Volatility spill-overs in commodity spot prices: New empirical results

The classical rational expectations model of commodity markets implies that expected spot price risk is an explanatory variable in spot price regressions; and also that inventory carryover, which is reduced by a larger price variance, creates autoregressive conditional heteroscedastic processes in spot prices. In order to falsify/verify this theory, it has typically been assumed that the square root of the conditional variance of spot prices, a proxy for spot price risk, enters the conditional mean function of spot prices. Based on this simple representation, a typical but counter intuitive outcome has been that spot price risk has an insignificant impact on spot prices, see, e.g., Beck (Beck, S., 1993. A Rational Expectations Model of Time Varying Risk Premia in Commodities Futures Markets: Theory and Evidence. International Economic Review 34, 149–168, Beck, S., 2001. Autoregressive Conditional Heteroskedasticity in Commodity Spot Prices. Journal of Applied Econometrics 16, 115–132). In this paper, we propose an alternative functional relationship (from GARCH(1,1) to GARCH(1,1)-AR(m)) between spot price risk and spot prices that is fully supported by the classical rational expectations model, and based on this new representation we are able to provide stronger empirical support for Muth's rational expectation theory.     

Towards equilibrium offers in unit commitment auctions with nonconvex costs

We compare two types of uniform-price auction formats commonly used in wholesale electricity markets—centrally committed and self-committed markets. Auctions in both markets are conducted by an independent system operator that collects generator bids and determines which generators will operate and how much electricity each will produce. In centrally committed markets, generators submit two-part bids consisting of a startup cost and a variable energy cost. Self-committed markets force generators to incorporate their startup costs into a one-part energy bid. The system operator in a centrally committed system ensures that each generator recovers the startup and energy costs stated in its two-part bid, while no such guarantees are made in self-committed markets. The energy cost ranking and incentive properties of these market designs remains an open question. While the system operator can determine the most efficient dispatch with a centralized market, the auction mechanism used to solicit generator data compels generators to overstate costs. Self commitment might involve less efficient dispatch but have better incentive properties. We derive Nash equilibria for both market designs in a symmetric duopoly setting. We also derive simple conditions under which the two market designs will be expected cost-equivalent.     

Rent Management – The Heart of Green Industrial Policy

At the heart of green industrial policy is rent management: government creating and withdrawing opportunities for profitable investment. This paper asks what the key factors are for rent management to succeed. Drawing on a range of literatures, the paper first deals with the critical success factors for ‘normal’ rent management and then turns to one of the most pressing and controversial issues of our time: how to bring about the transition to green energy. This is extra challenging because technological uncertainties are high, time horizons for investment are long, yet action is required now.     

The role of perceived costs and perceived benefits in the relationship between personality and risk‐related choices

This paper considers how perceptions of costs and benefits can influence the association between personality and risky choice behaviour. We assessed perceptions and behaviours in six domains (ethical; investment; gambling; health and safety; recreational; social) using the DOSPERT and measured personality using the NEO PI‐R. Results from structural equation modelling showed that personality had a direct effect on risky choice behaviour in four domains (social, ethical, gambling and recreational risk‐taking). In addition, perceived costs and benefits mediated the relations between personality and risk‐taking in the five domains (social, ethical, gambling, recreational and investment risk‐taking). Evidence for a mechanism that integrates both direct and indirect effects of personality on behaviour is discussed.     

What Do Current Account Reversals in OECD Countries Tell Us About the US Case?

This study examines macroeconomic developments around reversals in current account deficits in 29 OECD countries over four decades and draws some inferences for the present US deficit. Estimates of a probit model indicate that the deepness of the deficit itself, absence of spare production capacity and a beginning real depreciation are factors that increase the likelihood of a current account reversal in the following year. For the US each of these three indicators of a reversal are now on, making a near reversal probable. Over the past 40 years half of the current account deficit reversals in the OECD area were followed by a recession in the countries concerned.