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Energy Price Increases and Macroeconomic Policy

Robert S. Pindyck

Year: 1980
Volume: Volume 1
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol1-No4-1
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Abstract:
A rising world price of energy imposes a macroeconomic cost on the United States in two different ways. First, to the extent that energy is both an important input to production and a consumption good, with limited elasticities of substitution and demand, the economy's production and consumption possibilities are necessarily reduced as energy becomes more scarce. Thus, even if an expansionary monetary and fiscal policy were successful in pushing the economy close to its full capacity level, the resulting real national income would be lower than if energy prices had notAn earlier version of this paper was presented at the CEPR Conference on Energy Prices, Inflation and Economic Activity, Cambridge, November 9, 1979. Work leading to this paperwas supported by the Center for Energy Policy Research of the M.I.T. Energy Laboratory, and that support is gratefully acknowledged. In writing this paper, I benefited considerablyfrom conversations with and comments from Olivier Blanchard, Stanley Fischer, Benjamin Friedman, Robert Hall, Franco Modigliani, Robert Solow, and an anonymous referee.



World Oil Price Increases: Sources and Solutions

Albert L. Danielsen, Edward B. Selby, Jr.

Year: 1980
Volume: Volume 1
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol1-No4-4
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Abstract:
World oil prices have been high since 1973, compared to average production costs and historical norms, because the Organization of Petroleum Exporting Countries (OPEC) has functioned as a viable price-setting and output-restricting institution. Prices increased sharply in 1973-1974 and 1979, and in each case OPEC validated the higher price levels by subsequently cutting production. On the other hand, the importing countries have failed to establish institutions of their own that could mitigate price increases because they have not perceived the problem to be one of institutional control over prices. Instead, they have tended to view high oil prices as the result of resource scarcity. Their responses have been predominantly intermediate to long term, stockpiling for an embargo, encouraging conservation, and promoting the development of alternative energy



U.S. Midwest Gasoline Pricing and the Spring 2000 Price Spike

Jeremy I. Bulow, Jeffrey H. Fischer,Jay S. Creswell, Jr. and Christopher T. Taylor

Year: 2003
Volume: Volume24
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol24-No3-5
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Abstract:
Gasoline prices increased dramatically in the U.S. Midwest in the summer of 2000, generating allegations of collusion among gasoline marketers. We examine the causes of the price increase, and find no evidence to support the collusion story. Instead, a combination of industry characteristics and unanticipated problems in switching to a new, federally-mandated gasoline specification caused the spike. Once prices rose, firms responded as quickly as possible to get additional supplies to affected markets.



It Never Rains but it Pours: Modeling the Persistence of Spikes in Electricity Prices

Timothy Christensen, Stan Hurn and Kenneth Lindsay

Year: 2009
Volume: Volume 30
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No1-2
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Abstract:
During periods of market stress, electricity prices can rise dramatically. This paper treats these abnormal episodes or price spikes as count events and attempts to build a model of the spiking process. By contrast to the existing literature, which either ignores temporal dependence in the spiking process or attempts to model the dependence solely in terms of deterministic variables (like seasonal and day of the week effects), this paper argues that persistence in the spiking process is an important factor in building an effective model. A Poisson autoregressive framework is proposed in which price spikes occur as a result of the latent arrival and survival of system stresses. This formulation captures the salient features of the process adequately, and yields forecasts of price spikes that are superior to those obtained from na�ve models that do not account for persistence in the spiking process.



The Effect of Transmission Constraints on Electricity Prices

Adam E. Clements, A. Stan Hurn, and Zili Li

Year: 2017
Volume: Volume 38
Number: Number 4
DOI: 10.5547/01956574.38.4.acle
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Abstract:
Electricity prices in an interconnected market are influenced by the occurrence of transmission constraints. Until relatively recently, however, the important effects of transmission constraints on both the trajectory and volatility of electricity prices have not played a large role in empirical models of prices. This paper explores the contribution to price volatility in the Queensland electricity market made by transmission constraints. It is found that robust estimation techniques are necessary to guard against incorrect inference in time series models using electricity price data in which severe price spikes occur. The main empirical lesson is that transmission constraints contribute significantly both to the level and variability of price and consequently the performance of a price forecasting model is likely to be improved by incorporating information on transmission constraints. While the general tenor of this conclusion will come as no surprise, the extent and the importance of these effects found in this paper for forecasting price and for computing summary measures like Value-at-Risk serve as a timely reminder to practitioners.





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