Fig. 2.

Equilibrium selection .Circles as equilibrium marker prior to demand shock, triangle for post-demand shock without MSR, square for post-demand shock with MSR. Dashed downwards sloping lines indicate demand function after shock. Vertical dashed lines denote endogenously adjusted supply. Lines on top of price lines denote banking, lines below denote the emptying of the allowances bank. Dashed upward-sloping line in right panel denotes implicit supply curve for first-period demand shocks that do not spillover to second period