Essays on energy economics: Microeconomic and macroeconomic dimensions

The 2000's rise in oil prices has reignited the interest of economists about the influence of these swings on both specific good markets and macroeconomic fluctuations. In the macroeconomic arena, the attention of policymakers and economists has been posed the effects of oil price swings on the economic domestic cycle. In this work, we explore a question under scrutiny among economists and policymakers: the use of fiscal policy as an instrument to accommodate the domestic fluctuations caused by oil price shocks. In particular, we study a floating oil-tax rate used as an instrument to reduce the pass-through of the international price of oil into the domestic economy. We develop two works in this topic. The first paper study a small open economy calibrated to Chile with perfect foresight and finite horizon. This model is applied to two types of policy: a Ramsey problem and an ad-hoc stabilization rule. For both cases, we find that the social planner finds optimal to reduce the pass-through of oil price shocks into the domestic economy. Also, we compute the welfare gains and losses that arise from both types of policy compared to a competitive equilibrium economy where the government plays a passive role. The second paper recasts the model developed in the first study. The salient features of the new model are: uncertainty; infinite horizon; the model is calibrated to two representative economies: developed and developing countries; and the optimal taxation policy is analyzed considering both complete and incomplete markets for the bonds issued by the government. We find significative differences in how the optimal oil-tax rate responds whether the economy is calibrated to a developed country or a developing economy, or if public debt is traded in complete or incomplete markets.In the microeconomic field, we study the ethanol market. Aukayanagul and Miranowski (2009) show that the price of ethanol closely follows the price of oil. Given the sharp rise of oil and ethanol prices in the last years a question has been under scrutiny in the ethanol market: When is profitable to invest in an ethanol plant? In the third paper, we develop a model using the real options approach to answer this question. We incorporate the market structure of the ethanol industry to our model, in which entry and exit of new firms affect the ethanol gross margin (price of ethanol plus co-product value minus purchases of corn). The solution of the model gives threshold values of the ethanol gross margin that indicate when is optimal to both invest in an ethanol plant and to exit the market for an active firm.