Storage Under Backwardation: A Direct Test of the Wright-Williams Conjecture

Commodities are often stored when the spot price exceeds the future price in a central market. Wright and Williams conjectured that inventories are held in locations far from the central market on these occasions. In these locations the spot price is lower than the price for forward delivery because transport costs are temporarily high. This hypothesis has not been directly tested, because prices for forward delivery are not normally available at non-central locations. This paper uses an example where these prices exist to test the hypothesis. The evidence, from the late nineteenth century corn markets in Chicago and New York, strongly supports the conjecture. Length: 30 pagesInventories, commodity prices, transport costs

Storage, Slow Transport, and the Law of One Price: Evidence from the Nineteenth Century U.S. Corn Market

This paper develops a rational expectations model of physical arbitrage incorporating storage and trade to explain how markets are integrated when trade is costly and non-instantaneous. The paper finds a striking empirical verification of the model from an analysis of the late nineteenth century corn markets in Chicago and New York. The dataset is particularly high quality and includes weekly data on spot and future prices, storage quantities and the cost of three modes of transport for a fourteen year period. In keeping with the model, it is shown that the New York spot price frequently exceeded both the New York futures price and the Chicago spot price plus the transport cost by several percent when inventories in New York were low, but not when they were high. The paper also derives a supply of storage curve for New York corn and argues it can be explained as the outcome of rational arbitrage when transport is slow.

Financial Contracts and the Management of Carbon Emissions in Small Scale Plantation Forests

Under the New Zealand Emissions Trading Scheme, foresters can obtain carbon units as their forests sequester carbon. If they sell these units as they are earned, the units must be repurchased when the forest is harvested, exposing foresters to price risk. This paper examines the way forward markets, futures markets, and carbon lending markets could be used to manage this risk. It argues that carbon lending markets are likely to be the most convenient form for foresters, as they allow the total returns from forestry investments to be increased with minimal risk. The carbon units can be lent to industrial firms or developers of new forests to minimise the carbon risk they face if they make carbon reducing investments.carbon banking, carbon forward markets, forest sequestation

Inflation and the Measurement of Saving and Housing Affordability

This paper analyses the effect of inflation on the measurement of saving and housing affordability in New Zealand. When the inflation rate is positive, the income and saving of lenders is overstated and the saving of borrowers is understated because a portion of the interest earnings on capital are not true earnings but merely compensation for inflation. Because New Zealand has a large international debt position, this distortion means aggregate saving is understated, possibly by 2 percent of gross domestic product per year. In addition, a standard measure of the cost of financing the purchase of a house is overstated by approximately fifty percent, as a large part of mortgage payments are actually saving. Nevertheless, at the end of 2007 the cost of financing house purchase in New Zealand was at a cyclical high, approximately 40 percent higher than its average level since 1990.inflation, real interest rates, housing affordability

Fiscal, Distributional and Efficiency Impacts of Land and Property Taxes

Land taxes are known to be amongst the most efficient forms of taxation since land is an immobile factor; property (capital value) taxes are less efficient owing to the tax on improvements. However there is little international (or New Zealand) evidence regarding the distributional impacts of land and property taxes. Nor is there much New Zealand evidence on their potential fiscal implications or about the taxes’ impacts on asset values and debt positions. We explore impacts that may arise from a range of land and property taxes that differ across certain features (e.g. comprehensiveness and degree of grand-fathering). Both partial and general equilibrium models are used. The results provide a basis for considering alternative taxation options involving land or property taxes.land tax, property tax

A Simple Model of Housing Rental and Ownership with Policy Simulations

This paper develops a simple model that captures the essential features of the supply and demand for housing, and which is used to evaluate the impact of a range of policy interventions. The model incorporates functions describing the demand to rent or purchase housing, a function describing the supply of rental housing, and a function describing the supply of new houses. The model is used to explore the effects on prices, quantities, and owner occupancy (homeownership) rates of policies that change the stock of housing, that alter the taxes and subsidies facing landlords and homeowners, that alter the cost of new housing, and that alter real interest rates. The results suggest that despite the widespread attention owner occupancy rates have attracted, they are not a particularly helpful guide to the state of the housing market. Typically they are quite insensitive to policy interventions, a result that follows from the integrated view of both the rental and ownership market, adopted in this study.Housing markets; New Zealand; rental and owner occupancy; elasticities; rents; house prices; policy simulations

The Relative Size of New Zealand Exchange Rate and Interest Rate Responses to News

This paper examines the relative size of the effects of New Zealand monetary policy and macroeconomic data surprises on the spot exchange rate, 2 and 5 year swap rate differentials, and the synthetic forward exchange rate schedule. We find that the spot exchange rate and 5 year swap rates respond by a similar magnitude to monetary surprises, implying there is little response of the forward exchange rate to this type of news. In contrast, the spot exchange rate responds by nearly three times as much as 5 year interest rates to CPI and GDP surprises, implying that forward rates appreciate to higher than expected CPI or GDP news. This is in contrast to standard theoretical models and US evidence. Lastly, we show that exchange rates but not interest rates respond to current account news. The implications of these results for monetary policy are considered.New Zealand, interest rates, exchange rates, news

Regional Price Convergence in Australia and New Zealand, 1984-1996

This paper uses disaggregated price data to analyse the extent and the speed of retail price convergence between New Zealand and Australia since 1984. The paper addresses several issues concerning the integration of markets in the two countries. It compares the behaviour of the prices of a set of goods in different cities in Australia with the behaviour of the prices of the same goods in New Zealand. The data is used to answer two sets of questions: first, whether there are systematic differences in the extent to which the retail goods markets between New Zealand and Australia are integrated when compared to the integration of markets between different cities within Australia; and second, whether the theory of purchasing power parity can usefully describe the effect of changes in the bilateral exchange rate on New Zealand prices.

“No Country for Old Men”: a Note on the trans-Tasman Income Divide

Although much work has been done analysing the possible causes of the New Zealand-Australian income gap, to date there has been little analysis of the extent to which this gap differs by gender and age. Using New Zealand and Australian employment and census data we examine these differences and find that (1) over the last 25 years the incomes of New Zealand women have declined less rapidly than those of New Zealand men, relative to Australian incomes; (2) this poor relative performance of New Zealand males was felt most by those in middle age; and (3) the stronger relative income growth of New Zealand females appears to be largely driven by increased public sector wage growth, and as such, its long term sustainability is questionable.dynamic optimisation, electricity spot market performance, stochastic fuel availability, storage options, climate change

Net Tuition Trends in the United States

This report documents the latest trends in net tuition for American higher education. Affordability has become a topic of concern for many, but there is a lack of information on the relevant concepts of tuition, primarily published vs. net. This report seeks to shed light on this topic.While few doubt that published tuition rates (sticker price) have been increasing at alarming rates, it is often argued that "net tuition," or the out of pocket expense, for students is much lower because of financial aid. This report shows that with few exceptions, financial aid has not increased sufficiently to offset increases in published tuition. In other words, the net tuition paid by students is higher now than it was five years ago