Correlation structure between inflation and oil futures returns: An equilibrium approach

We use an equilibrium model of a monetary economy to understand the economics behind the correlation between inflation and oil futures returns. We find that some of the positive correlation found in empirical studies is due to the fact that oil is in the consumption basket; however, this accounts only for a minor part of it. There exist other important sources of correlation related to monetary shocks and output shocks. In particular, we find that the correlation is extremely sensitive to the reaction of the central bank to output shocks, while the reaction to inflation changes is less significant. We estimate our model using maximum likelihood with the following data sets: crude oil futures prices, nominal interest rates, inflation rates and money supply growth rates. Our estimates suggest that the monetary authority overreacts to output shocks by increasing the money supply in a more than necessary amount, generating a significant source of positive correlation. From a practical perspective, We find that it is a good strategy to use as a hedge, the futures whose maturity is closer to the hedging horizon. This is particularly true for short-term hedging.     

An overview of global gold market and gold price forecasting

The global gold market has recently attracted a lot of attention and the price of gold is relatively higher than its historical trend. For mining companies to mitigate risk and uncertainty in gold price fluctuations, make hedging, future investment and evaluation decisions, depend on forecasting future price trends. The first section of this paper reviews the world gold market and the historical trend of gold prices from January 1968 to December 2008. This is followed by an investigation into the relationship between gold price and other key influencing variables, such as oil price and global inflation over the last 40 years. The second section applies a modified econometric version of the long-term trend reverting jump and dip diffusion model for forecasting natural-resource commodity prices. This method addresses the deficiencies of previous models, such as jumps and dips as parameters and unit root test for long-term trends. The model proposes that historical data of mineral commodities have three terms to demonstrate fluctuation of prices: a long-term trend reversion component, a diffusion component and a jump or dip component. The model calculates each term individually to estimate future prices of mineral commodities. The study validates the model and estimates the gold price for the next 10 years, based on monthly historical data of nominal gold price.     

The impact of monetary liquidity on Chinese aluminum prices

By expanding Frankel and Rose's (2009) theoretical model to consider the interaction of commodity prices with both money liquidity and expectation formation, this paper empirically studies the long-run relationship and short-term dynamics between aluminum prices and money liquidity via Vector autoregressive (VAR) and Impulse Response Function methodologies. Our results show that: (1) a cointegration relationship between money liquidity and Chinese aluminum prices exists, and monetary liquidity positively significantly influences the price over long periods; (2) a structural change has been found during the 2008 Financial Crisis and the change of Chinese monetary policies; and (3) the negative impact of production capacity mechanism on aluminum prices coexists with the positive impact of financial asset returns mechanism, to allow for varied market expectations on aluminum prices within and outside China.     

Developing alternative land-use scenarios to facilitate natural resource management across jurisdictional boundaries

Scenario planning is an effective approach for examining possible futures by exploring the implications and consequences of different policy responses to landscape stressors. We present here a case study that explores plausible futures of urban growth in Southern Nevada, USA that illustrates how scenario analysis can be used to inform region-wide resource management by spatially modeling drivers of change, resource impacts, and potential policy responses. Using a suite of energy, water and biodiversity impact models, we assess the outcomes of the various futures on priority resources, resulting in a clear basis of comparison between alternative policies and their potential outcomes. This case study demonstrates the utility of scenario modeling for natural resource management by exploring crucial policy decisions that might be made in the near-term that could have lasting and sometimes conflicting influences on regional resources over the long term.     

Futures markets and economic efficiency: A theoretical perspective

This article examines the role of futures markets in schieving economic efficiency. The question is introduced in a timeless, certain framework, and extended to the case where time, but not uncertainty, becomes important: it is shown that in such a framework futures markets ensure economic efficiency. Uncertainty is then introduced, and it is shown that contingent markets ensure full efficiency, but that these are cumbersome; it is also shown that futures markets, as an alternative, ensure approximate efficiency. An appendix explores more formally the relation between markets and efficiency.     

