Low-carbon energy: a roadmap

Technologies available today, and those expected to become competitive over the next decade, will permit a rapid decarbonization of the global energy economy. New renewable energy technologies, combined with a broad suite of energy-efficiency advances, will allow global energy needs to be met without fossil fuels and by adding only minimally to the cost of energy services The world is now in the early stages of an energy revolution that over the next few decades could be as momentous as the emergence of oiland electricity-based economies a century ago. Double-digit market growth, annual capital flows of more than $100 billion, sharp declines in technology costs, and rapid progress in the sophistication and effectiveness of government policies all herald a promising new energy era. Advanced automotive, electronics, and buildings systems will allow a substantial reduction in carbon dioxide (CO2) emissions, at negative costs once the savings in energy bills is accounted for. The savings from these measures can effectively pay for a significant portion of the additional cost of advanced renewable energy technologies to replace fossil fuels, including wind, solar, geothermal, and bioenergy. Resource estimates indicate that renewable energy is more abundant than all of the fossil fuels combined, and that well before mid-century it will be possible to run most national electricity systems with minimal fossil fuels and only 10 percent of the carbon emissions they produce today. The development of smart electricity grids, the integration of plug-in electric vehicles, and the addition of limited storage capacity will allow power to be provided without the baseload plants that are the foundation of today's electricity systems. Recent climate simulations conclude that CO2 emissions will need to peak within the next decade and decline by at least 50 to 80 percent by 2050. This challenge will be greatly complicated by the fact that China, India, and other developing countries are now rapidly developing modern energy systems. The only chance of slowing the buildup of CO2 concentrations soon enough to avoid catastrophic climate change that could take centuries to reverse is to transform the energy economies of industrial and developing countries almost simultaneously. This would have seemed nearly impossible a few years ago, but since then, the energy policies and markets of China and India have begun to change rapidly -- more rapidly than those in many industrial countries. Renewable and efficiency technologies will allow developing countries to increase their reliance on indigenous resources and reduce their dependence on expensive and unstable imported fuelsAround the world, new energy systems could become a huge engine of industrial development and job creation, opening vast new economic opportunities. Developing countries have the potential to "leapfrog" the carbon-intensive development path of the 20th century and go straight to the advanced energy systems that are possible today. Improved technology and high energy prices have created an extraordinarily favorable market for new energy systems over the past few years. But reaching a true economic tipping point will require innovative public policies and strong political leadership

The effect of the Euro on country versus industry portfolio diversification

We examine the relative benefits of industrial versus geographical diversification in the Euro zone before and after the introduction of the common currency. A priori, one may expect that increased stock market correlation would precipitate a move from geographical towards industrial diversification. We employ the empirical model of Heston and Rouwenhorst but show that adopting a panel data approach is a more efficient estimation method. We find evidence of a shift in factor importance; from country to industry. However, this is not exclusive to the Euro zone but is also present for non-EMU European countries. Therefore, fund managers should pursue industrial rather than geographical diversification strategies.Portfolio diversification,industry and country effects, Euro,

Robust Estimation of the Joint Consumption / Asset Demand Decision

The paper proposes an instrumental variables version of the Huber estimator as an alternative to the IV-Krasker Welsch estimator. The IV-Huber estimator is analytically and computationally much simpler than IV-Krasker Welsch. In the context of an empirical study of the importance of borrowing constraints on consumption, the paper reports the results for the following estimators: 1) conventional (non-robust) IV, 2) conventional IV after the subjective rejection of outliers, 3) conventional IV after trimming, 4) IV-Huber, and 5) IV-Krasker-Welsch. In the presence of a heavy-tailed error distribution, both the IV-Krasker Welsch and the IV-Huber estimators provide substantial improvements in efficiency over conventional IV. Further, the informal robust procedure of using conventional IV after trimming does not match the efficiency gains of the formal robust methods. The empirical results indicate that households exhibit incomplete smoothing of consumption, with about 20-50% of predictable movements in income being buffered by asset stocks. When saving is disaggregated by type of asset, the results provide some evidence of borrowing constraints: households which are not subject to a liquidity constraint use financial assets as their primary means of buffering income fluctuations, while constrained households use purchases of durable goods almost exclusively as the vehicle for consumption smoothing.

