Relationship between uncertainty in the oil and stock markets before and after the shale gas revolution: Evidence from the OVX, VIX, and VKOSPI volatility indices.

We investigate the relationship between crude oil prices and stock markets. Unlike prior studies, we use implied volatility indices and evaluate the change in the relationship between the volatility indices through a sub-period analysis. Specifically, we examine the causal relationships among the crude oil, S&P 500 index, and KOSPI 200 index volatilities by using the autoregressive distributed lag (ARDL) bounds and the Toda-Yamamoto Granger causality tests. In addition, a BEKK-GARCH model is employed to enhance the robustness of the causality test results. These experiments indicate that the OVX and VIX show bi-directional causality in the period that includes the shale gas revolution and no causality in the period that does not. Further, the OVX Granger causes the VKOSPI in the former period, but there is no causality between them in the latter period. Finally, we find strong unidirectional causality from the VIX to the VKOSPI in both sub-periods. These results have important implications for the analysis of portfolio risk management and for assisting energy policymakers and traders in making effective decisions and investments, respectively.

An econometric analysis of inter-fuel substitution in energy sector of Pakistan.

Hydroelectricity is playing a significant role in lowering CO2 emissions as it contributes a desirable platform to fulfill the growing energy demand while releasing fewer GHGs in comparison to other fossil fuels. Utilizing the trans-log production model, this study is an endeavor to investigate the potential inter-fuel substitution by estimating the substitution elasticity between pairs of coal, natural gas, petroleum, and hydroelectricity to suggest policy for Pakistan to achieve higher economic growth, environmental sustainability, and increased energy access by its citizens. Over the period 1980-2013, the ridge regression was approved to estimate the model's parameters. The findings show that the output elasticity of hydroelectricity is the highest and all the factor inputs are substitutes; whereas, the elasticity of substitution between coal vs. natural gas is the highest, thus suggesting an increased focus on the coal extraction to switch from the alternative usage of gas. Moreover, encouragement of energy subsidy programs, coupled with taxes and infrastructural developments, can be adapted to redirect technology towards hydroelectricity. Hence, the result that hydroelectricity is substituted for all fuels submit that Pakistan has the potential to switch from petroleum to cleaner energy; therefore, reducing the adverse environmental implications and to retain the ability to fuel its energy sector.

Effect of temperature shock and inventory surprises on natural gas and heating oil futures returns.

The aim of this paper is to examine the impact of temperature shock on both near-month and far-month natural gas and heating oil futures returns by extending the weather and storage models of the previous study. Several notable findings from the empirical studies are presented. First, the expected temperature shock significantly and positively affects both the near-month and far-month natural gas and heating oil futures returns. Next, significant temperature shock has effect on both the conditional mean and volatility of natural gas and heating oil prices. The results indicate that expected inventory surprises significantly and negatively affects the far-month natural gas futures returns. Moreover, volatility of natural gas futures returns is higher on Thursdays and that of near-month heating oil futures returns is higher on Wednesdays than other days. Finally, it is found that storage announcement for natural gas significantly affects near-month and far-month natural gas futures returns. Furthermore, both natural gas and heating oil futures returns are affected more by the weighted average temperature reported by multiple weather reporting stations than that reported by a single weather reporting station.

Oil, Gas and Conflict: A Mathematical Model for the Resource Curse.

Oil and natural gas are highly valuable natural resources, but many countries with large untapped reserves suffer from poor economic and social-welfare performance. This conundrum is known as the resource curse. The resource curse is a result of poor governance and wealth distribution structures that allow the elite to monopolize resources for self-gain. When rival social groups compete for natural resources, civil unrest soon follows. While conceptually easy to follow, there have been few formal attempts to study this phenomenon. Thus, we develop a mathematical model that captures the basic elements and dynamics of this dilemma. We show that when resources are monopolized by the elite, increased exportation leads to decreased domestic production. This is due to under-provision of the resource-embedded energy and industrial infrastructure. Decreased domestic production then lowers the marginal return on productive activities, and insurgency emerges. The resultant conflict further displaces human, built, and natural capital. It forces the economy into a vicious downward spiral. Our numerical results highlight the importance of governance reform and productivity growth in reducing oil-and-gas-related conflicts, and thus identify potential points of intervention to break the downward spiral.

An assessment of Japanese carbon tax reform using the E3MG econometric model.

This paper analyses the potential economic and environmental effects of carbon taxation in Japan using the E3MG model, a global macroeconometric model constructed by the University of Cambridge and Cambridge Econometrics. The paper approaches the issues by considering first the impacts of the carbon tax in Japan introduced in 2012 and then the measures necessary to reduce Japan's emissions in line with its Copenhagen pledge of -25% compared to 1990 levels. The results from the model suggest that FY2012 Tax Reform has only a small impact on emission levels and no significant impact on GDP and employment. The potential costs of reducing emissions to meet the 25% reduction target for 2020 are quite modest, but noticeable. GDP falls by around 1.2% compared to the baseline and employment by 0.4% compared to the baseline. But this could be offset, with some potential economic benefits, if revenues are recycled efficiently. This paper considers two revenue recycling scenarios. The most positive outcome is if revenues are used both to reduce income tax rates and to increase investment in energy efficiency. This paper shows there could be double dividend effects, if Carbon Tax Reform is properly designed.