Wednesday, October 29, 2014

The way forward for Alberta's heritage fund, a contribution from OxCARRE

From Calgary's The School of Public Policy,

Albertans have long known that their provincial government has shown a lack of discipline when it comes to investing royalty revenues into the Heritage Savings Trust Fund. Meanwhile, Norway has built a massive fund that pays for almost all social services. What went wrong? And is it too late to be fixed?

Those are the questions asked and answered by a ground-breaking new report released today by The School of Public Policy. Authors, Ton van den Bremer and Rick van der Ploeg of Oxford University take a hard look at the state of Alberta's savings.
They propose that Alberta becomes much more serious about saving its revenues if it intends to reap benefits from it for the longest possible time.

Read on here []

for the full report here []

Thursday, October 23, 2014

IMF Blog: 'Natural Gas: The New Gold'

Rabah Arezki, head of the commodities team in the IMF’s Research Department, writes on Natural gas at the IMF Blog:

Natural gas is creating a new reality for economies around the world. Three major developments of the past few years have thrust natural gas into the spotlight: the shale gas revolution in the United States, the reduction in nuclear power supply following the Fukushima disaster in Japan, and geopolitical tensions between Russia and Ukraine.

read on here []

Wednesday, October 22, 2014

OxCARRE Seminar: David Jacks

Today at the OxCARRE David Jacks (Simon Fraser University) on

From Boom to Bust: A Typology of Real Commodity Prices in the Long Run
This paper considers the evidence on real commodity prices over 160 years for 30 commodities representing 7.89 trillion USD worth of production in 2011. In so doing, it suggests and documents a complete typology of real commodity prices, comprising long-run trends, medium-run cycles, and short-run boom/bust episodes. The findings of the paper can be summarized as follows: real commodity prices of both energy and non-energy commodities have been on the rise from 1950 across all weighting schemes; there is a consistent pattern, in both past and present, of commodity price super-cycles which entail decades-long positive deviations from these long-run trends with the latest set of super-cycles likely at their peak; these commodity price super-cycles are punctuated by booms and busts which are historically pervasive and becoming more exacerbated over time. These last elements of boom and bust are also found to be particularly bearing in determining real commodity price volatility as well as potentially bearing in influencing growth in commodity exporting economies.

Obtain here [], underlying data available at his website.

Tuesday, October 21, 2014

OxCarre Seminar: Ralf Martin

Today Ralf Martin [] (and here []) presents at OxCARRE on

The Causal Effects of the European Union Emissions Trading Scheme: Evidence from French Manufacturing Plants

Monday, October 20, 2014

Freakonomics podcast discusses Norway

The Freakonomics podcasts discusses Norway's dealings with oil, including its first experiments with Dutch disease, setting up a Sovereign Wealth Fund with 'ethical' rules on investment, the paradox of selling oil and aiming to have the greenest economy in Europe (including being No. 2 in terms of Tesla's sold in the world). The podcasts also includes some comments from Daron Acemoglu on the role of institutions in the resource curse. The podcasts ends with some thoughts on the lessons from other countries. Should others set up a fund as well?

read or listen.

Ps. Self-advertisement warning! I'll exactly address that last question in my seminar next week :)

The effects and consequences of the recent falling oil prices

During the past week there have been numerous reports on the possible effects and potential consequences of falling oil prices, currently around US$82 having been below US$80 [] earlier this week. Many people and with that businesses and governments had come used to US$100+ prices.

The economist [] wrote last week about the consequences of high-investment projects, that rely on higher prices to be profitable (in the long run). This includes shale in the US which on average runs on projects that break-even at US$75 [], although there is obviously variations among project, and oil-spot prices may be less relevant as producers have there prices hedged using options and forward contract.

Russia relies on US$100+ oil to balance its books, although it's floating ruble and accumulated reserves will form a cushion for the immediate future writes mr. Guriev (a Russian economist currently at Science Po) in the FT [].

One of the reasons oil prices are down is probably the same as the reason for abysmal stock-market performance in the last month or so, with major losses during the past week: expected weak demand from a slowing world economy. Nevertheless, the CEO of BlackRock, a major US investment institution, Fink saw the silver lining []: "It's a good buying opportunity (...) the oil price decline is a tax cut for global consumers."

This week's Economist [] asks whether it is indeed lower demand that brought oil prices down, indicating a slowing economy, or increasing supply from OPEC, the US and even Russia. Boringly, as always, probably a bit of both. All of the potential consequences mentioned above will only realise, if at all, when the price of US$100 will become the new normal for the foreseable future, or whether instead it is the large price swings in relatively short period, i.e. volatility, that is the major feature to follow.

Friday, October 17, 2014

'Wind power is cheapest energy, EU analysis finds'

The Guardian writes about a new report that finds that when including externalities from energy production (health/pollution/carbon costs etc) wind energy comes out rather favourably.

The article mentions that there are more reports to be expected in the near future coming up with their own estimate.

