In the history of alleged manipulations on forward markets, it has been observed that high prices resulted from a cartel’s long positions. The present paper addresses this issue in a simple model of price setting duopolists. We show that forward trading results in producers buying forward their own production, so that equilibrium prices are increased compared to the case without forward trading...

We study how total factor productivity (TFP), energy prices, and the Great Moderation are linked. First we estimate a joint stochastic process for the energy price and TFP and establish that until the second quarter of 1982, energy prices negatively affected productivity. This spillover has since disappeared. Second, we show that within the framework of a dynamic stochastic general equilibrium ...

By disaggregating price indices, it becomes apparent that the real exchange rate consists of the real exchange rate for a single good and a weighted sum of relative prices between goods. When applying a battery of panel unit root tests to this sum and its components, it is found that both the sum and the relative prices are non-stationary. This implies that PPP is invalid even if the LOP holds ...

We consider the interaction between an incumbent firm and a potential entrant, and examine how this interaction is affected by demand fluctuations. Our model gives rise to procyclical entry, prices, and price-cost margins, although the average price in the market can be countercyclical if the entrant is a first mover, and capacity utilization can be either proor countercyclical if the incumbent...

We examine the impact of risk-based portfolio constraints on asset prices in an exchange economy. We show that constrained agents scale down their portfolio and behave locally like power utility investors with risk aversion that depends on current market conditions. In contrast to previous results in the literature, we show that the imposition of constraints dampens fundamental shocks, challeng...

We present a simple menu cost model which explains the finding that firms are more likely to adjust prices upward than downward. Asymmetric adjustment to shocks arises naturally, even without trend inflation, from the desire of firms to keep industry prices as high as is sustainable and the non-convexity due to menu costs. It implies that aggregate demand shocks have asymmetric effects — negati...

We build and estimate a recursive utility equilibrium model of the term structure of interest rates that prices consistently all risk factors that affect bonds. We contrast it with an arbitrage-free model, where prices of risk are estimated freely without preference constraints. In both models, nominal bond yields are affine functions of macroeconomic state variables. The equilibrium model acco...

We examine the influence of guilt and trust on the performance of credence goods markets. An expert can make a promise to a consumer first, whereupon the consumer can express her trust by paying an interaction price before the expert’s provision and charging decisions. We argue that the expert’s promise induces a commitment that triggers guilt if the promise is broken, and guilt is exacerbated ...

The market power of the incumbents means that average pool prices are set by the costs of entry. Reforms which raise entry costs will be proposed and should be resisted. Reforms to capacity payments may have little effect on prices, but could affect system security. The values of VOLL and LOLP appear grossly incorrect, and if changed might affect reserve margins and the allocation of investment...