Modelling the effects of trade-offs between long and short-term objectives in fisheries management

Fisheries management is typically a complex problem, from both an environmental and political perspective. The main source of conflict occurs between the need for stock conservation and the need for fishing community well-being, which is typically measured by employment and income levels. For most fisheries, overexploitation of the stock requires a reduction in the level of fishing activity. While this may lead to long-term benefits (both conservation and economic), it also leads to a short-term reduction in employment and regional incomes. In regions which are heavily dependent on fisheries, short-term consequences of conservation efforts may be considerable. The relatively high degree of scientific uncertainty with respect to the status of the stocks and the relatively short lengths of political terms of office, generally give rise to the short-run view taking the highest priority when defining policy objectives. In this paper, a multi-objective model of the North Sea is developed that incorporates both long-term and short-term objectives. Optimal fleet sizes are estimated taking into consideration different preferences between the defined short-term and long-term objectives. The subsequent results from the model give the short-term and long-term equilibrium status of the fishery incorporating the effects of the short-term objectives. As would be expected, an optimal fleet from a short-term perspective is considerably larger than an optimal fleet from a long-run perspective. Conversely, stock sizes and sustainable yields are considerably lower in the long-term if a short-term perspective is used in setting management policies. The model results highlight what is essentially a principal-agent problem, with the objectives of the policy makers not necessarily reflecting the objectives of society as a whole.     

Fusing strategic risk and futures methods to inform long-term strategic planning: case of water utilities

Risks and futures methods have complementary strengths as tools for managing strategic decisions under uncertainty. When combined, these tools increase organisational competency to evaluate and manage long-term risks, improving the flexibility and agility of the organisation to deal with gross uncertainties. Here, we set out a framework to guide the assessment of strategic risks for long-term business planning, based on its application at Portugal’s largest water utility, Empresa Portuguesa das Águas Livres. Our approach extends strategic risk assessment by incorporating scenario planning—a futures approach used to help the utility move beyond single point forecast of risks to focus on critical dimensions of uncertainty that are fundamental to the resilience of corporate objectives and their vulnerability to external pressures. We demonstrate how we combine two complementary approaches—risk and futures—and use them to assess (i) how a set of baseline strategic risks for a water utility evolves under alternative futures, (ii) the aggregate corporate-level risk exposure, and (iii) the process and responses needed to manage multiple, interdependent strategic risks. The framework offers a corporate approach to evolving strategic risks and improves a utility’s (i) knowledge of uncertainties, (ii) ability to assess the impacts of external developments over long time horizons and the consequences of actions and (iii) degree of flexibility to adapt to possible future challenges. The framework supports risk managers in their long-term strategic planning, through the appraisal and management of multiple, interdependent long-term strategic risks and can be replicated in other organisational contexts to bridge operational and corporate perspectives of enterprise risk.

     

(Local-) community for global challenges: carbon conversations,transition towns and governmental elisions

This article addresses the narrowing interpretation of community when governmentalised: that of community's elision with local. First it surveys five broad academic and policy interpretations of the community implied in low carbon transitions. These demonstrate the persistence of community's broad and open-ended polysemy today. Second it looks more closely at the role community plays in UK environmental governance today, including specific evidence from two such government-funded community initiatives used to meet global environmental challenges: Transition Towns and Carbon Conversations. Third it provides a critique of community governance-beyond-the-state. It argues that community used to “jump scales” in response to global challenges like climate change, is often at its most narrow: local and governmentalised. Doing so helps contextualise the governmentalisation of (local-) community in UK environmental governance. Often it is localised in order to delegate (perceived) agency and responsibility onto individual actors at a local level.     

