International Emission Permit Markets with Refunding

We propose a blueprint for an international emission permit market such as the EU trading scheme. Each country decides on the amount of permits it wants to offer. A fraction of these permits is grandfathered, the remainder is auctioned. Revenues from the auction are collected in a global fund and reimbursed to member countries in fixed proportions. We show that international permit markets with refunding lead to outcomes in which all countries tighten the issuance of permits and are better off compared to standard international permit markets. If the share of grandfathered permits is sufficiently small, we obtain approximately socially optimal emission reductions.climate change mitigation, global refunding scheme, international permit markets, international agreements, tradeable permits

On the Design of Global Refunding and Climate Change

We design a global refunding scheme as a new international approach to address climate change. A global refunding system allows each country to set its carbon emission tax, while aggregate tax revenues are partially refunded to member countries in proportion to the relative emission reductions they achieve within a given period, compared to some given baseline emissions. In a simple model we show that a suitably designed global refunding scheme is self-enforcing and achieves the social global optimumclimate change mitigation, global refunding scheme, international agreements, self-enforcing mechanisms

Oil Price Shocks and Currency Denomination (A revised version of EWP 2005-01)

The paper analyzes the dynamic effects of anticipated price increases of imported raw materials upon two large open economies. It is assumed that the economies have an asymmetric macroeconomic structure on the supply side and are dependent upon a small third country for oil or raw materials imports. The dynamic behavior of several macroeconomic variables is discussed both under US dollar and Euro-currency denomination. It is shown that with Euro-currency denominated oil the stagnationary effects of oil price increases upon both the domestic and foreign economy are reduced. The paper also discusses several monetary policy responses to oil price shocks. --oil price shocks,international policy coordination,currency denomination

On the (de)stabilizing effects of news shocks

This paper analyzes the impacts of news shocks on macroeconomic volatility. Whereas in any purely forward-looking model, such as the baseline New Keynesian model, anticipation amplifies volatility, we obtain ambiguous results when including a backward-looking component. In addition to these theoretical findings, we use the estimated model of Smets and Wouters (2003) to provide numerical evidence that news shocks increase the volatility of key macroeconomic variables in the euro area when compared to unanticipated shocks. --Anticipated shocks,business cycles,volatility

Rational expectations models with anticipated shocks and optimal policy: a general solution method and a new Keynesian example

The purpose of this paper is to show how to solve linear dynamic rational expectations models with anticipated shocks by using the generalized Schur decomposition method. Furthermore, we determine the optimal unrestricted and restricted policy responses to anticipated shocks. We demonstrate our solution method by means of a micro-founded hybrid New Keynesian model and show that anticipated cost-push shocks entail higher welfare losses than unanticipated shocks of equal size. --Anticipated Shocks,Optimal Monetary Policy,Rational Expectations,Generalized Schur Decomposition,Welfare Effects

Solution of RE Models with Anticipated Shocks and Optimal Policy

The purpose of this paper is to solve linear dynamic rational expectations models with anticipated shocks by using the generalized Schur decomposition method. We also determine the optimal unrestricted and restricted policy responses to temporary as well as permanent shocks which both are anticipated by the public. In particular, our method is useful for the analysis of optimal monetary policy in New Keynesian dynamic general equilibrium models. --Anticipated Shocks,Optimal Monetary Policy,Rational Expectations,Generalized Schur Decomposition

Monetary Policy Dynamics in Large Oil-Dependent Economies

The paper analyzes the impacts of anticipated and unanticipated monetary policies on two large open economies that are dependent upon raw materials imports from a small third country. The analysis is based on asymmetric behavior on the supply side of both economies and an endogenous commod- ity pricing equation of Phillips' curve type. It is shown that an increase in the growth rate of domestic money supply is not neutral in the long run but induces contractionary output effects in both economies. The paper also dis- cusses the impacts of monetary policy rules that either reduce the in°ationary or contractionary output effects of commodity price shocks. --Monetary Policy,Oil Price Shocks,International Policy Coordination

On the Non-Optimality of Information: An Analysis of the Welfare Effects of Anticipated Shocks in the New Keynesian Model

This paper compares the welfare effects of anticipated and unanticipated cost-push shocks in the canonical New Keynesian model with optimal monetary policy. We find that, for empirically plausible degrees of nominal rigidity, the anticipation of a future cost-push shock leads to a higher welfare loss than an unanticipated shock. A welfare gain from the anticipation of a future cost shock may only occur if prices are sufficiently flexible. We analytically show that this surprising result holds although unanticipated shocks lead to higher negative impact effects on welfare than anticipated shocks. --Anticipated Shocks,Optimal Monetary Policy,Sticky Prices,Welfare Analysis

Sustainable Climate Treaties

We examine a global refunding scheme for mitigating climate change. Countries pay an initial fee into a global fund that is invested in long-run assets. In each period, part of the fund is distributed among the participating countries in relation to the emission reductions they have achieved in this period. We identify two possible types of sustainable treaty. A first-best sustainable treaty involves varying amounts of refunded wealth and a minimal amount of initial fees inducing socially desirable abatement efforts in each period. In a secondbest sustainable treaty with only two parameters – optimally selected initial fees and constant refunds equal to the interest earned on the fund – the stock of greenhouse gases converges to the socially optimal stock. Finally, we suggest ways for countries to raise money for the payment of initial fees that are neutral to tax payers and international capital markets.climate change mitigation, refunding scheme, international agreements, sustainable treaty

Paleozoic geology of the Shovel Mountain area, Blanco quadrangle, Texas

Geological Science