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3371. Do Energy Prices Respond to U.S. Macroeconomic News? A Test of the Hypothesis of Predetermined Energy Prices

Author:
Lutz Kilian and Clara Vega
Publication Date:
11-2008
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Models that treat innovations to the price of energy as predetermined with respect to U.S. macroeconomic aggregates are widely used in the literature. For example, it is common to order energy prices first in recursively identified VAR models of the transmission of energy price shocks. Since exactly identifying assumptions are inherently untestable, this approach in practice has required an act of faith in the empirical plausibility of the delay restriction used for identification. An alternative view that would invalidate such models is that energy prices respond instantaneously to macroeconomic news, implying that energy prices should be ordered last in recursively identified VAR models. In this paper, we propose a formal test of the identifying assumption that energy prices are predetermined with respect to U.S. macroeconomic aggregates. Our test is based on regressing cumulative changes in daily energy prices on daily news from U.S. macroeconomic data releases. Using a wide range of macroeconomic news, we find no compelling evidence of feedback at daily or monthly horizons, contradicting the view that energy prices respond instantaneously to macroeconomic news and supporting the use of delay restrictions for identification.
Topic:
Economics, Energy Policy, Oil, and Macroeconomics
Political Geography:
United States and North America

3372. Uncertainty over Models and Data: The Rise and Fall of American Inflation

Author:
Seth Pruitt
Publication Date:
12-2008
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
An economic agent who is uncertain of her economic model learns, and this learning is sensi- tive to the presence of data measurement error. I investigate this idea in an existing framework that describes the Federal Reserve’s role in U.S. inflation. This framework successfully fits the observed inflation to optimal policy, but fails to motivate the optimal policy by the perceived Philips curve trade-off between inflation and unemployment. I modify the framework to account for data uncertainty calibrated to the actual size of data revisions. The modified framework ameliorates the existing problems by adding sluggishness to the Federal Reserve’s learning: the key point is that data uncertainty is amplified by the nonlinearity induced by learning. Conse- quently there is an explanation for the rise and fall in inflation: the concurrent rise and fall in the perceived Philips curve trade-off.
Topic:
Economics, Inflation, and Models
Political Geography:
United States and North America

3373. Russian-Algerian cooperation and the 'gas OPEC': What's in the pipeline?

Author:
Hakim Darbouche
Publication Date:
03-2007
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
President Abdelaziz Bouteflika's statement to Spain's El País1 that the idea of a 'gas-OPEC' should not a priori be excluded, adds to a series of twists, among which was Vladimir Putin's confirmation on 1 February that the idea of a gas cartel was an 'interesting one' worth considering further. Hitherto, this gas saga featured Russia, Algeria, the EU, NATO and Iran. The story revolves around Russian-Algerian mingling on gas matters, spurring European and Transatlantic concerns over the prospects of a 'gas OPEC'. At a time of increasing European dependence on foreign energy supplies, these developments have been interpreted as being part of a wider effort, led by Russia, to use energy as a lever to undermine European diplomacy. These allegations have been dismissed by Algeria and Russia, whose leaders insist that their cooperation is intended to optimise their benefits and those of their customers alike. This paper examines the underpinnings of these developments by assessing the likelihood of their culmination in a gas cartel and offers an insight into the potential policy choices behind them.
Topic:
Economics and Energy Policy
Political Geography:
Russia, Europe, Eastern Europe, Asia, and Algeria

3374. Don't blame globalisation for the squeezing of the middle class

Author:
Ángel Ubide
Publication Date:
02-2007
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
Globalisation is being blamed for the squeezing of the middle class and protectionism is being offered as a solution. We argue in this paper that the increase in inequality is a long-term trend resulting from a variety of factors, including the decline in manufacturing, the reduction in the progressivity of taxation and the steady increase in asset prices, and that globalisation has only had a marginal impact on it. Protectionism will not reverse any of these trends. We discuss some policy options aimed at cushioning this increase in inequality and argue that they will likely result in expanding fiscal deficits and pressure on central banks to test the limits of growth.
Topic:
Demographics, Development, Economics, and Globalization

3375. Making and Unmaking Money: Economic Planning and the Collapse of East Germany

Author:
Jonathan R. Zatlin
Publication Date:
04-2007
Content Type:
Working Paper
Institution:
Institute of European Studies
Abstract:
This paper locates the collapse of East German communism in Marxist- Leninist monetary theory. By exploring the economic and cultural functions of money in East Germany, it argues that the communist party failed to reconcile its ideological aspirations - a society free of the social alienation represented by money and merchandise - with the practical exigencies of governing an industrial society by force. Using representative examples of market failure in production and consumption, the paper shows how the party's deep-seated hostility to money led to economic inefficiency and waste. Under Honecker, the party sought to improve living standards by trading political liberalization for West German money. Over time, however, this policy devalued the meaning of socialism by undermining the actual currency, facilitating the communist collapse and overdetermining the pace and mode of German unification.
Topic:
Communism and Economics
Political Geography:
Europe, Eastern Europe, Germany, and West Germany