On the transmission of the effects of monetary policy to the regions

In the paper the theoretical framework is that of credit rationing theory, the regional differences being examined in terms of both financial markets and the real economy. Empirically the focus is upon regional trends in market conditions and the timelags experienced in the effects of monetary policies in two different regions. The period of time examined is from 1970 to 1978, the changes in the marginal interest on central bank credit issued to the commercial banks being taken as the indicator of monetary policy and data on employment opportunities vacant in the regions as representing market conditions and the delay‐effects of monetary policy. The methods used are those of cross‐correlation analysis.     

CONSERVATIONAL WATER PRICING FOR INCREASED WATER SUPPLY BENEFITS1

ABSTRACT: A study was undertaken to see if benefits from water supply could be increased by utilizing price-usage information in reservoir design studies. Three pricing policies were examined. The first policy assumed no price-use relationship, and quantity demanded was based on existing community usage with a low water rate. The price of water was set to recover system costs. A price-use relationship was assumed in the second policy and the water rate was constant. The price of water was determined from the associated system which provided maximum expected net benefits. The third policy assumed the price-use relationship and the price charged for water during each billing period was a non-linear function of storage which increased as the amount of water in storage at the beginning of the period decreased. It was found that the use of the conservation pricing policies substantially reduced storage requirements while providing demonstrable net benefits to the community and a large average supply. The conservation pricing policies substantially lowered the average price paid for water. The effect of uncertainty in consumer response to changes in price was studied by using a probabilistic price-use relationship. This uncertainty did not significantly reduce the effectiveness of the conservation policy. It was concluded that demand management by the use of a proper pricing policy could significantly increase net water supply benefits to a community.     

EVALUATION OF EROSION CONTROL PRODUCTS WITH AND WITHOUT ADDED POLYACRYLAMIDE1

ABSTRACT: Polyacrylamide (PAM) has been demonstrated to greatly reduce erosion in furrow irrigation, but much less is known about its effectiveness on the much steeper slopes typical of construction sites. The purpose of this study was to determine if anionic PAM would enhance erosion control either alone on bare soil or in combination with four types of ground covers commonly used for grass establishment: straw, straw erosion control blanket (ECB), wood fiber, and mechanically bonded fiber matrix (MBFM). Tests were conducted under natural rainfall and vegetation on a 4 percent slope (bare soil, straw, ECB, and MBFM) or using a rainfall simulator (bare soil, straw, wood fiber, MBFM) on either 10 percent or 20 percent slope on three different soil substrates. All ground cover treatments were evaluated with and without PAM applied in solution at 19 kg/ha. The straw, ECB, and MBFM significantly reduced runoff volume, average turbidity, and total sediment lost over five rainfall events on the vegetated plots. The addition of PAM to ground covers only occasionally had significant effects on runoff parameters but did significantly increase vegetative coverage overall. The rainfall simulator tests produced similar results after four events, with the straw, wood fiber, and MBFM all having significantly lower turbidity than the bare soil. The PAM significantly reduced turbidity for both the first and second events but did not consistently improve runoff quality after multiple rainfall events for any ground cover‐soil combinations tested. Separate tests of PAM applied before or after straw did not indicate a clear advantage of either approach, but runoff turbidity was often significantly reduced with PAM, especially at the 20 percent slope. Turbidity reductions were attributed to flocculation of eroded sediment.     

Uncertainty assessment of the model RICEWQ in northern Italy

Model predictions are often seriously affected by uncertainties arising from many sources. Ignoring the uncertainty associated with model predictions may result in misleading interpretations when the model is used by a decision-maker for risk assessment. In this paper, an analysis of uncertainty was performed to estimate the uncertainty of model predictions and to screen out crucial variables using a Monte Carlo stochastic approach and a number of statistical methods, including ANOVA and stepwise multiple regression. The model studied was RICEWQ (Version 1.6.1), which was used to forecast pesticide fate in paddy fields. The results demonstrated that the paddy runoff concentration predicted by RICEWQ was in agreement with field measurements and the model can be applied to simulate pesticide fate at field scale. Model uncertainty was acceptable, runoff predictions conformed to a log-normal distribution with a short right tail, and predictions were reliable at field scale due to the narrow spread of uncertainty distribution. The main contribution of input variables to model uncertainty resulted from spatial (sediment-water partition coefficient and mixing depth to allow direct partitioning to bed) and management (time and rate of application) parameters, and weather conditions. Therefore, these crucial parameters should be carefully parameterized or precisely determined in each site-specific paddy field before the application of the model, since small errors of these parameters may induce large uncertainty of model outputs.     

