bunching in the production process abstract this paper demonstrates that the variance of flows within the production process declines as the products move downstream from raw material deliveries toward completion thus the production process magnifies and transmits shocks within an industry to that industry s suppliers

two stage optimal control problems with an explicit switch point dependence optimality criteria and an example of delivery lags and investment abstract this paper provides necessary conditions for the solution of two stage optimal control problems where the switch point is a choice variable and where the switch point appears as an argument of the integrands in each integral which comprise the criterion index to be maximized problems of this variety have arisen in the exhaustible resource and neoclassical investment literature using the conditions necessary for the solution of these problems we analyze an example of optimal investment in the presence of delivery lags and show how the optimal switch point delivery lag responds to shifts in exogenous parameters

aspects of labor market adjustments in japan this article discusses some aspects of labor market adjustments in japan that may be relevant to the low unemployment rate there japanese statistics treat kyugyosha persons not at work as being employed but some of these workers would be counted as unemployed in the united states the kyugyosha group appears to increase in size during downturns and decreases during upturns suggesting that temporarily laid off persons are an important part of this group japanese employers evidently rely less on employment adjustments and more on adjustments in hours of work and inventory while employers in the united states rely more on employment adjustments to deal with cyclical changes in product demand japanese manufacturing employment became less sensitive and hours of work more sensitive to demand shocks after the introduction of the employment insurance law in 1975

does political reform increase wealth or why the difference between the chicago and virginia schools is really an elasticity question this paper shows that contrary to becker work there is no innate tendency for political competition to reduce the total cost of government wealth transfers simple examples demonstrate how the effects of government policies on total wealth boil down to the elasticities of the marginal support and opposition curves disagreements between the chicago and virginia schools of political economy can be understood as a disagreement about these elasticities the broader implications for this argument in terms of the efficiency of the common law are also discussed

discrete equilibrium price dispersion an explicit solution of an equilibrium model with price setting firms and searching customers makes possible a number of comparativestatics predictions about how cost differences among firms search costs of customers and taxes will affect the mean and variance of the distribution of market prices another implication of the model is that a firm s demand depends on the difference between its price and the average price in the market

markups aggregation and inventory adjustment in this paper i suggest a unified explanation for two puzzles in the inventory literature first estimates of inventory speeds of adjustment in aggregate data are very small relative to the apparent rapid reaction of stocks to unanticipated variations in sales second estimates of inventory speeds of adjustment in firm level data are significantly higher than in aggregate data the paper develops a multisector model where inventories are held to avoid stockouts and price markups vary along the business cycle the omission of countercyclical markup variations from inventory targets introduces a downward bias in estimates of adjustment speeds obtained from partial adjustment models when the cyclicality of markups differs across sectors this downward bias is shown to be more severe with aggregate rather than firm level data similar results apply not only to inventories but also to labor and prices montercarlo simulations of a calibrated version of the model suggest that these biases are quantitatively significant

delivery lags and buffer stocks in the theory of investment by the firm abstract this paper contains a dynamic model of a firm holding a stock of unfilled orders for output while facing a fixed delivery lag attached to acquiring new capital goods the model leads to a two stage optimal control problem where the initial time interval corresponds to the marshallian short run and the second interval is the period during which deliveries of capital goods may arrive optimality criteria are provided for both time intervals and the behavior of the firm is characterized along both adjustment paths the short run decisions of the firm are shown to be tied to long run decisions planned by the firm

a model of inventory and layoff behaviour under uncertainty this paper develops a model of firm behavior under uncertainty designed to study the interac tion of inventories and layoffs the model is a blend of a buffer sto ck model of inventory behavior and an implicit contract model of layo ffs the model creates a distinction between inventory biased and lay off biased firms each of which exhibits inherently different pattern s of response of inventories and temporary layoffs to demand shocks in addition the model implies that the inventory layoff interaction tends to strengthen weaken the response of price and the work force to changes in anticipated demand real interest rates copyright 1988 by royal economic society

technology shocks and cointegration in quadratic models of the firm in two quadratic models of a firm it is shown that if the firm s production function is not separable in its arguments then the presence of any unit root technology shock will prevent factor inputs from being cointegrated with input prices absent integrated technology shocks there will be one cointegrating vector for every quasi fixed factor held by the firm thereby providing one possible rationale for multiple cointegrating vectors in multivariate time series systems the parameters of these cointegrating vectors may be used to recover the parameters of the static factor demand functions obeyed by the firm copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

taking stock a critical assessment of recent research on inventories empirical and theoretical aspects of inventory behavior became hot topics in the 1950s and early 1960s no one seemed to notice the tension that was developing between the emerging macroeconomic and microeconomic views of inventories macroeconomists routinely thought of inventories as a destabilizing factor yet the prevailing micro theory viewed inventories as a stabilizing factor it was a fascinating question that was barely explored instead somewhat inexplicably interest in inventories dried up as if inventories were of minor economic significance and little intrinsic interest by the early 1980s then economists once again knew something they had known in the 1950s that inventory investment is of first order importance in business cycles but they were also beginning to realize that the standard production smoothing buffer stock model of inventories was in deep trouble this paper focuses on developments since that realization

cooperation productivity and profit sharing firm specific assets generate an ex post bargaining problem over surplus division and rational workers may collude to obtain a surplus share in nonpecuniary form through restriction of effort conversely profit sharing should motivate cooperation to increase productivity when work organization facilitates interaction and horizontal monitoring since productive effort yields positive externalities to workers under contractual surplus sharing in simultaneous tobit estimates we find a strong influence of profit sharing on factor productivity in a sample of medium sized metalworking capitalist firms in west germany proxies for human capital and organizational factors were included

a note on the econometric use of constant dollar inventory series abstract one dollar of finished goods inventories does not represent the same amount of physical goods as one dollar of sales when department of commerce constant dollar series are used this can cause seriously biased regression estimates

