Byrne, J.P. , Lorusso, M. and Xu, B. (2017) Oil Prices and Informational Frictions: The Time-Varying Impact of Fundamentals and Expectations
This paper accounts for informational frictions when modelling the time-varying relationship between crude oil prices, traditional fundamentals and expectations. Informational frictions force a wedge between oil prices and supply and/or demand shocks, especially during periods of elevated risk aversion and uncertainty. In such a context expectations can be a key driver of oil price movements. We utilize a variety of proxies for forward-looking expectations, including business confidence, consumer confidence and leading indicators. In addition, our paper implements a time-varying parameter approach to account empirically for time-varying informational frictions. Our results illustrate firstly that oil supply shocks played an important role in both the 1970’s and coinciding with the recent shale oil boom. Secondly, demand had a positive impact upon oil prices, especially from the mid-2000’s. Finally, we provide evidence that oil prices respond strongly to expectations but the source of the shock matter: business leaders’ expectations are positively related, while markets’ expectations are not strongly linked to oil prices.
Asimakopoulos, S. , Lorusso, M. and Pieroni, L. (2016) Can Public Spending Boost Private Consumption?
This paper analyses the effects on private consumption from an increase in productive and unproductive public spending. A new Keynesian model incorporating price and wage rigidities, monetary policy and various fiscal rules is developed and estimated, using Bayesian techniques, to capture the key cyclical characteristics of the US economy. We find that price and wage rigidities along with a positive shock to the part of public spending that is productive are sufficient to boost private consumption. Moreover, we show that this initial positive reaction of private consumption is adequate to create a positive present value consumption multiplier for more than five years. Finally, we show that our main results remain robust to changes in the monetary rule and the various methods of deficit financing.
Carvalho, A. (2016) Energy Efficiency in Transition Economies: A Stochastic Frontier Approach
The paper outlines and estimates a measure of underlying efficiency in electricity consumption for an unbalanced panel of 28 transition economies and 5 Western European OECD countries in the period 1994-2007, by estimating a Bayesian Generalized True Random Effects (GTRE) stochastic frontier model that estimates both persistent and transient inefficiency. The properties of alternative GTRE estimation methods in small samples are explored to guide the estimation strategy. The paper analyses the behaviour of underlying efficiency in electricity consumption in these economies after accounting for time-invariant technological differences. After outlining the specific characteristics of the transition economies and their heterogeneous structural economic changes, an aggregate electricity demand function is estimated to obtain efficiency scores that give new insights for transition economies than a simple analysis of energy intensity. There is some evidence of convergence between the CIS countries and a block of Eastern European and selected OECD countries, although other country groups do not follow this tendency, such as the Balkans.
Carvalho, A. (2016) Delays in Connecting Firms to Electricity: What Matters?
This paper discusses institutional factors that influence delays in connecting businesses to electricity across the world. These delays lead to significant economic consequences at the early stages of commercial operations of a newly established firm. The level of economic development of a country can influence this indicator, but there are also conflicting results as quality of institutions increase, in a duality of increasing regulation and control of corruption. Aggregate national level data from World Bank Enterprise Surveys Project, Worldwide Governance Indicators and World Development Indicators is used to estimate and quantify these effects in a broad sample of 141 countries across the world. Panel data techniques are implemented to explore the fact that there are multiple surveys conducted over time, particularly in transition economies (mostly FSU economies). Analysis is mainly focused on this sub-sample of transition economies. There is clear evidence of a positive effect of increased control of corruption and the negative effect of increasing regulation, likely to be associated with extra steps to establish a connection. The latter result is also confirmed by alternative measures of regulation in the power sector in transition economies. There is no evidence that interconnected advances in several dimensions of governance leads to positive outcomes in this context.
Lorusso, M. and Pieroni, L. (2015) Causes and Consequences of Oil Price Shocks on the UK Economy (PDF)
In this paper, we assess the impact of oil price fluctuations on the UK economy. We use an empirical strategy which allows us to decompose oil price changes from the underlying source of the shock. Our results show that, since the mid-1970s, oil price movements have been mainly associated with shocks to oil demand rather than oil supply. We also find that the consequences of oil price changes on UK macroeconomic aggregates depend on the different types of oil shocks. While increases in global real economic activity do not depress the UK economy in the short run, shortfalls in crude oil supply cause an immediate fall in GDP growth. In addition, since monetary policy depends on the nature of the shock hitting the oil market, domestic inflation increases following a rise in the real oil price. Finally, our results also show that in response to oil price increases, the government deficit decreases.
Since the end of the Soviet Union, the power sector in the countries resulting from its disintegration has evolved from a context of central planning towards independent regulation. There is great heterogeneity in reform progress in transition countries, with consequences to service quality and prices in utilities and also the view the population has of such services. This paper conducts an overview of the modern power sector in transition economies and analyses drivers of reported household satisfaction with the quality of electricity services in 27 countries using cross-sectional survey data from the EBRD Life in Transition Survey II, in a context of improving regulatory and infrastructural frameworks, using an ordinal random effects model with a probit link function. Key drivers of reported satisfaction are the uses of electricity within the household and some characteristics such as age, economic conditions and general life satisfaction. However, there is no evidence of the effect of power sector reform on the opinion of households. This points that the general life experience in transition can be the key driver of how households feel about utilities, as reform brings conflicting effects that stem from increasing cost sustainability, competition, transparency and quality of the service.