the effects of uncertainty on investment and the expected long run capital stock abstract this paper examines the effects of output price uncertainty on the optimal investment behavior of a risk neutral competitive firm with a constant returns to scale production function in the presence of convex costs of adjustment investment is an increasing function of q the shadow price of capital given the current price of output we find that increased uncertainty will raise the current rate of investment increased uncertainty will also increase the expected long run capital stock if the price of output is serially uncorrelated however if the price of output is serially correlated then the direction of the effect of increased uncertainty on the expected long run capital stock depends on the curvature of the marginal adjustment cost function in this case we obtain results which are directly opposite of the results in the literature and we locate the flaw in the existing analysis

a stochastic model of investment marginal q and the market value of the firm this paper presents closed form solutions for the investment and valuation of a competitive firm with a cobb douglas production function and a constant elasticity adjustment cost function in the presence of stochastic prices for output and inputs the value of the firm is a linear function of the capital stock the optimal rate of investmentis an increasing function of the slope of the value function with respect to the capital stock marginal q a mean preserving spread of the distribution of future price increases investment an increase in the scale of the random component of a price can increase decrease or not affect the rate of investment depending on the sign of the covariance of this price with a weighted average of all prices this abstract was borrowed from another version of this item

fixed costs and long lived investments abstract fixed costs models are difficult to analyze because they feature non degenerate time varying distributions of capital across firms if investments are sufficiently long lived however then the cross sectional distribution of capital holdings has virtually no bearing on the equilibrium and the aggregate behavior of fixed cost models is essentially identical to neoclassical models the findings are due to a near infinite elasticity of investment timing for long lived investments a feature shared by fixed cost models and neoclassical models irrelevance results found in numerical studies of fixed cost models are not parametric special cases but instead are fundamental properties of models with long lived investment goods

how the baby boomers retirement wave distorts model based output gap estimates hours per capita measures based on the private sector as usually included in the set of observables for estimating macroeconomic models are affected by low frequent demographic trends and sectoral shifts that cannot be explained by standard models further model based output gap estimates are closely linked to the observable hours per capita series hence hours per capita that are not measured in concordance with the model assumptions can distort output gap estimates this paper shows that sectoral shifts in hours and the changing share of prime age individuals in the working age population lead indeed to erroneous output gap dynamics regarding the aftermath of the global financial crisis model based output gaps estimated using standard hours per capita series are persistently negative for the us economy this is not caused by a permanently depressed economy but by the retirement wave of baby boomers which lowers aggregate hours per capita after adjusting hours for changes in the age composition to bring them in line with the model assumptions the estimated output gap gradually closes in the years following the global financial crisis

accelerated depreciation and the efficacy of temporary fiscal policy implications for an inflationary economy abstract the effect on investment of temporary tax rate changes depends on the age profile of depreciation deductions if the depreciation allowance schedule is accelerated then temporary cuts in the corporate tax rate could reduce investment inflation causes the age profile of real depreciation deductions to become accelerated and thus could make temporary tax cuts have a contractionary effect on investment two currently proposed reforms are shown to exacerbate this effect under each of these proposals temporary tax cuts are likely to have opposite effects on investment in short lived and long lived capital thereby complicating the conduct of countercyclical fiscal policy

maintaining optimal inventory level by feedbacks abstract in this paper the inventory level is examined under a situation in which the demand function consists of two parts one which is sometimes referred to as the trend of demand is described as a proper polynomial function of time the other is given as a random variable with a finite variance a policy is planned which is to bring the expected value of realized inventory level to the planned level in order to accomplish this purpose some feedbacks are to be introduced the first feedback is realized by estimating the demand level in the future based upon the demand level in the past how much data is necessary depends on the degree of the polynomial function to be estimated the second is obtained by monitoring the realized inventory level the difference between the realized inventory level and the planned level is used as a feedback we will show that by combining these two feedbacks the expected value of difference between two inventory levels planned and realized converges to zero

investment the current account and the relative price of non traded goods in a small open economy abstract this paper incorporates traded and non traded investment expenditure into an infinite horizon setting with optimizing economic agents extending previous research that has incorporated traded and non traded investment into a two period setting the paper analyzes the dynamic adjustment of the relative price of non traded output the market price of capital and the current account following exogenous shocks to the system the exogenous shocks considered by the paper include permanent transitory and anticipated changes in an income tax and an investment subsidy as well as changes in the level of government purchases of traded and non traded output