seasonality aggregation and the testing of the production smoothing hypothesis one of the leading hypotheses concerning the dynamics of production over time is the production smoothing hypothesis given a planning horizon which spans a number of production periods the firm need not produce in each period an amount equal to expected sales rather resorting to inventory accumulation and liquidation the firm may follow a production plan temporally smoother than the path of demand if firms faced with convex cost functions chose to smooth the rate of output in order to minimize costs one would expect to observe that the rate of output would vary less than the rate of sales with variations in inventory stocks absorbing some of the fluctuations in sales recently work on the testing of the production smoothing hypothesis has cast doubt on its empirical validity the evidence presented by alan blinder seems to indicate that the variance of production exceeds that of sales in seven out of eight two digit retail industries 1981 and in eighteen out of twenty two digit manufacturing industries 1983 and 1986 the purpose of this paper then is to examine the validity of such tests when seasonally adjusted aggregated data are used the evidence presented show that the relative size of the variances of the seasonally adjusted production and sales does not provide valid tests of the production smoothing hypothesis in addition aggregating over firms where the seasonal patterns differ may also distort tests of production smoothing blinder realized that the use of seasonally adjusted data may not provide an adequate test of the hypothesis stating had they been available i would have preferred to use data that were not seasonally adjusted since the production smoothing model presumably applies to seasonal fluctuations in sales however such data are not available 1983 fn 19 in this paper i focus on the cement industry because the unadjusted disaggregated data are available for the direct testing of the conjecture that aggregate seasonally adjusted data mask production smoothing phenomenon aggregate monthly data on five other industries will also be examined

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

post socialist financial fragility the case of albania the 1997 collapse of the albanian economy caused by the collapse of economy wideponzi schemes contrasts sharply to itssuccess status as a post socialist transition country in the years 1992 1996 inthis paper an attempt is made to explain this albanian paradox the specific albanian conditions for the growth of ponzischemes are identified theoretically thealbanian paradox can be interpreted as one version of the financial instabilityhypothesis suggested by minsky investigation of the underlying factors that render financial markets fragilesuggests that the albanian case is extreme butnot rare in the region in the post socialist setting expectations of thepopulation and other potential investors based on alack of reliable information on returns may lead to excessive capital inflow this trend is reinforced if governments areweak and if transition policies rely largely on liberal financial marketdevelopment rapid privatisation and external capitalinflows facilitating the tendency to instability identification of this trendis hindered if policy makers and observers largelyrely on macroeconomic indicators in monitoring the economy

buffer stocks and labor demand further evidence this paper presents estimates of a multivariate flexible accelerator model of labor demand hours and the number of production workers which shows that stocks of finished goods unfilled orders and materials inventories have significant impacts upon labor demand univariate time series models are used to capture expectations of the determinants of desired stocks new orders real wages and real raw materials prices and these magnitudes are found to follow a random walk without drift expected new orders and errors in forecasting new orders are found to have an important impact upon labor inputs real wage forecasting errors are found to be important for hours demand

determination of employment with wage and price speculation the purpose of this paper is to investigate whether aggregate fluctuations in employment may be explained within a market clearing framework as intertemporal substitution in labor supply and demand an intertemporal substitution model for the firm is derived this model is estimated with a lucas rapping type supply equation empirical results with finnish data lend support to the intertemporal substitution model particularly concerning the demand function specification on the other hand the results for the supply equation are somewhat mixed being rather sensitive to the dynamic specification

the interrelationship between price and output decisions and investment decisions microfoundations and aggregate implications abstract this paper develops a model of firm behavior in which both price and output decisions and investment decisions are made the model permits an analysis of the dynamics of inventory and capital accumulation on price and output behavior there are two main results 1 short run price and output levels will differ from long run levels as desired stocks of inventory and capital diverge from actual levels 2 the size of the elasticities of price and output to changes in demand and cost variables depends on the speed with which gaps between desired and actual stocks are closed through investment

the impact of demand and price expectations on the behavior of prices the effects of demand and price expectations on price behavior are analyzed using data from the manufacturing sector and a model formulated to pinpoint the demand oriented factors affecting prices and to incorporate price expectations as a direct influence on price behavior the expected normal demand is seen to have a strong and systemic influence on price behavior the expected normal level of new orders is found to be an adequate measure with sector data in general although some industries require more specification the effects of inventories and unfilled orders on prices are sporadic and across sectors and industries demand oriented forces are concluded to perform as well statistically as cost push determinants expectations concerning the current normal industry price level have a significant and consistent impact on price behavior this supports the idea that firms setting prices take into account their estimates of competitor s prices future price expectations appear to have little effect on current price information 15 references

why u s wage and employment behavior differs from that in britain and japan if a poll were to be conducted among american academic economists to select the most mystifying economic phenomenon of our time surely the sticky nominal wage rate would emerge at or near the top of the list the slow and partial response of the nominal wage rate to changes in aggregate nominal spending has been a central postulate of macroeconomic theory for the past 45 years from keynes general theory down to the standard postwar textbook keynesian paradigm to the more modern fixed wage price models of robert barro and herschel grossman i976 and edmond malinvaud i977 unwilling passively to accept nominal wage rigidity as an unexplained assumption many labour market theorists have followed the lead of costas azariadis i975 and martin baily i974 in building models to explain rigid wages and layoff unemployment as the rational outcome of a profit maximising calculus as i pointed out in an early critique of the azariadis baily model i976a their assumptions cannot explain cycles in employment but rather why workers would want fixed incomes i e a fixed wage rate and fixed employment soon thereafter barro i977 went one step further and argued that contract theory is a facade which cannot explain why workers would choose a rigid wage and variable employment in preference to the classical equilibrium quantity of employment that equates the marginal product of labour with the marginal value of time now an examination of the evidence has led me to the realisation that rigid wages cannot provide the underpinnings for a universally valid theory of the business cycle simply because wages are not universally rigid i document below with postwar quarterly data that the share of fluctuations in the manufacturing wage bill taking the form of nominal wage changes as compared to changes in hours worked is five to ten times greater in britain and japan than in

cyclical productivity in europe and the united states evaluating the evidence on returns to scale and input utilization this paper studies procyclical productivity growth at the industry level in the united states and three european countries france germany and the netherlands industry specific demand side instruments are used to examine the prevalence of non constant returns to scale and unmeasured input utilization for the aggregate us economy unmeasured input utilization seems to explain procyclical productivity however this correction still leaves one in three us industries with procyclical productivity this failure of the model can also be seen in europe and is mostly concentrated in services industries

