolistically competitive real business cycle (RBC) model. The fundamental equilibrium path is derived and the time–series properties of aggregate GDP are studied analytically. Although firms' productivities are subject to temporary shocks, the aggregate process displays a surprising novel form of nonlinearity and long memory which had not been built into the model at the outset. This aggregate GDP turns out to have very different properties from log–linear time–series models such as auto–regressive (AR) models and their extensions. It displays very strong persistence, which ends abruptly with a sudden change of tendency, giving its autocorrelation function (ACF) an S –shape. Although persistent, it is mean–reverting, unlike the everlasting memory of unit–root processes. Its volatility is of a greater order of magnitude than that of any of its components, so small micro–shocks can generate large macro fluctuations. It is also characterized by long, asymmetric cycles of random lengths. Increased monopoly power tends to reduce the amplitude and increase the persistence of business cycles. Strikingly, we find that the empirical ACFs constructed from GDP data for the U.K. and the U.S. display this characteristic S –shape.     

Revisiting residential demand for electricity in Greece: new evidence from the ARDL approach to cointegration analysis

This article re-examines the long-run and short-run determinants of the aggregate residential demand for electricity in Greece using data spanning the period 1964–2006 and the recently advanced ARDL cointegrating method (Pesaran, J Appl Econ 16:289–326, 2001) that has not been hitherto applied to Greek data. The results of the ARDL method combined with the (Johansen, J Econ Dyn Control 12:231–254, 1988) cointegration method show the presence of an equilibrium relationship among the variables involved. These findings may shed new light on the contemplation of more effective energy policies with respect to electricity.     

Renewable energy and low-carbon policy spillover effects on natural gas demand

Recent legislation intended to increase the use of renewable energy sources and lower the amount of carbon dioxide emissions from energy has changed the structure of energy markets. The effect of these policies on carbon-intensive fuel sources is rather obvious. For natural gas, though, the effect is not immediately clear. This letter uses a structural model of natural gas demand to uncover whether these policies have led to increased demand because natural gas is a relatively clean source of energy that couples well with renewables or if these policies have crowded out natural gas on net.     

Energy efficiency in transition economies

This article outlines and estimates a measure of underlying efficiency in electricity consumption for an unbalanced panel of 27 transition economies and 6 European OECD countries between 1994 and 2007. A Bayesian Generalized True Random Effects stochastic frontier model with persistent and transient inefficiency is considered by estimating an aggregate electricity demand function that leads to consumption efficiency scores, giving further insights than a simple analysis of energy intensity. There is evidence of convergence between the CIS countries and a block of Eastern European and OECD countries, although other country groups do not follow this tendency, such as the Balkans.     

Oil price shocks and stock market activities: Evidence from oil-importing and oil-exporting countries

While the relationship between oil prices and stock markets is of great interest to economists, previous studies do not differentiate oil-exporting countries from oil-importing countries when they investigate the effects of oil price shocks on stock market returns. In this paper, we address this limitation using a structural VAR analysis. Our main findings can be summarized as follows: First, the magnitude, duration, and even direction of response by stock market in a country to oil price shocks highly depend on whether the country is a net importer or exporter in the world oil market, and whether changes in oil price are driven by supply or aggregate demand. Second, the relative contribution of each type of oil price shocks depends on the level of importance of oil to national economy, as well as the net position in oil market and the driving forces of oil price changes. Third, the effects of aggregate demand uncertainty on stock markets in oil-exporting countries are much stronger and more persistent than in oil-importing countries. Finally, positive aggregate and precautionary demand shocks are shown to result in a higher degree of co-movement among the stock markets in oil-exporting countries, but not among those in oil-importing countries.     

Nominal Wage Flexibility and Economic Performance: Evidence and Implications Across Industrial Countries

By considering the theoretical connection between labour and product markets, the paper evaluates the economic relationship of these markets within the contractual wage rigidity New Keynesian explanation of business cycles. The empirical analysis focuses on the short‐run cyclical behaviour of real output, prices and wages for 19 industrial countries. Time‐series and cross‐sectional regressions are estimated. Cross‐sectional cyclical correlations in the labour and goods markets are also evaluated across countries. Consistent with the theoretical predictions, aggregate uncertainty is an important factor in increasing the flexibility of the nominal wage in response to aggregate demand shocks. Wage flexibility accelerates price inflation and moderates the response of real output growth to aggregate demand shocks. Wage flexibility does not appear to be an important factor in differentiating the real and inflationary effects of energy price shocks across countries. Finally, aggregate uncertainty increases the responsiveness of output and price to productivity shocks.     

SHOULD WE CARE ABOUT THE COMPOSITION OF TAX‐BASED STIMULUS PACKAGES?

We investigate the effects of tax policy shocks on the U.S. economy over the 1972:3–2008:4 period within a structural vector autoregressive (SVAR) framework. Disaggregating tax shocks suggests that the positive output multipliers documented for total taxes by the previous literature are present only for indirect tax innovations. We also show that both labor and corporate taxes have similar effects on output, with labor tax multipliers being slightly larger in magnitude. The positive and negative responses of inflation following respectively corporate and labor tax shocks imply that former shocks work through aggregate supply, whereas the latter work predominantly through aggregate demand. (JEL C32, E62, H20)     

Elasticity of substitution and technical efficiency: evidence from the US electricity generation

ABSTRACT

The implications of national or regional energy policies for technical efficiency and environmental outcomes in electricity generation depend on fossil fuel input substitution. This study uses state level data to examine fossil fuel (coal and natural gas) substitution in electricity generation under increased availability of natural gas in the United States. We observe that changes in elasticities of substitution from pre-2009 to post-2009 differ across states suggesting that the effects of increased availability of inexpensive natural gas on electricity generation have been spatially heterogeneous. We rely on the observed heterogeneity to assess the effects of fossil fuel input substitution on technical efficiency and CO₂ emissions. The results reveal that state level elasticity of substitution between natural gas and coal has a positive effect on technical efficiency and a negative effect on CO₂ emissions. Therefore, future policy design and analyses should reflect the implications for regional elasticities of fossil fuel substitution and associated environmental outcomes.     

The post-crisis slump in the Euro Area and the US: Evidence from an estimated three-region DSGE model

The global financial crisis (2008–09) led to a sharp contraction in both Euro Area (EA) and US real activity, and was followed by a long-lasting slump. However, the post-crisis adjustment in the EA and the US shows striking differences—in particular, the EA slump has been markedly more protracted. We estimate a three-region (EA, US and Rest of World) New Keynesian DSGE model (using quarterly data for 1999–2014) to quantify the drivers of the divergent EA and US adjustment paths. Our results suggest that financial shocks were key drivers of the 2008–09 Great Recession, for both the EA and the US. The post-2009 slump in the EA mainly reflects a combination of adverse aggregate demand and supply shocks, in particular lower productivity growth, and persistent adverse shocks to capital investment, linked to the continuing poor health of the EA financial system. Adverse financial shocks were less persistent for the US. The financial shocks identified by the model are consistent with observed performance indicators of the EA and US banking systems.     

Nominal inertia and shock persistence in UK business cycles

A structural VAR methodology is used for UK data to identify and map out the effects of innovations in the money supply, employment, output, wages and prices. Moreover, bands of two standard errors are computed for the impulse response functions so that comment may be made on the significance of the dynamic responses of the variables to the simulated shocks. This allows conclusions to be drawn on the persistence of shocks. Results suggest that output variation is largely determined by aggregate demand shocks over the business cycle frequency. Importantly, evidence is also found of rigidities in the form of price inertia and nominal wage stickiness.