external shocks and financial collapse foreign loan guarantees and intertemporal substitution of investment in texas and chile in the decade of the 1980 s the banking systems of a number of economies including those of argentina chile costa rica malaysia norway texas and venezuela collapsed in the face of external shocks however the collapses did not occur immediately following the external shocks in general macroeconomic stabilization efforts were followed by investment booms before the collapses brock 1992 the investment booms were made possible by government guarantees on foreign loans extended to the economies government foreign loan guarantees potentially are useful instruments for the fiscal management of financial losses suffered by banks and firms if financial claims against domestic assets increase in riskiness as a result of an external shock a problem of underinvestment in an economy may occur foreigners who might otherwise lend to the economy will not do so if their financial claims are placed in the same risk category as other existing claims foreign loan guarantees permit the financing of new projects while failed banks and firms are being recapitalized or liquidated although foreign loan guarantees in the aftermath of an external shock encourage foreigners to lend to financially distressed banks and firms this paper will explore the possibility that these loan guarantees may also distort an economy s macroeconomic adjustment by permitting a postponement of the liquidation process for example the failure to close banks quickly has been singled out by sergio de la cuadra and salvador valdes 1992 as the dominant macroeconomic problem distorting the adjustment of the chilean economy in 1981 and 1982 paul horvitz 1992 has also emphasized political unwillingness to shut down insolvent savings and loans as a major element in the magnificantion of the costs of the financial collapse in texas this paper first develops an analytical model in which a government s delay in the payment of loan guarantees produces an intertemporal shifting of investment expenditure into the period preceding the termination of the guarantees the paper then examines case studies of chile 1981 1985 and texas 1984 1988 to illustrate the macroeconomic consequences of delays in the closure of insolvent financial institutions

will the new keynesian macroeconomics resurrect the is lm model the is lm model has no greater prospect of being a viable analytical vehicle for macroeconomics in the 1990s than the ford pinto has of being a sporty reliable car for the 1990s because of its treatment of expectations the is lm model as traditionally constructed and currently used is a hazardous base on which to build positive theories of business fluctuations and to undertake policy analysis to simplify economic reality sufficiently to use the is lm model as an analytical tool economists must essentially ignore expectations we now know that this simplification eliminates key determinants of aggregate demand the last two decades of research have taught economists that the assumption of rational expectations is a powerful part of economic explanations of individual and market behavior ranging from consumption and investment dynamics to pricing of stocks and bonds the emphasis on expectations in the macro model is the end result of a process of building microeconomic underpinnings that was initiated in the 1950s and 1960s when the goal was to develop dynamic theoretical foundations for the is and lm schedules inevitably consideration of dynamic choice pushed the question of expectations to the forefront as a result most of the equations of the is lm model are now viewed as summarizing purposeful economic behavior in which choices over time play a central role however as we will see this finding means there is no way to maintain traditional uses of the is lm model

on the importance of the participation margin for labor market fluctuations abstract conventional analyses of labor market fluctuations ascribe a minor role to labor force participation we show by contrast that flows based analyses imply that the participation margin accounts for around one third of unemployment fluctuations a novel stock flow apparatus establishes these facts delivering three further contributions first the role of the participation margin appears robust to adjustments for spurious transitions induced by reporting error second conventional stocks based analyses are subject to a stock flow fallacy neglecting offsetting forces of worker flows on the participation rate third increases in labor force attachment among the unemployed during recessions are a leading explanation for the role of the participation margin

taxes incentives and production the case of turkey abstract this paper investigates the effectiveness of investment incentives and corporate income taxes in influencing production and investment decisions in the turkish electrical machinery non electrical machinery and transportation equipment industries three tax instruments are considered the corporate income tax cit the investment tax allowance ita and the capital cost allowance cca the results show that since there are significant capital adjustment costs it is important to distinguish between the short intermediate and long run effects associated with the tax instruments production decisions are relatively more responsive to changes in the ita rate compared to changes in either the cca or cit rates in each of the runs however the ita and cca rates are equally cost effective in stimulating investment and superior to the cit the cca and ita rates generate investment expenditures of 1 5 to 2 5 times the loss in government revenue thus targeted instruments outperform the general cit instrument in addition although the incentive to invest is enhanced there is little effect on output and employment therefore these tax incentives essentially after production techniques

lumpy investment and corporate tax policy in the presence of both convex and nonconvex capital adjustment costs in a dynamic general equilibrium model corporate tax policy generates both intensive and extensive margin effects via the channel of marginal q i ts impact is determined largely by the strength of the extensive margin effect which in turn depends on the cross sectional distribution of firms depending on the initial distribution of firms the economy displays asymmetric responses to tax changes moreover an anticipated increase in the future investment tax credit reduces investment and adjustment rate initially