clientelism and polarized voting empirical evidence one must take country specific institutional features into account when analyzing former communist countries transformation process to new political institutions we do so for post communist albania where the regional and cultural polarization that has existed for centuries has evolved to clientelism in the new democracy we show how clientelistic parties give rise to very particular voting patterns these reveal major differences across regions not only in party choice but also in voters responses to government policies these responses depend on the party in government and on the region concerned this is in sharp contrast with results obtained when applying the same model to a large number of more advanced democracies with similar electoral institutions a proper evaluation of democratization in albania thus requires looking beyond the formal institutions governing elections and taking clientelism and its effect on voter behavior into account

a dynamic model of investment and capacity utilization this paper develops a dynamic optimizing model of a firm with quasi fixed factors subject to adjustment costs the utilization rates of the quasi fixed factors are chosen optimally by the firm and the rates of investment in the quasi fixed factors are based on the shadow prices of these factors in the spirit of tobin s q theory of investment capital investment is shown to be negatively related to capital utilization along the path to the steady state however in response to unanticipated demand shocks capital utilization and investment are positively related

external effects in u s procyclical productivity abstract in this paper we highlight a new dimension of the aggregate procyclical productivity phenomenon we show that estimates of the degree of returns to scale are larger for manufacturing as a whole than for two digit industries since this difference must be due to factors that are only internalized at the most aggregate level we term it an external effect this result rules out explanations based on own input variation such as true increasing returns and unmeasured factor utilization tied to own activity as the sole explanations for aggregate procyclical productivity we explore several potential explanations of this external effect

interrelated demands for buffer stocks and productive inputs estimates for two digit manufacturing industries empirical estimates of interrelated factor demand equations for inventories labor inputs capital stocks and unfilled orders in selected two digit industries are provided this framework is more comprehensive than previous research as it disaggregates inventories by stage of fabrication accounts for production to stock and production to order and disaggregates capital and labor inputs all estimated decision rules display stock adjustment effects but there are asymmetries in the parameter estimates that are puzzling there is evidence that factor input prices have a role in explaining stock levels but own factor price effects are largely absent evidence is uncovered that stocks are sensitive to expectations errors attached to output demand copyright 1990 by mit press

why is production more volatile than sales theory and evidence on the stockout avoidance motive for inventory holding this paper argues that the macroeconomically interesting features of inventory behavior are well captured by a model in which firms face only demand uncertainty with a nonnegativity constraint on inventories empirical implications of the stockout avoidance model of inventory behavior are derived and then tested on disaggregated automobile industry data the results largely support the model though they suggest a small role for production smoothing as well subsidiary evidence on the relative variance of demand and cost shocks suggests that demand shocks are indeed more important

unionism mio the cyclical behavior of the labor tv rket in u s manufacturing t he traditional view of market dynamics implies that when demand varies intertemporal variation in quantities exchanged increases as prices become less flexible this reasoning leads to the proposition that wage and price rigidities are important contributors to cyclical fluctuations in output fischer 1977a and gray 1978 based formal macro models on this principle although this view is common it has little empirical support the coexistence of union and nonunion establishments engaged in similar activities contains potential for testing its merits economists have long maintained that in the short run union wages are less flexible than nonunion wages dunlop 1950 rees 1951 this difference should produce larger fluctuations in union employment and hours empirical studies have generally supported the union wage rigidity hypothesis lewis 1963 ashenfelter johnson and pencavel 1972 and hendricks 1981 2 but until recently lack of data precluded analysis of hours and employment definitive answers to the important questions concerning unions influence on cyclical behavior require yet unavailable information matching the behavior of firms and characteristics of workers but data from modem surveys have allowed considerable progress nevertheless it remains a challenge to determine how much of differences observed in the stability of labor utilization are attributable to differences in the stability of demand medoff 1979 and raisian 1979 report that cyclical variation of employment and hours is indeed greater for union labor but despite attempts to allay suspicion that their finding arises primarily from concentration of union members in cyclically sensitive industries both studies leave room for doubt raisian estimated functions relating an individual s wage and weeks worked in a year to a proxy for excess demand that year s unemployment rate in the worker s industry the technique is attractive but raisian s data included workers from the entire economy and the industries were broad aggregates thus differences in the union and nonunion groups compositions may play a large role medoff who confined his study to production workers in manufacturing and used data allowing finer partitions investigated the importance of composition more thoroughly but he did not estimate relationships between adjustments in employment or hours and a measure of demand furthermore his focus was principally on the composition of manhours adjustments rather than their size in this paper i combine the strongest features of the medoff and raisian studies in further examination of the influence of unionism on cyclical fluctuations using current population surveys u s department of commerce 1978 from may of 1973 75 my analysis covers production workers in manufacturing during a period of rising inflation and unemployment the heart of the analysis is a measure of residual employment that quantifies by three digit industry and year shortrun excess demand for labor i construct this variable from employment time series and use it to estimate union nonunion differences in the cyclical responses of unemployment hourly wage rates and hours worked the results are consistent with the view that increasing rigidity in wages amplifies cyclical fluctuations in the utilization of labor the wage regressions add further to the literature s already strong support for the union wage rigidity hypothesis the employment status and hours regressions imply that the sensitivities of employment received for publication august 12 1981 revision accepted for publication february 11 1983 federal reserve bank of dallas this paper is based on my ph d dissertation which was completed at ucla with financial assistance from the rand corporation and the department of labor comments by referees and by participants of labor workshops at ucla and the university of chicago as well as the computation assistance of brian mckee are gratefully acknowledged i am responsible for any remaining errors the views expressed should not be attributed to the federal reserve bank of dallas or the federal reserve system one study is gordon 1982 who concludes page 41 that macroeconomic instability in the united states has been aggravated by the unusually sluggish behavior of nominal wages in the postwar era 2see also johnson 1975 parsley 1980 and moore and raisian 1980

tax evasion in transition outcome of an institutional clash testing feige s conjecture in albania a field survey of households was conducted in tirana albania in 2000 a response rate of 89 3 yielded 1 340 valid questionnaires allowing me to test feige s in nelson j m tilley c walker l eds transforming post communist political economics national academy press washington dc p 21 conjecture that more tax evasion will be observed when formal and informal institutions clash respondents attitudes towards formal and informal institutions were obtained by applying factor analysis to their responses to a series of attitudinal questions the theoretical importance of the interaction between formal and informal institutions in determining tax evasion finds empirical support in the data

