Macroeconomic Effects of Oil Price Fluctuations on Emerging and Developed Economies in a Model Incorporating Monetary Variables

The goal of this paper is to examine the impact of crude oil price movements on two macro variables, the gross domestic product (GDP) growth rate and the consumer price index (CPI) inflation rate, in three countries, the People's Republic of China (an emerging economy), Japan, and the United States (developed economies), in a model incorporating monetary variables (money supply and exchange rate). The main objective of this research is to investigate whether these economies are still reactive to oil price movements and compare their reactions. Monetary variables are included in this survey because our earlier research showed that they have a significant role in oil price determination. To assess the relationship between crude oil prices and macro variables we adopt an N-variable structural vector autoregression (SVAR) model. The results suggest that the impact of oil price fluctuations on developed oil importers' GDP growth is much milder than on the GDP growth of an emerging economy. On the other hand, however, the impact of oil price fluctuations on the People's Republic of China's inflation rate was found to be milder than in the two developed countries that were examined

A Meaningful U.S. Cap-and-Trade System to Address Climate Change

There is growing impetus for a domestic U.S. climate policy that can provide meaningful reductions in emissions of CO2 and other greenhouse gases. In this article, I propose and analyze a scientifically sound, economically rational, and politically feasible approach for the United States to reduce its contributions to the increase in atmospheric concentrations of greenhouse gases. The proposal features an up-stream, economy-wide CO2 cap-and-trade system which implements a gradual trajectory of emissions reductions over time, and includes mechanisms to reduce cost uncertainty. I compare the proposed system with frequently discussed alternatives. In addition, I describe common objections to a cap-and-trade approach to the problem, and provide responses to these objections

Energy security, public policy, and the role of the DOE Office of Energy Emergencies

This paper addresses the concept of energy security, the costs and benefits of energy security, and policies which could potentially alter these costs and benefits. These issues are considered from the perspective of the DOE's Office of Energy Emergencies, with the goal of determining if alternative or additional roles should be open to this Office. The approach taken is limited to the economic costs and benefits of energy security, reflecting our view that the bulk of important energy security issues can at least be approached from this perspective. An energy emergency results from a sudden change in the quantity, market price, and/or social value of energy, in combination with a domestic and/or world wide energy system that cannot rapidly adjust to that change. We do not believe that mitigating the impacts of such events is always necessary, nor that it is uniquely a governmental responsibility. In fact, the first recourse in emergency preparedness should always be to the private sector. Government should deal with three different aspects of emergency energy activities. First, it should condition the decision making environment by seeing that adequate information about energy conditions is available and that its own policy position is clear. Next, it should evaluate the preparedness measures undertaken by the private sector. Finally, if it finds private sector preparation to be inadequate, government has a variety of direct and indirect means with which to intervene. One direct measure currently used is the buildup and drawdown of the strategic petroleum reserve (SPR). Others include contingency plans to override market allocations during wartime, as might be developed under the graduated mobilization response (GMR). Indirect means include a variety of tax and transfer schemes that alter existing private sector incentives to prepare. Well conceived monetary and fiscal policies complete the tools. 1 fig., 1 tab

An Assessment of the EPA's SO2 Emission Allowance Tracking System

On November 8, 1996, various Environmental Protection Agency (EPA) officials, scholars and industry representatives gathered at Resources for the Future (RFF) to examine the EPA's method for classifying private SO2 allowance transactions by the Allowance Tracking System (ATS). The one-day workshop at RFF was designed to evaluate how well the EPA's classification scheme within the ATS currently meets the needs of constituencies with a vested interest in the allowance trading system, and to determine if other classifications would be more beneficial. The EPA has limited its collection of information to that which is necessary to ensure compliance with environmental goals. In particular, the EPA has interpreted its mission to be one of minimal interference in guiding the development of the allowance market and that its primary purpose is emission compliance and not the monitoring of transactions. Therefore, the goal of the ATS is to provide a central registry of recorded allowance transfers for the purpose of emission compliance. As a result, the ATS is unusual as a mechanism for monitoring market activity because it provides information about the buyer and seller of an allowance but does not provide price information. Furthermore, the EPA has limited its role so as not to exercise approval of individual allowance trades, and has excluded from consideration options for expanding the EPA's data collection effort. However, the EPA recognizes that the interests of Congress and the public extend beyond compliance with the environmental goals to include the development of allowance trading to help achieve these goals at the lowest possible cost. In addition, there is widespread interest in the development of SO2 emission allowance trading as a prototype for other potential trading programs, and the ATS provides a potential template for the oversight role of the environmental regulator in programs such as these. Therefore, another goal of the workshop at RFF was to assess how well the ATS performs in promoting the development of allowance trading in general, and with respect to the interests and needs of each of the constituencies interested in the SO2 allowance trading program. This discussion paper incorporates observations, suggestions and concerns expressed during this workshop. Furthermore, this discussion paper concludes with recommendations regarding the EPA's current classification methodology