Abelian and non-Abelian statistics in the coherent state representation

We further develop an approach to identify the braiding statistics associated to a given fractional quantum Hall state through adiabatic transport of quasiparticles. This approach is based on the notion of adiabatic continuity between quantum Hall states on the torus and simple product states---or "patterns"---in the thin torus limit, together with a suitable coherent state Ansatz for localized quasiholes that respects the modular invariance of the torus. We give a refined and unified account of the application of this method to the Laughlin and Moore-Read states, which may serve as a pedagogical introduction to the nuts and bolts of this technique. Our main result is that the approach is also applicable---without further assumptions---to more complicated non-Abelian states. We demonstrate this in great detail for the level $k=3$ Read-Rezayi state at filling factor $\nu=3/2$. These results may serve as an independent check of other techniques, where the statistics are inferred from conformal block monodromies. Our approach has the benefit of giving rise to intuitive pictures representing the transformation of topological sectors during braiding, and allows for a self-consistent derivation of non-Abelian statistics without heavy mathematical machinery.Comment: 38 pages, 11 figures, REVTeX 4-1; grammar and typo fixes, published versio

How Risk Averse are Fund Managers? Evidence from Irish Mutual Funds

This paper investigates the degree of risk aversion exhibited by Irish fund managers. Assuming a mean-variance optimising manager, we employ the dynamic conditional correlation specification (Engle, 2002) of the multivariate GARCH model to estimate the coefficient of relative risk aversion. We find that fund managers whose remit is to “aggressively” manage their portfolios have coefficients lying between 1.69 and 2.42, while the risk aversion parameter of “balanced” managed funds range from 3.24 to 3.69. Finally we discuss the implications of these numbers on the likelihood of these managers partaking in risky investments.Risk aversion; Fund managers; Dynamic conditional correlations.

Excess Sensitivity of Consumption to Current Income: Liquidity Constraints or Myopia?

Almost all of the recent empirical tests of the rational expectations - permanent income hypothesis (RE-PIH) have rejected the hypothesis. The null hypothesis in this empirical literature typically consists of the joint hypothesis that 1) agents' expectations are formed rationally, 2) desired consumption is determined by permanent income, and 3) capital markets are"perfect" in the sense that agents can lend or borrow against expected future income at the same interest rate. This paper attempts to determine whether the excess sensitivity of consumption to current income can be attributed to a failure of the third component of the joint hypothesis -- the assumption of "perfect" capital markets -- as opposed to a failure of one or both of the first two assumptions. The paper examines, as a specific alternative to the PIH, a simple "Keynesian" consumption function in which the behavioral MPC out of transitory income is different from zero. Interpreting the unemployment rate as a proxy for the proportion of the population subject to liquidity constraints, the paper uses a generalized version of the econometric model in my earlier paper(1981) to conduct a specification test of the "Keynesian" consumption function. The finding that the estimate of the MPC out of transitory income is dramatically affected, in both magnitude and statistical significance, by the inclusion of the proxy for liquidity constraints suggests that liquidity constraints are an important part of the explanation of the observed excess sensitivity of consumption to current income.

International Portfolio Diversification and Market Linkages in the presence of regime-switching volatility

We examine if the benefits of international portfolio diversification are robust to time-varying asset return volatility. Since diversified portfolios are subject to common cross-country shocks, we focus on the transmission mechanism of such shocks in the presence of regime-switching volatility. We find little evidence of incresaed market interdependence in turbulent periods. Furthermore, for the vast majority of time, we show that risk reduction is delivered for the US investor who holds foreign equitMarket comovement, International portfolio diversification, Financial market crises, Regime switching

A Model of Housing in the Presence of Adjustment Costs: A Structural Interpretation of Habit Persistence

The paper generalizes the Grossman and Laroque (1990) model of optimal consumption and portfolio allocation in the context in which a durable good (or house) subject to adjustment costs is both an argument of the utility function and a component of wealth. Because the Grossman and Laroque model abstracts completely from nondurable consumption, their analysis cannot address either a) the potential spillover effects of the adjustment costs of the durable good on the dynamics of nondurable consumption, or b) the implications for portfolio allocation of housing risk arising from variation in the relative price of housing. By introducing an endogenously determined but infrequently adjusted state variable, the housing model generates many of the implications of the habit persistence model, such as smooth nondurable consumption, state-dependent risk aversion, and a small elasticity of intertemporal substitution despite moderate risk aversion. Using a specification of the utility function which nests both the housing model and habit persistence, the Euler equation for nondurable consumption is estimated with household level data on food consumption and housing from the PSID. The habit persistence model (without housing effects) can be decisively rejected, while the housing model (without habit effects) is not rejected.