Price-based vs. quantity-based environmental regulation under Knightian uncertainty: an info-gap robust satisficing perspective

Conventional wisdom among environmental economists is that the relative slopes of the marginal social benefit and marginal social cost functions determine whether a price-based or quantity-based environmental regulation leads to higher expected social welfare. We revisit the choice between price-based vs. quantity-based environmental regulation under Knightian uncertainty; that is, when uncertainty cannot be modeled with known moments of probability distributions. Under these circumstances, the policy objective cannot be to maximize the expected net benefits of emissions control. Instead, we evaluate an emissions tax and an aggregate abatement standard in terms of maximizing the range of uncertainty under which the welfare loss from error in the estimates of the marginal benefits and costs of emissions control can be limited. The main result of our work is that the same criterion involving the relative slopes of the marginal benefit and cost functions determines whether price-based or quantity-based control is more robust to unstructured uncertainty. Hence, not only does the relative slopes criterion lead to the policy that maximizes the expected net benefits of control under structured uncertainty, it also leads to the policy that maximizes robustness to unstructured uncertainty.     

The acceptability, personal outcome expectations, and expected effects of transport pricing policies

Acceptability and personal outcome expectations (i.e., the extent to which one expects to be better or worse off) of transport pricing policies were examined in relation to the expected effects of these policies on one’s own car use, congestion and environmental problems. Car users who commuted frequently by car and experienced congestion on a regular basis evaluated two pricing measures, which were mainly aimed at either decreasing congestion (by tolling at congested areas) or environmental problems (by a differential kilometre charge based on car mass). For the policy mainly aimed to reduce congestion, acceptability was higher and personal outcome expectations were more positive when respondents expected reductions in congestion when the policy was implemented. The policy aimed to reduce environmental problems was more acceptable and respondents expected to be better off in general when they expected reductions in environmental problems after its implementation. Expectations, both about a decrease in congestion and environmental problems were related to respondents’ personal outcome expectations of the policy mainly aimed to decrease environmental problems. We conclude that the acceptability of transport pricing policies are not necessarily low because car users expect negative effects on their car use, but rather because they are not be convinced that transport pricing policies will reduce congestion and environmental problems.     

Tackling wicked problems and tricky transitions: change and continuity in Cape Town's environmental policy landscape

This paper offers a reflection on 15 years of policy change in the City of Cape Town aimed at fostering sustainability from the perspective of a City practitioner. The persistent continuation of unsustainable outcomes, despite ongoing policy reforms, is understood as a combination of the emergence of wicked problems, within a changing local government mandate, in the absence of a transformation of institutional structures, tools and approaches. While the approach to policy reform in Cape Town has focussed on reducing substantive uncertainty through its knowledge-based approach, we show that in the context of an expanding local government mandate, sustainability becomes an aspect of many departments’ directive resulting in strategic uncertainty. The untransformed traditional line-function-based structure of local government in turn works against integration between departments (fundamental for addressing non-linear wicked problems), thus promoting institutional uncertainty. In addressing this combination of strategic and institutional uncertainty, our findings indicate that integration has to happen in the policy stage in order for sustainability principles to be implemented in relevant departments; that implementation requires resourcing across the institution, and ought to be included in departments’ targets; and that competing and conflicting rationalities underpin the policy–practice gap. It is suggested that a first step in breaking down the strategic and institutional uncertainties would be to foster shared values through creating deliberative spaces within the City in which debate, discussion and learning can occur.     