3376. The Italian Stabilization of 1947: Domestic and International Factors

Author:
Juan Carlos Martinez Oliva
Publication Date:
05-2007
Content Type:
Working Paper
Institution:
Institute of European Studies
Abstract:
The paper examines the 1947 monetary stabilization in Italy, tracing the domestic and international political dynamics that allowed ideas and theoretical concepts developed within the Bank of Italy to be applied in a successful action to subdue spiraling inflation. The combination of events and circumstances necessary for the good outcome in a critical juncture of Italian economic history was the fruit of the efforts made by Prime Minister Alcide De Gasperi in both the domestic and international political arenas and of the collaboration he received from Luigi Einaudi and Donato Menichella. The Government's economic action in this crucial episode constitutes perhaps the first outstanding example of cooperation between politicians and experts in the annals of the Italian Republic.
Topic:
Economics and Government
Political Geography:
Europe and Italy

3377. Credit Crisis: The Sky is not Falling

Author:
Anthony Downs
Publication Date:
10-2007
Content Type:
Policy Brief
Institution:
The Brookings Institution
Abstract:
U.S. stock markets are gyrating on news of an apparent credit crunch generated by defaults among subprime home mortgage loans. Such frenzy has spurred Wall Street to cry capital crisis. However, there is no shortage of capital – only a shortage of confidence in some of the instruments Wall Street has invented. Much financial capital is still out there looking for a home.
Topic:
Economics and Markets
Political Geography:
United States

3378. Fighting irrelevance: An economic community 'with ASEAN characteristics'

Author:
John Ravenhill
Publication Date:
12-2007
Content Type:
Working Paper
Institution:
Australian National University Department of International Relations
Abstract:
The Association of Southeast Asian Nations (ASEAN) enters its fifth decade of economic cooperation in more favourable circumstances than those experienced at the time of its thirtieth anniversary. Paradoxically, and contrary to expectations at the time, the financial crises of 1997—98 may have strengthened ASEAN. The backlash against what was perceived as an unsympathetic Western response to East Asian difficulties put ASEAN at centrestage in new regional cooperative arrangements. Moreover, rivalry between China and Japan for regional leadership has led them both to seek to negotiate regional partnerships with ASEAN as a whole. ASEAN, however, faces new challenges—particularly from rapid economic growth in China and India, and from the proliferation of preferential trade agreements (PTAs) (including a large number involving individual ASEAN members). ASEAN has made only slow progress in economic cooperation. The complete removal of tariffs has fallen behind schedule and is not due to be realised until 2010. The private sector makes little use of ASEAN's preferential arrangements because they afford little advantage over most-favoured-nation tariffs—certainly not sufficient to offset the costs of complying with paperwork, and the consequent delays experienced. ASEAN has made little progress on 'deeper integration' issues—the removal of 'beyond border' barriers to trade. Some of the bilateral PTAs that ASEAN countries have negotiated with extra-regional partners go further in removing barriers than ASEAN's own arrangements. ASEAN members continue to eschew binding commitments within their own economic collaboration despite making them within the World Trade Organization and in some of their bilateral PTAs. Liberalisation under ASEAN's auspices has not been sufficiently significant to encourage business groups to invest substantial resources in lobbying for deeper integration.
Topic:
International Relations and Economics
Political Geography:
Japan, China, India, Israel, East Asia, and Australia/Pacific

3379. Upgrading in Agricultural Value Chains: The Case of Small Producers in Honduras

Author:
Ingrid Fromm
Publication Date:
12-2007
Content Type:
Working Paper
Institution:
German Institute of Global and Area Studies
Abstract:
Local producers, in their interaction with local processors or exporters and international retailers have the possibility to acquire new skills and knowledge. The type of trust relationship and coordination pattern can determine how information flows and how firms upgrade. In addition, the implementation and compliance with standards provides opportunities for learning and acquiring skills and knowledge. Focusing on this kind of interactions, the study explains how local producers in Honduras engage in upgrading and whether this had an impact on the sales of those firms. The majority of the producers in the sample upgraded their products and internal processes. A limited number of producers engaged in functional upgrading. Most of the producers were aware of the important role of standards. They affirmed that in the process of implementing and complying with standards, they have gained new knowledge and were convinced that they succeeded in securing at better position in the value chain.
Topic:
Development, Economics, and Markets
Political Geography:
Central America

3380. Sectoral Transformations in Neo-Patrimonial Rentier States: Tourism Development and State Policy in Egypt

Author:
Thomas Richter and Christian Steiner
Publication Date:
11-2007
Content Type:
Working Paper
Institution:
German Institute of Global and Area Studies
Abstract:
This article challenges claims that liberalising state regulated markets in developing countries may induce lasting economic development. The analysis of the rise of tourism in Egypt during the last three decades suggests that the effects of liberalisation and structural adjustment are constrained by the neo-patrimonial character of the Egyptian political system. Since the decline of oil rent revenues during the 1980s tourism development was the optimal strategy to compensate for the resulting fiscal losses. Increasing tourism revenues have helped in coping with macroeconomic imbalances and in avoiding more costly adjustment of traditional economic sectors. Additionally, they provided the private elite with opportunities to generate large profits. Therefore, sectoral transformations due to economic liberalisation in neo-patrimonial Rentier states should be described as a process, which has led to the diversification of external rent revenues, rather than to a general downsizing of the Rentier character of the economy.
Topic:
Development and Economics
Political Geography:
Africa, United States, Middle East, and Egypt