incentives to cultivate favored minorities under alternative electoral systems a simple model is used to compare under different electoral systems the incentives for candidates to create inequalities among otherwise homogeneous voters by making campaign promises that favor small groups rather than appealing equally to all voters in this game model each candidate generates offers for voters independently out of a distribution that is chosen by the candidate subject only to the constraints that offers must be nonnegative and have mean 1 symmetric equilibria with sincere voting are analyzed for two candidate elections and for multicandidate elections under rank scoring rules approval voting and single transferable vote voting rules that can guarantee representation for minorities in multiseat elections generate in this model the most severely unequal campaign promises

market perceptions and inventory price employment plans ordered probit analyses of national federation of independent business survey data show that individual firms generally conform to the stock adjustment model of inventory investment with the predicted response more likely when inventories are perceived as excessive than when deficient contrary to inferences about slow adjustment speeds from aggregate data inventory adjustments by individual firms do not tend to take more than three months to complete there is no evidence that price is used to achieve desired inventory targets but prices are sticky in that changes set in motion one quarter tend to continue into the next quarter copyright 1989 by mit press

inventories as factors of production and economic fluctuations this paper presents a theory of inventory investment by stage of processing and uses it to examine the role of inventory investment in economic fluctuations the model in which inventories are treated as factors of production is estimated for four durable goods industries three conclusions emerge from the estimation first the estimates generally satisfy the theoretical restrictions second the elasticity of inventory demand with respect to output is high indicating an important accelerator effect finally the estimates suggest that shifts in the demand for inventories are an important source of economic fluctuations copyright 1989 by american economic association

some empirical estimates of the demand for hours in u s manufacturing industries this paper presents estimates of hours equations based upon optimizing behavior of firms in a dynamic context the order stock distinction is the point of departure for this paper firms will be presumed here to produce to stock or to order hours equations will be derived which link hours worked to levels of inventories of finished goods or unfilled orders early work on the demand for labor ignored the effects of inventones and unfilled orders on the choice of labor input levels however some evidence on this subject was provided by the important and well known work of nadiri and rosen 1973 1 using a theoretical framework first studied by lucas 1967 they estimate dynamic factor demand schedules for six quasi fixed factors of production i e factor inputs which are subject to adjustment costs among these six inputs are employment hours per man and total inventories it is well known that the accumulation of any input will then depend upon the gaps between desired and actual levels of all quasi fixed factors thus the demand for hours per man is taken to depend among other things upon lagged hours employment and total inventories the cyclical interaction between inventories and the demand for labor arises through adjustment parameters attached to these lagged stocks completing the specification of the model by including the determinants of desired stocks sales the wage relative to capital costs and a time trend they apply the model to industrial aggregate data their results provide little evidence that inventories are an important determinant of the demand for hours of the eighteen industries examined only six produce negative and significant inventory coefficients further relative factor prices are found to be significant in only six industries apart from aggregation bias issues there are several misspecifications which could account for these results there is no reason why the impact of each inventory stock should have an identical impact upon hours for example it is reasonable to suppose that if the firm holds excess finished goods relative to desired levels it will reduce hours per worker but if the firm holds stocks of materials which exceed desired levels the firm may wish to increase hours so as to offset the output effects through the production function of declining stocks of materials similar comments can be offered about work in process inventories thus disaggregating by stage of fabrication would appear to be appropriate to sort out inventory effects on hours demand second nadiri and rosen ignore the impact of order backlogs upon hours following belsley 1969 it is well known that many of the firms in these industries produce not to stock but to order for firms producing goods requiring special attention order backlogs replace finished goods as a buffer against fluctuations in demand thus order backlogs should appear directly in the hours equation finally the dynamics of labor demand and factor prices may require a distributed lag representation to capture the response of labor demand to shifts in expected real wages as suggested by neftci 1978 in a different context the effects of real wages on hours may be captured if allowance is made for a distributed lag relationship between hours and real wages this paper presents two models which are designed to address some of these issues extending received for publication june 30 1982 revision accepted for publication january 7 1983 pennsylvania state university the research reported in this paper was partially supported by the employment and training administration u s department of labor under research and development grant no 91 24 77 34 and by the federal reserve bank of philadelphia the views expressed herein are those of the author and do not necessarily reflect those of the sponsoring institutions or the federal reserve system in any way i wish to thank professors c f christ l j maccini h rose and m ali khan for their constructive criticisms of this research two anonymous referees also provided excellent comments john hinrichs of the bureau of economic analysis kindly provided the deflated inventory data used here diane mayer and donna robinson provided expert research assistance any remaining errors are the responsibility of the author l see nadiri and rosen 1973 for a survey of the employment demand literature

production smoothing in the japanese vehicle industry abstract physical data from the japanese vehicle industry covering monthly observations from 1985 1 to 1994 12 are investigated across nine goods ranging from bicycles to large buses smaller variance of production is found relative to sales across all goods for unadjusted data and in 17 out of 18 cases for seasonally adjusted data such evidence in favor of the production smoothing model psm is confirmed by full information maximum likelihood employed jointly on inventories and sales equations the estimates suggest the industry operates in the range of increasing marginal costs in six out of nine goods positive costs of being away from targeted inventory are also present in six out of these nine goods which make the psm a good description of this industry

procyclical labour productivity increasing returns to labour and labour hoarding in car assembly plant employment this paper empirically examines the sources of procyclicality in labor productivity for a panel of u s auto assembly plants from 1978 85 an employment demand equation derived from a cost minimization model is estimated to test for the presence of increasing returns and labor hoarding on the employment dimension the data used match employment and wage data from the bls current establishment survey to publically available data on output and the nature of production at these plants statistical evidence in favor of both increasing returns and hoarding is found these findings suggest that the observed procyclicality of labor productivity in this industry is due to both the nature of technology increasing returns as well as attempts by plant managers to maintain a reserve of experienced workers labor hoarding copyright 1992 by royal economic society

