A dynamic model is constructed that generalises the Hartwick and Van Long (2020) endogenous discounting setup by introducing externalities and asks what implications this has for optimal natural resource extraction with constant consumption. It is shown that a modified form of the Hotelling and Hartwick rule holds in which the externality component of price is a specific function of the instantaneous user costs and cross price elasticities. It is demonstrated that the externality adjusted marginal user cost of remaining natural reserves is equal to the marginal user cost of extracted resources invested in human-made reproducible capital. This lends itself to a discrete form with a readily intuitive economic interpretation that illuminates the stepwise impact of externality pricing on optimal extraction schedules.
Environmental, Social, and Governance (ESG) finance is a cornerstone of modern finance and investment, as it changes the classical return-risk view of investment by incorporating an additional dimension of investment performance: the ESG score of the investment. We define the ESG price process and integrate it into an extension of Bachelier's market model in both discrete and continuous time, enabling option pricing valuation.
We introduce a novel approach to solving dynamic programming problems, such as those in many economic models, on a quantum annealer, a specialized device that performs combinatorial optimization. Quantum annealers attempt to solve an NP-hard problem by starting in a quantum superposition of all states and generating candidate global solutions in milliseconds, irrespective of problem size. Using existing quantum hardware, we achieve an order-of-magnitude speed-up in solving the real business cycle model over benchmarks in the literature. We also provide a detailed introduction to quantum annealing and discuss its potential use for more challenging economic problems.
The Supreme Court's federal preemption decisions are notoriously unpredictable. Traditional left-right voting alignments break down in the face of competing ideological pulls. The breakdown of predictable voting blocs leaves the business interests most affected by federal preemption uncertain of the scope of potential liability to injured third parties and unsure even of whether state or federal law will be applied to future claims. This empirical analysis of the Court's decisions over the last fifteen years sheds light on the Court's unique voting alignments in obstacle preemption cases. A surprising anti-obstacle preemption coalition is forming as Justice Thomas gradually positions himself alongside the Court's liberals to form a five-justice voting bloc opposing obstacle preemption.
Now almost three decades since its seminal Chevron decision, the Supreme Court has yet to articulate how that case's doctrine of deference to agency statutory interpretations relates to one of the most compelling federalism issues of our time: regulatory preemption of state law. Should courts defer to preemptive agency interpretations under Chevron, or do preemption's federalism implications demand a less deferential approach? Commentators have provided no shortage of possible solutions, but thus far the Court has resisted all of them. This Article makes two contributions to the debate. First, through a detailed analysis of the Court's recent agency-preemption decisions, I trace its hesitancy to adopt any of the various proposed rules to its high regard for congressional intent where areas of traditional state sovereignty are at risk. Recognizing that congressional intent to delegate preemptive authority varies from case to case, the Court has hesitated to adopt an across-the-board rule. Any such rule would constrain the Court and risk mismatch with congressional intent -- a risk it accepts under Chevron generally but which it finds particularly troublesome in the delicate area of federal preemption. Second, building on this previously underappreciated factor in the Court's analysis, I suggest a novel solution of variable deference that avoids the inflexibility inherent in an across-the-board rule while providing greater predictability than the Court's current haphazard approach. The proposed rule would grant full Chevron-style deference in those cases where congressional delegative intent is most likely -- where Congress has expressly preempted some state law and the agency interpretation merely resolves preemptive scope -- while withholding deference in those cases where Congress has remained completely silent as to preemption and delegative intent is least likely.
This paper shows that disregarding the information effects around the European Central Bank monetary policy decision announcements biases its international spillovers. Using data from 23 economies, both Emerging and Advanced, I show that following an identification strategy that disentangles pure monetary policy shocks from information effects lead to international spillovers on industrial production, exchange rates and equity indexes which are between 2 to 3 times larger in magnitude than those arising from following the standard high frequency identification strategy. This bias is driven by pure monetary policy and information effects having intuitively opposite international spillovers. Results are present for a battery of robustness checks: for a sub-sample of ``close'' and ``further away'' countries, for both Emerging and Advanced economies, using local projection techniques and for alternative methods that control for ``information effects''. I argue that this biases may have led a previous literature to disregard or find little international spillovers of ECB rates.
We construct an ensemble of correlation matrices from high-frequency foreign exchange market data, with one matrix for every day for 446 days. The matrices are symmetric and have vanishing diagonal elements after subtracting the identity matrix. For this case, we construct the general permutation invariant Gaussian matrix model, which has 4 parameters characterised using the representation theory of symmetric groups. The permutation invariant polynomial functions of the symmetric, diagonally vanishing matrices have a basis labelled by undirected loop-less graphs. Using the expectation values of the general linear and quadratic permutation invariant functions of the matrices in the dataset, the 4 parameters of the matrix model are determined. The model then predicts the expectation values of the cubic and quartic polynomials. These predictions are compared to the data to give strong evidence for a good overall fit of the permutation invariant Gaussian matrix model. The linear, quadratic, cubic and quartic polynomial functions are then used to define low-dimensional feature vectors for the days associated to the matrices. These vectors, with choices informed by the refined structure of small non-Gaussianities, are found to be effective as a tool for anomaly detection in market states: statistically significant correlations are established between atypical days as defined using these feature vectors, and days with significant economic events as recognized in standard foreign exchange economic calendars. They are also shown to be useful as a tool for ranking pairs of days in terms of their similarity, yielding a strongly statistically significant correlation with a ranking based on a higher dimensional proxy for visual similarity.