The trick is always to come up with prices that are not observed. For instance, Earlier this week we listened to a presentation that suggested that the social cost of carbon was 10x higher than the usually suggested $30/mtc just because uncertainty around climate outcomes had not been factored. 

Thursday, October 16, 2014

New Research: Dutch Disease and the mitigation effect of Migration

New research forthcoming in Economic Journal by Michel Beine, Serge Coulombe and yours truly,

Dutch Disease and the mitigation effect of Migration: Evidence from Canadian provinces.

This article evaluates whether immigration can mitigate the Dutch disease effects associated with booms in natural resource sectors. We derive predicted changes in the size of the non-tradable sector from a small general-equilibrium model à la Obstfeld–Rogoff. Using data for Canadian provinces, we find evidence that aggregate immigration mitigates the increase in the size of the non-tradable sector in booming regions. The mitigation effect is due mostly to interprovincial migration and temporary foreign workers. There is no evidence of such an effect for permanent international immigration. Interprovincial migration also results in a spreading effect of Dutch disease from booming to non-booming provinces.

New Research: The Economic Aftermath of Resource Booms

New research forthcoming in Economic Journal by Grant D. Jacobsen and Dominic P. Parker

The Economic Aftermath of Resource Booms: Evidence from Boomtowns in the American West

The current U.S. oil and gas boom is injecting labour, capital, and revenue into communities near reserves. Will these communities be cursed with lower long run incomes in the wake of the boom? We study the oil boom-and-bust cycle of the 1970s and 1980s to gain insights. Using annual data on drilling to identify western boom-and-bust counties, we find substantial positive local employment and income effects during the boom. In the aftermath of the bust, however, we find that incomes per capita decreased and unemployment compensation payments increased relative to what they would have been if the boom had not occurred.

Monday, October 13, 2014

OxCARRE at VoxEU: Norway is right to reassess its sovereign wealth fund

OxCARRE members Samuel Wills, Rick van der Ploeg, Ton van den Bremer write at VOXEU [] on

Norway is right to reassess its sovereign wealth fund

Norway’s sovereign wealth fund is the largest in the world. As such, it has prompted discussions about its design. This column argues that one flaw in the fund is that it doesn’t consider oil reserves beneath the ground. Changing the equity/bond mix and the spending rule could lead to significant welfare improvements.

Wednesday, October 8, 2014

OxCARRE Seminar: The Impact of Economic and Climate Risks on the Social Cost of Carbon

Today's OxCARRE Brown Bag Seminar 

Speaker: Thomas Lontzek (University of Zurich)

The Impact of Economic and Climate Risks on the Social Cost of Carbon

There is great uncertainty regarding the future of the economic system and regarding future climate conditions, uncertainty that is important for current and future policy making. We develop a multidimensional model that can be used to study the impact of uncertainty and risk in the economic and climate systems on the social cost of carbon. We find that economic and climate uncertainty each imply that this cost is a stochastic process even more uncertain than the economic and climate systems. Uncertainty tends to imply a greater social cost in the current decade, but has much more significant implications for the future. In particular, there is a significant probability that by 2100 the social cost of carbon will be ten times the value implied by the same models under conditions of no uncertainty. These findings are robust with respect to alternative specifications of recursive utility and exogenous risks.

Monday, October 6, 2014

New Research: Current accounts and oil price fluctuations in oil-exporting countries: The role of financial development

New Research from Jean-Pierre Allegret, Cécile Couharde, Dramane Coulibaly and Valérie Mignon on

Current accounts and oil price fluctuations in oil-exporting countries: The role of financial development

Oil-exporting countries usually experience large current account improvements following a sharp increase in oil prices. In this paper, we investigate this oil price-current account relationship on a sample of 27 oil-exporting economies. Relying upon the estimation of panel smooth transition regression models over the 1980–2010 period, we provide evidence that refines the traditional interpretation of oil price effects on current accounts. While current accounts are positively affected by oil price variations, this effect is nonlinear and depends critically on the degree of financial development of oil-exporting economies. More specifically, oil price variations exert a stronger impact on the current account position for less financially developed countries, this influence diminishing with financial deepness.

Thursday, October 2, 2014

New Research: The Political Economy of Policy Volatility in Latin America

Just published in Latin American Politics and Society, by David Doyle

The Political Economy of Policy Volatility in Latin America

Why are some Latin American states plagued by persistent policy volatility while the policies of others remain relatively stable? This article explores the political economy of natural resource rents and policy volatility across Latin America. It argues that, all else equal, resource rents will create incentives for political leaders, which will result in repeated episodes of policy volatility. This effect, however, will depend on the structure of political institutions. Where political institutions fail to provide a forum for intertemporal exchange among political actors, natural resource rents will result in increased levels of policy volatility. Alternatively, where political institutions facilitate agreement among actors, resource rents will be conducive to policy stability. This argument is tested on a measure of policy volatility for 18 Latin American economies between 1993 and 2008. The statistical tests provide support for the argument.