participatory accountability and collective action experimental evidence from albania it has been argued that accountability is a public good that only citizens can provide governments can put institutions in place that allow citizens to hold public servants to account but citizens must participate in those institutions if accountability is to be achieved thus citizens face a social dilemma participate in holding public servants to account at a cost in terms of time and effort or free ride i e do not participate while benefiting from the efforts of those who do if this characterization of accountability is valid we would expect more cooperatively inclined citizens to participate in accountability institutions while the less cooperatively inclined do not we test the validity of this characterization by investigating the correlation between individual behavior in a simple public goods game and their participation in local and national accountability institutions in albania we involve a nationally representative sample of 1800 adults with children in primary school we find significant correlations between cooperativeness and participation in school accountability institutions and national elections both at the individual level and the district level these correlations are robust to the introduction of many controls in the analysis and in the case of national elections to the use of official election turn out statistics in place of self reported turn out

the resurgence of inventory research what have we learned abstract recent empirical and theoretical research on business inventories is surveyed and critically evaluated while most inventory research has had macroeconomic motivations we focus on its microtheoretic basis and on potential conflicts between theory and evidence the paper asks two principal questions first how can inventories which are allegedly used by firms to stabilize production nonetheless be a destabilizing factor at the macroeconomic level second why if firms are following the production smoothing model is production more variable than sales in many industries we suggest that the so called s s model may help answer both questions

the identification of rational expectations models under structural neutrality abstract this note shows that in the structural neutrality version of the linear rational expectations model the parameters measuring the strength of response to unanticipated shocks cannot be identified in the absence of restrictions on the covariance properties of the structural disturbances the consequences of this result for the commonly used two step estimation method are explored

government in transition abstract the speed of economic reforms is not the only important determinant of the success of the transition to a market economy the transition of government from a communist state to an institution supporting a market economy is as critical survey evidence shows that russia lags significantly behind poland in the transition of its government which may account for its inferior economic performance despite adopting similar economic reforms i argue that the lack of turnover of old communist politicians and the creation of inappropriate electoral and fiscal incentives for these politicians may account for the poor performance of the russian government and suggest some strategies for improving the situation

election goals and income redistribution recent evidence from albania this paper examines the impact of political competition on block grants from federal to sub federal levels of government we model the extent and direction of income redistribution as determined proximately by the political agendas of central decision makers and at a deeper level by the institutions within which they nd themselves operating we contrast two political objective functions that yield di erent empirical predictions of the ways in which politics should a ect scal policy lessons learned here may prove important in understanding limits on the types of redistribution possible via block grants given the institutional framework in both developing and developed countries 2001 elsevier science b v all rights reserved jel classixcation h1 h7 o1

price risk in supply equations an application of garch time series models to the u s broiler market that risk considerations figure prominently into agents decisions is now widely recognized by both theoretical and applied economists for example much research has focused on extending neoclassical production theory to include agents that maximize expected utility of returns under price and or output uncertainty 37 4 25 35 12 31 concurrent with this theoretical research on risk has been a growing literature on the empirical effects of risk on economic decisions examples include the studies on the role of risk in aggregate agricultural production and

disentangling the effect of arthritis on earnings a simultaneous estimate of wage rates and hours worked poor health affects both wage rates and hours of work here we develop a procedure for examining the separate impact of a specific chronic disease arthritis on wages and hours worked and then translate these results into earnings our methodology provides a consistent approach for measuring how a specific chronic disease affects total earnings as well as its component parts we find that arthritis affects wage rates and hours worked differently and the pattern of these effects differs considerably between men and women

excess labor and the business cycle this paper compares the medoff fay estimates of labor hoarding during troughs which are based on data from manufacturing plants with aggregate estimates of excess labor on hand the two sets of estimates seem consistent which provides a strong argument in favor of the excess labor hypothesis this is one of the few examples in macroeconomics where a hypothesis has been so strongly confirmed using detailed micro data this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abs this abstract was borrowed from another version of this item

the vp function a survey of the literature on vote and popularity functions after 25 years vp functions explain the support for the government at votes and polls by economic and political variables most studies analyze macro time series we also cover studies of individual voters socio economic groups and regional cross sections the theory starts from the responsibil ity hypothesis voters hold the government responsible for economic conditions it works in two party block systems but not else voters in most countries are found to be sociotropic egotropic voting also occurs voters myopia is well established voting is retrospective as expectations are static it costs the average government almost 2 of the vote to rule

rationality causality and the relation between economic conditions and the popularity of parties an empirical investigation for the federal republic of germany 1971 1982 abstract two questions are discussed using german popularity data from 1971 to 1982 it is asked whether it is true that using time series methods no relation can be found between economic variables and the popularity of parties taking ex post predictions strong evidence is presented that such a relation exists even if usual granger causality tests cannot detect it but is this relation compatible with rational expectations of the electorate this is at best partly the case as the anticipated part of the unemployment rate has a significant impact on the popularities of the two major german parties

labor hoarding and the business cycle this paper investigates the sensitivity of solow residual based measures of technology shocks to labor hoarding behavior using a structural model of labor hoarding and the identifying restriction that innovations to technology shocks are orthogonal to innovations in government consumption we estimate the fraction of the variability of the solow residual that is due to technology shocks our results support the view that a significant proportion of movements in the solow residual are artifacts of labor hoarding behavior specifically we estimate that the variance of innovations to technology is roughly 50 percent less than that implied by standard real business cycle models in addition our results suggest that existing real business cycle studies substantially overstate the extent to which technology shocks account for the variability of postwar aggregate u s output

employment tenure and earnings profiles in japan and the united states comments the relationship between job tenure and annual earnings in japan has received considerable attention from social scientists examining employment contracts and the japanese compensation system in their widely cited article masanori hashimoto and john raisian 1985 using data for 1980 showed that japanese men have greater job tenure than comparable workers in the united states and that the earnings of japanese men rise more rapidly with increased tenure they found that an additional year of tenure increases earnings in both small and large firms in japan more than does an additional year of general market experience their results for the united states indicate that general market experience increases earnings more than an additional year of job tenure the 1970 s and 1980 s were a period of substantial change in japanese labor markets due to the rapid aging of the population and the restructuring of the economy following the oil crisis the present analysis extends the work of hashimoto and raisian by estimating earnings equations for japanese men for the years 1971 1976 1981 and 1986 specifically we wish to investigate whether hashimoto and raisian s findings have been stable over time or whether changes in the labor market have altered the importance of tenure relative to total labor market experience in the japanese labor market i changes in the labor market