Land Resource Sustainability for Urban Development: Spatial Decision Support System Prototype

Land resource sustainability for urban development characterizes the problem of decision-making with multiplicity and uncertainty. A decision support system prototype aids in the assessment of incremental land development plan proposals put forth within the long-term community priority of a sustainable growth. Facilitating this assessment is the analytic hierarchy process (AHP), a multicriteria evaluation and decision support system. The decision support system incorporates multiple sustainability criteria, weighted strategically responsive to local public policy priorities and community–specific situations and values, while gauging and directing desirable future courses of development. Furthermore, the decision support system uses a GIS, which facilitates an assessment of urban form with multiple indicators of sustainability as spatial criteria thematically. The resultant land-use sustainability scores indicate, on the ratio-scale of AHP, whether or not a desirable urban form is likely in the long run, and if so, to what degree. The two alternative modes of synthesis in AHP—ideal and distributive—provide assessments of a land development plan incrementally (short-term) and city-wide pattern comprehensively (long-term), respectively. Thus, the spatial decision support system facilitates proactive and collective public policy determination of land resource for future sustainable urban development.     

Over-reaction and under-reaction in climate policy: an institutional analysis

In what circumstances do organizations react to changes in their operating environment by adopting proportionate policy responses? And drawing on institutional theory, what expectations can we formulate in relation to the proportionality of policy responses to climate change? These two research questions frame this article, which seeks to make new connections between the emerging perspective of proportionality in policy-making and existing institutional theories. We find that institutional theories are well suited to formulating expectations concerning the (dis)proportionality of policy responses, but their explanatory power can be further improved by taking the characteristics of specific climate policy problems into account. While there are many different problems nested in the ‘meta’ problem of climate change, we find that most of them have characteristics which suggest that policy under-reactions are more, not less likely. Amongst institutional theories, rational choice institutionalism provides the clearest expectation that proportionate policy responses are unlikely. Policy entrepreneurship is identified as one obvious way in which to stimulate proportionate policy responses, through fostering new ways of thinking within organizations.     

Irreversible Investment in Wetlands Preservation: Optimal Ecosystem Restoration Under Uncertainty

The model, a stochastic dynamic program, is used to optimize the timing and type of protective structure under a range of management goals. A wetland can either be optimal for fish or optimal for mammals and waterfowl, but not both. Because credible estimates of the economic values of wetland services do not exist, we treat those values as parameters in a multiobjective analysis and show the decisions implied by alternative valuations. The model is applied to the case of Metzger Marsh, a Lake Erie coastal wetland near Toledo, Ohio, where the decision was made in 1993 to construct an open dike. We find that the optimal decision is robust with respect to varying assumptions about the formation of barrier beaches and the probability of climate change, but that the decision is not robust to assumptions concerning the health of an unprotected Metzger Marsh. The most important source of uncertainty is the biological health of an unprotected wetland.     

The Precautionary Principle: Scientific Uncertainty and Omitted Research in the Context of GMO Use and Release

Commercialization of genetically modified organisms (GMOs) have sparked profound controversies concerning adequate approaches to risk regulation. Scientific uncertainty and ambiguity, omitted research areas, and lack of basic knowledge crucial to risk assessmentshave become apparent. The objective of this article is to discuss the policy and practical implementation of the Precautionary Principle. A major conclusion is that the void in scientific understanding concerning risks posed by secondary effects and the complexity ofcause-effect relations warrant further research. Initiatives to approach the acceptance or rejection of a number of risk-associated hypotheses is badly needed. Further, since scientific advice plays a key role in GMOregulations, scientists have a responsibility to address and communicate uncertainty to policy makers and the public. Hence, the acceptance of uncertainty is not only a scientific issue, but is related to public policy and involves an ethical dimension.