Emerald | Journal of Financial Economic Policy

The second-round effects of carbon taxes on power project finance

Paul Simshauser, Tim Nelson — 2012-01-31 00:00:00.0

Abstract

Purpose - The most problematic area of any carbon policy debate is the treatment of incumbent CO2 intensive coal-fired electricity generators. Policy applied to the electricity sector is rarely well guided by macroeconomic theory and modeling alone, especially in the case of carbon where the impacts are concentrated, involve a small number of firms and an essential service. Our study examines the consequences of poor climate change policy development on the efficiency of capital markets within the Australian electricity sector.Design/methodology/approach - We conducted a survey of Australian project finance professionals to determine the risk profiles to be applied to the electricity sector in the event a pooly designed climate change policy is adopted.Findings - Our Australian case study finds that if zero compensation results in the financial distress of project financed coal generators, finance costs for all plant rises, including new gas and renewables, leading to unnecessary increases in electricity prices. Accordingly, an unambiguous case for providing structural adjustment assistance to coal generators exists on the grounds of economic efficiency.Originality/value - Accordingly, an unambiguous case for providing structural adjustment assistance to coal generators exists on the grounds of economic efficiency.

Measuring Macroeconmic and Financial Market Interdependence: A Critical Survey

Linyue Li, Nan Zhang, Thomas D. Willett — 2012-05-25 00:00:00.0

Abstract

Purpose - Study of the interdependence among economies is of considerable importance. This area includes issues such as the increasing importance of regional economic interactions, the effects of economic growth and recession in the advanced economies on emerging market countries, and financial contagion. A wide range of related terms and methodologies are used in the literature of interdependence. This paper reviews the major concepts and various measurements of interdependence in financial markets and the real economy, serving as a reference and benchmark for future research on interdependence among specific regional or global economies.Design/methodology/approach - Major measurements of interdependence are reviewed from simple approach to more complicated ones, and strengths and weaknesses of the various measurements of interdependence are discussed.Findings - This paper surveys the various major measurements of interdependence and illustrates how they have been used to address a substantial range of issues.Originality/value - We show that studies of macroeconmic and financial interdependence use the same types of econometric measurements. Our review and critiques of these various types of measures should be of value to those wishing to do research in these areas and also to those wishing to have a better understanding of papers that they read.

Feasibility of inflation targeting in an emerging market: Evidence from Kenya

Roseline Nyakerario Misati, Esman Nyamongo, Lucas Njoroge, Sheila Kaminchia — 2012-01-25 00:00:00.0

Abstract

Purpose - The study assesses the suitability of adopting inflation targeting in an emerging market based on the pre-conditions of inflation targeting identified in the literature.Design/methodology/approach - The study uses granger causality and VAR approaches to assess the importance of the relationship between monetary policy variables and inflation. Findings - The findings indicate a dominant role of fiscal policy on both prices and output. The results therefore support the fiscal theory of price level implying a need for incorporation of a fiscal variable in the design of monetary policy. The study also observes that the employment contract of the office of the governor is relatively short-term and less than the Kenyan election cycle. The exchange rate is found to have no role on both prices and output. More importantly, the results show that the Kenyan economy doesnot meet all the conditions necessary for adopting inflation targeting.Originality/value - The study is novel as it is the first attempt we are aware of that empirically assesses the feasibility of inflation targeting in Kenya. This study provides policy makers in emerging markets with useful information on the choice of appropriate policy frameworks for maintaining price stability. It also demonstrates the need for evaluation of any policy framework before adoption.

Global Financial System Reform: The Dodd-Frank Act and the G20 Agenda

Daniel E. Nolle — 2012-05-25 00:00:00.0

Abstract

Purpose - The Dodd-Frank Act of 2010 is the keystone policy response directed at reforming U.S. financial system activities and oversight in the wake of the 2007-2009 financial crisis. The United States also has financial system reform policy commitments in the international arena, including in particular by virtue of its membership in the G20. This analysis considers U.S. policy initiatives related to a core dimension of financial system reform: risks posed by systemically important financial institutions ("SIFIs").Design/methodology/approach - The paper provides a detailed comparison of SIFI policy initiatives and timetables under both the Dodd-Frank Act and the G20 agenda, as reflected in the ongoing work plan of the Financial Stability Board (FSB), and poses the question "Are U.S. domestic and international financial system reform commitments in sync?" Findings - The study finds that, fundamentally, the answer is "yes." However, the comparison yields two caveats with potential policy implications. First, the two agendas differ in their relative emphasis on the coverage of both banks and nonbanks. The G20/FSB focus, at least over the near-term, is bank-centric compared with the Dodd-Frank Act, which consistently addresses both bank and nonbank financial firms. Second, implementation of Dodd-Frank Act provisions is subject to long-established U.S. law mandating that there be sufficient opportunity for public input into the rulemaking process, whereas the G20/FSB process has been less systematic and transparent on public consultation and feedback.Practical implications - These observations may be relevant to the current debate over the speed and scope of Dodd-Frank Act implementation measures, and to the discussion about the future international competitiveness of U.S. banks and nonbank financial firms.Originality/value - This study is the first to present a detailed, comprehensive comparison of financial system reform initiatives and provisions in the Dodd-Frank Act and the G20 agenda.