an examination of the differential patterns in the cyclical behaviour of the employment hours and wages of labour of different skills british mechanical engineering 1963 1978 this paper compares the cyclical behaviour of the employment hours and wage rates of skilled semi skilled and unskilled labour in british mechanical engineering from 1963 to 1978 figure 1 shows the variation of the employment share of skilled and non manual male labour in relation to the cyclical fluctuations during the same period where the cycle measure employed is the percentage deviation of output from its trend value a casual inspection reveals that the percentage of skilled labour in manual employment reaches peaks in the 1967 1972 and 1977 recessions while falling to lows in the 1966 1969 1970 and 1974 booms in similar fashion the percentage of non manual labour in total employment attains a peak in 1972 and 1977 and falls to a low in 1974 1975 these observations indicate that there is a differential cyclical response of the employment of different types of labour and suggest that skilled and non manual employment fluctuate relatively less the fixity and heterogeneity of labour was first highlighted by oi 1962 and becker 1962 the introduction of hiring firing and training costs which vary among different groups of workers implies that the employment behaviour of these groups will differ markedly over the course of the business cycle i e the stock of some groups of labour is relatively fixed in the short run we will be referring to this as the fixed labour hypothesis it applies especially to skilled workers because they usually embody more specific on the job training than lower skill groups during short run cyclical fluctuations we expect that the adjustment in the employment of skilled workers will be slower than that of lower skill groups and if one identifies non manual labour with relatively higher skill than manual labour the same employment behaviour will be expected for non manual labour the examination of the relative employment variation of skilled labour is useful in the discussion of the aggregate employment function for which research has led to the empirical finding of short run increasing returns to labour the explanation usually given to this is that there are short run adjustment costs which prevent the firm from adjusting the employment of skilled and non manual labour instantaneously with respect to cyclical demand shifts however excluding the work of rosen 1968 there has not been any direct empirical testing of such a hypothesis another implication of the fixed labour hypothesis concerns the short run behaviour of the hours of work of skilled labour as the most substantial

austrian economics neoclassicism and the market test professor sherwin rosen correctly suggests that the austrian and neoclassical schools can be complementary each accepting much from the other however his recognition of austrian strengths needs to be amplified and his criticisms need softening his appeal to the market test risks encouraging anti intellectual attitudes and practices

dynamic labour demand using error correction model using a new econometric model this study provides evidence that contradicts previous assertions about the japanese labour market the interrelationship between employment and hours of labour is stressed in this analysis by explicitly dividing labour input into both employment and labour hours this model enables results to be obtained through both simulation and estimation which allow measurement of adjustment speeds and elasticity in both employment and labour hours to wages the results of the simulations are as follows no apparent difference in adjustment speeds between employment and hours of labour was found the adjustment of hours of labour is more cyclical and overshoots whereas that of employment is smoother the adjustment speed of each simulation is slower than that found in most previous studies in the present long run simulation it is not as slow in the short run and policy simulations therefore adjustment speeds strongly depend on the method of simulation

political support for reforms economics of voting in transition countries i analyze the relationship between economics and politics across eight parliamentary elections in four transition countries the czech republic hungary poland and slovakia i argue that support for reform reflects the balance between positive and negative effects of the reform accordingly i identify economic groups that support or oppose the reform the former are private entrepreneurs white collar workers and university educated voters the latter are the unemployed retirees and blue collar and agricultural workers this general pattern holds both within countries and across countries and across tenures of different governments in contrast with the responsibility hypothesis voters in the transition countries are found to be forward looking not retrospective

the behavior of manufacturers inventories evidence from us industry level data abstract recent empirical research on inventory behavior makes extensive use of disaggregated data both from the 20 two digit manufacturing industries identified in the standard industrial classification sic system and physical product data from lower levels of aggregation economists have traditionally grouped these industries by durability of final product or by the presence or absence of unfilled orders for comparison recent research by mattey and strongin economic review federal reserve bank of san francisco 2 1997 3 17 suggests that production technology affects the flow of material through the production process and the use of labor and capital in manufacturing a review of the empirical inventory literature reveals patterns that can be explained by differences in production technology in studies that use both two digit industry data and disaggregated physical product data from four and five digit industries thus there may be more heterogeneity in disaggregated inventory data than was previously thought

time series representations of economic variables and alternative models of the labour market accepting the hypothesis that the time series facts of the aggregate labour market may be summarized by the linear autoregressive and moving average representations of wages prices unemployment and interest rates implies that a useful theory ought to lead to predictions about these representations following this approach this paper first catalogues many of the time series facts about the aggregate labour market and then compares them against alternative models of the labour market based on the intertemporal substitution and staggered contract hypotheses

excess labour and the business cycle a comparative study of japan germany the united kingdom and the united states against the background of firm specific human capital theory this paper investigates empirically the relative propensity of manufacturing industries in japan germany the united kingdom and the united states to hold excess labour over the business cycle both stock and utilization dimensions of the labour input are integrated into the study throughout discussion is linked to earlier research that has analysed the relative international performance of the japanese labour market

increasing returns labour utilization and externalities procyclical productivity in the united states and japan this paper investigates procyclical productivity and attempts to discriminate among several competing explanations the study focuses on the united states and japan since the different industrial relations in these two economies serve to cast a sharper light on the procyclical productivity debate labour hoarding evaluated through the introduction of a labour utilization proxy proves to be an important influence the interpretation of the role of external economies remains an open issue

the fourth wave of democracy and dictatorship noncooperative transitions in the postcommunist world the transition from communism in europe and the former soviet union has only sometimes produced a transition to democracy since the crumbling of the berlin wall in 1989 and the collapse of the soviet union in 1991 most of the twenty eight new states have abandoned communism but only nine of these have entered the ranks of liberal democracies the remaining majority of new postcommunist states are various shades of dictatorships or unconsolidated transitional regimes this article seeks to explain why some states abandoned communism for democracy while others turned to authoritarian rule in endorsing actorcentric approaches that have dominated analyses of the third wave of democratization this argument nonetheless offers an alternative set of causal paths from ancien regime to new regime that can account for both democracy and dictatorship as outcomes situations of unequal distributions of power produced the quickest and most stable transitions from communist rule in countries with asymmetrical balances of power the regime to emerge depends almost entirely on the ideological orientation of the most powerful in countries where democrats enjoyed a decisive power advantage democracy emerged conversely in countries in which dictators maintained a decisive power advantage dictatorship emerged in between these two extremes were countries in which the distribution of power between the old regime and its challengers was relatively equal rather than producing stalemate compromise and parted transitions to democracy however such situations in the postcommunist world resulted in protracted confrontation between relatively balanced powers the regimes that emerged from these modes of transitions are not the most successful democracies but rather are unconsolidated unstable partial democracies

accumulation of human capital and the business cycle characteristics of business cycles are quite different across developed countries real wages and working hours are less sensitive to exogenous shocks in the united states than they are in britain and japan using a model with a microeconomic foundation this paper provides an economic explanation of these differences the cost of on the job training plays a crucial role workers seldom quit their jobs when the sunk training cost is high in such economies variances in employment and output become small and shocks tend to be absorbed by working hours and real wages thus these characteristics do not necessarily indicate that the economy is more efficient

inventories layoffs and the short run demand for labor this paper presents a theoretical and empirical analysis of the short run employment layoff and inventory strategies of firms on average more than two thirds of all layoffs in american manufacturing end in a rehire by the employer of origin martin feldstein 1975 david lilien 1980 these temporary layoffs have recently accounted for about half of all ongoing employer initiated spells of unemployment in that sector see table 1 and have led to a revised interpretation both of the involuntary nature of these separations costas azariadis 1975 feldstein 1976 martin baily 1977 and of the durability of employment relationships evidently a significant proportion of unemployed workers know that the conditions that generated their separations are temporary and so they expect to be recalled within some reasonable time the point of departure for this paper is in interpreting these findings as evidence of a privately and socially efficient stock of excess capacity held against contingent future demands that is as an inventory of a productive input this view leads to empirically refutable hypotheses regarding both the role of temporary layoffs and the circumstances under which they will be important in particular both excess capacity idle resources and inventories are devices by which firms may economize on the costs of rapid adjustments when faced with unstable market conditions george stigler 1939 in such an environment the demands for layoffs and for other buffer stocks are jointly determined elements of long run technology the choice among alternative stocks will depend on relative profitabilities and firms may choose to hold stocks of inputs as a substitute for inventory accumulation especially if the costs of varying capacity or of storage are important this reasoning implies that i the structure of short run employment and layoff decisions will vary across firms and industries and ii differences in these structures will be systematically related to the role of inventories in firms dynamic strategies some perspective is warranted at least since charles holt et al 1960 economists have recognized the production smoothing role of inventories and the necessity of predicting future demand in making current decisions david belsley 1969 gerald childs 1967 michael ward 1978 similarly one of the contributions of recent work on implicit labor contracts is in viewing the exchange of labor services as a bilateral and durable commitment both these lines of analysis are concerned with the methods firms use to respond to fluctuating demand yet the underlying interrelated nature of employment and inventory decisions has rarely been recognized roger miller 1968 m ishaq nadiri and sherwin rosen 1973 r g crawford 1979 robert hall 1972 this paper aims to provide a framework for evaluating these decisions and in so doing to explain some interesting features of observed labor markets the notion of substitution between inventories of human and physical capital suggests a more disaggregated look at the data table 2 shows the importance of temporary layoffs in the distribution of unemployment among manufacturing industries it reports layoff and total unemployment rates for twelve representative industries over the period 197376 and average layoff rates and recall frequencies for 1958 76 among all 21 twodigit manufacturing industries the correlation between layoff and rehire rates is 6 and the table illustrates this evidently industries with larger than normal layoff rates also tend to have larger rehire frequencies from firm initiated spells of unemployment this university of chicago i am indebted to gary becker robert cotterman sherwin rosen jose scheinkman michael ward finis welch the managing editor and an anonymous referee for discussions and comments at various stages the usual disclaimer applies

some international evidence on inventory fluctuations abstract this paper shows some international evidence that production is more variable than sales in most developed countries but the reverse is true in most developing countries from international perspectives cost shocks do not appear to be the predominant source of fluctuations in inventories contrary to the widely accepted evidence in the postwar united states demand shocks and serial correlations in demand on the other hand appear to be of roughly equal importance for inventory fluctuations

equilibrium adjustment with endogenous information and inventories the paper analyzes the interaction of information acquisition and inventory flexibility with industry adjustment to imperfectly perceived cost and demand disturbances improved information about disturbances reduces the extent to which disturbances are unperceived and dampens the use of inventories reduced inventory flexibility induces firms to devote more resources to acquiring information about disturbances the analysis demonstrates how equilibrium price and output adjustment depend endogenously on the degree of inventory flexibility and other structural parameters influencing the acquisition of information in this paper we analyze how endogenous information acquisition and inventory flexibility influence price and output adjustment in a competitive industry we focus on the potential substitutability of information acquisition for inventory flexibility when disturbances are imperfectly perceived by individual firms the analysis highlights the general issue of how market adjustment depends on structural parameters that influence agents incentives to acquire information there are several reasons why information acquisition may play a role in market adjustment first the rapid development of information technology has enabled firms to gather and process data relevant to production and sales decisions from a greater number of external and internal sources this trend has reduced the costs of forecasting and monitoring factors influencing production and demand conditions for the individual firm relative to those of its competitors as well as for the industry as a whole in particular it has permitted quicker awareness of changing customer demand as well as greater control of the flow of inputs and intermediate goods during the production process this implies that the resources devoted to information acquisition and processing have come to play an important role in firm decisions 2 second improved information about demand and cost conditions may affect the function of inventories inventory adjustment allows a firm s production costs to be smoothed in response to anticipated movements in demand and costs and to be buffered against unanticipated disturbances see ashley and orr 1985 thus

identification and estimation of money demand in most natural sciences physics chemistry biology theories are validated by controlled experiment however in other natural sciences astronomy meteorology and in most social sciences including economics the data are characteristically generated not by experiment but by measurement of uncontrolled systems in economics theories take the form of restrictions on the models assumed to generate the data and statistical methods replace experimental controls in testing these restrictions and here is the difficulty in economics particularly macroeconomics the theory used to derive tests ordinarily does not generate a complete specification of which variables are to be held constant when statistical tests are performed on the relation between the dependent variable and the independent variables of primary interest accordingly in such cases there will be a set of often very different candidate regression based tests each of which has equal status with the others since each is based on a different projection of the same underlying multivariate model except in the unlikely event that the explanatory variables are mutually orthogonal the conditional regression coefficients which generally form the basis for the test statistic will depend on the conditioning set we conclude from this that if a theory which does not generate a complete specification of the regression test is nonetheless to have testable implications these implications must be robust over the permissible alternative specifications if the restrictions indicated by the theory are satisfied in some projections but not in others that have an equal claim to represent implications of the theory one cannot conclude that the theory has been confirmed the fact that the observable implications of valid theories must obtain over a broad but usually incompletely specified set of regressions rather than for a single regression introduces a large and unavoidable element of imprecision into hypothesis testing in macroeconomics generally it appears to be appropriate to weaken the statistical criterion for rejecting theories consider for example the theory of money demand which will engage our attention in this paper the tobin baumol square root formula implies that the elasticity of money demand with respect to the interest rate is exactly one half but which interest rate should wealth be held constant inflation in view of such uncertainties it would be inappropriate to insist in a literal minded fashion on rejecting the tobin baumol model if in some regression the measured interest elasticity differed from one half by more than two standard deviations and only then obviously a more flexible approach is called for the practice has been to conclude that the statistical evidence is consistent with the tobin baumol model as long as the interest rate coefficient is negative if it is negative and significant or negative and insignificantly different from minus one half that would provide somewhat stronger confirmation but a positive coefficient particularly a significantly positive coefficient would be viewed as raising questions about the validity of the theory in macroeconomics generally as in the money demand application the typical response to specification uncertainty has been to regard a theory as supported if the signs of the estimated coefficients agree with those expected from theory and as disconfirmed otherwise there is no theoretical justification for this procedure but it seems to be a reasonable course to follow the point that economic theory ordinarily generates incompletely specified statistical university of california santa barbara we have received helpful comments from andrew abel robert clower michael darby robert engle stephen goldfeld david laidler edward leamer robert lucas frederic mishkin and edward prescott thomas hall provided able research assistance

on recalls layoffs variable hours and labor adjustment costs abstract the paper analyzes the employment policy of a firm that can vary both hours and the level of employment the analysis differs from previous work in the adjustment cost literature in that the firm is able to change its employment not only through hires layoffs and quits but also by recalls of employees who were previously laid off thus we introduce the possibility of the firm inventorying the labor input it is shown that this labor inventory potential is necessary if the firm is to ever lay off workers further it is demonstrated that linear rather than strictly convex adjustment costs are then required if the firm is to always recall employees who were previously laid off prior to hiring new workers

writing as a responsibility of science a reply to laband and taylor it must have been around 1968 in the coffee room of the social science building at chicago that milton friedman and the late george stigler had a jovial and public conversation about being economists that made a big impression on me milton was lamenting the stupidity of tariffs and george broke in from a foot above saying something as follows milton you re such a preacher if people want free trade they ll get it if they don t want it no amount of jawboning by economists will change their minds ah that s where we differ george we admire markets but you think they ve already worked and why not people are self interested and they vote their pocketbooks that s enough to make the market work they bought tariffs tariffs must be what they want no they pursue their interests but often do not know what their interests are people need education the average citizen has no idea that a tariff hurts him education try educating a lobbyist for the textile industry as i said that s where we differ i m a teacher and think that people do some things because they are ignorant and i m a scientist an economic scientist people do what they do because they are wise laband and taylor are stiglerites they believe with dr pangloss that we are in the best of all possible worlds the friedmanites which is my own tribe believe that we could be in it if we would only stop to think the stiglerites assume rationality the friedmanites teach it the stiglerites want to praise the world the friedmanites to change it the stiglerites detest policy what is is the friedmanites embrace it what might be can be the stiglerites are pessimistic in the manner of the master the friedmanites are optimistic laband and taylor the reader can see have a pessimistic and stiglerite explanation of why they have not learned to write competently they defend themselves against advice such as i give in the original paper by saying that it is presumptuous of anyone to claim unique knowledge of the marginal benefit to authors of investment in better presentation if the investment we were talking about was oil drilling i d agree with their economics i ve written a book called if you re so smart that makes a similar point about economic experts going around offering advice but the investment in question here is where laband and taylor go wrong is economic education laband taylor and i are economic educators in the educational industry we are the oil drillers the experts we educate our student roughnecks in the craft teaching them because we do know better or else we should not be standing up there tuth 10 50 12 10 part of the craft laband and taylor agree is attending to elements of presentation so the initial mistake in their paper is economic they think that because some advice is silly and misinformed all advice must be even advice from teachers to students stiglerites tend to drive themselves into such extreme skepticism but no one can actually live as an extreme skeptic i d like to see what laband and taylor say to a student who thinks that markets are bad for you do they agree mildly that it s just a matter of opinion another stigler story george opposed requirements in the graduate curriculum at chicago around 1970 he killed off the requirement in the history of thought which was his own field and tried repeatedly to kill off economic history he succeeded in 1980 when i left the faculty his argument which is heard in many other departments of economics was that the graduate students should be free to choose listen up milton after all they are just like consumers what george and laband and taylor never answered was the teacher s point which milton made in the discussions about the history of thought requirement we are teachers we do know better graduate students because they are not educated already that s why they are students often make bad decisions about their curricula

the response of prices sales and output to temporary changes in demand we determine empirically how the big three automakers accommodate shocks to demand they have the capability to change prices alter labor inputs through temporary layoffs and overtime or adjust inventories these adjustments are interrelated non convex and dynamic in nature combining weekly plant level data on production schedules and output with monthly data on sales and transaction prices we estimate a dynamic profit maximization model of the firm using impulse response functions we demonstrate that when an automaker is hit with a demand shock sales respond immediately prices respond gradually and production responds only after a delay the size of the immediate sales response is linear in the size of the shock but the delayed production response is non convex in the size of the shock for sufficiently large shocks the cumulative production response over the product cycle is an order of magnitude larger than the cumulative price response we examine two recent demand shocks the ford explorer firestone tire recall of 2000 and the september 11 2001 terrorist attacks

inventories rational expectations and economic activities abstract this paper examines the role of inventories when adjustments in output involve fixed employment costs such as hiring and training costs these costs force the firm to use inventories to stabilize output fluctuations contrary to the blinder fisher model unanticipated aggregate disturbances in the present model may have no subsequent impacts on the economy the exchange between mccallum and blinder frydman are also discussed in this context