the cyclicality of separation and job finding rates this paper uses cps gross flow data to analyze the business cycle dynamics of separation and job finding rates and to quantify their contributions to overall unemployment variability cyclical changes in the separation rate are negatively correlated with changes in productivity and move contemporaneously with them while the job finding rate is positively correlated with and tends to lag productivity contemporaneous fluctuations in the separation rate explain between 40 and 50 percent of fluctuations in unemployment depending on how the data are detrended this figure becomes larger when dynamic interactions between the separation and job finding rates are considered

the effect of the investment tax credit on the value of the firm abstract a change in the tax law that increases investment incentives for new assets may result in excess returns on new investment causing firm value to increase alternatively because the investment incentives apply only to new investments the value of existing assets that compete with these investments may decline in general investment incentives have a theoretically ambiguous effect on firm value cross sectional tests examine the changes in firm value to repeated changes of the investment tax credit changes in firm value are found to be positively related to the expected receipt of investment tax credits no evidence is found to support a relationship between expected changes in the value of a firm s existing assets and changes in firm value

investment crowding out firm level evidence from northern germany michalek j ciaian p and kancs d a investment crowding out firm level evidence from northern germany regional studies the main objective of this paper is to estimate the extent to which firm investment is substituted crowded out by investment support policies granted under the european union rural development programme rdp the empirical analyses employed the difference in difference propensity score matching approach which allows several important sources of bias to be addressed such as selection bias simultaneity bias and functional form misspecification from which many previous studies suffer using panel data of 1333 firms from the schleswig holstein region in germany it is found that the crowding out effect of the rdp is close to 100 implying that firms use public support to substitute for private investments furthermore no evidence was found that due to the rdp programme support firms would have brought forward their investments planned originally for a later period rejecting t

dynamic effects of the unemployment insurance tax on temporary layoffs abstract the reserve ratio method of experience rating the unemployment insurance ui tax is an inherently dynamic process a tax rate is assigned to a firm based on its reserve ratio the ratio of the balance in its ui account to its taxable payroll therefore in making layoff decisions that will deplete its ui balance a firm will consider the effect on its future ui tax rate this study explores the incentive effects of this method of ui financing on temporary layoff behavior of firms in a dynamic context

a bottleneck capital model of development abstract a simple augmentation of the ramsey cass koopmans growth model allows it to match observed transitions by initially poor economies a high convexity installation cost directly dampens investment demand for a first capital input the resulting scarcity acts as a bottleneck strongly dampening demand for investment in a complementary capital input as well the match to observed transitions holds both for narrow and broad interpretations of capital in either case the bottleneck capital s share of factor income need not be large

optimal safety stock levels of subassemblies and manufacturing components abstract in order to control the time to market and manufacturing costs companies produce and purchase many parts and components before receiving customer orders consequently demand forecasting is a critical decision process using modular product design and super bills of materials are two effective strategies for developing a reliable demand forecasting process they reduce the probability of stockouts in diversified production contexts furthermore managing and controlling safety stocks for pre assembled modules provide an effective solution to the problem of minimizing the effects of forecast errors this paper develops evaluates and applies innovative cost based analytical models so that the optimal safety stock of modular subassemblies and components in assembly to order and manufacturing to order systems respectively can be rapidly quantified the implementation of the proposed models in two industrial case applications demonstrates that they significantly reduce the safety stock inventory levels and the global logistical cost

reversal of migration flows a fresh look at the german reunification we investigate the dynamic effects of interregional labor market integration on migration flows capital formation and the price for housing services the co evolution of these variables depends on initial conditions at the time of labor market integration in an initially capital poor economy there may be a reversal of migration flows during the transition to the steady state while housing costs are increasing over time although capital may accumulate while labor emigrates early in the transition the causal effect of immigration on capital investments and housing costs is positive we present new data on the evolution of net migration flows and rental rates for housing in east germany after 1990 our results are consistent with the presented evidence in the reverse migration scenario

investment tax incentives prices and the supply of capital goods using data on the prices of capital goods this paper shows that much of the benefit of investment tax incentives does not go to investing firms but rather to capital suppliers through higher prices the reduction in the cost of capital from a 10 percent investment tax credit increases equipment prices 3 5 7 0 percent this lasts several years and is largest for assets with large order backlogs low import competition or with a large fraction of buyers able to use investment subsidies capital goods workers wages rise too instrumental variables estimates of the short run supply elasticity are around 1 and can explain the traditionally small estimates of investment demand elasticities in absolute value the demand elasticity implied here exceeds 1

international business cycles world region and country specific factors the paper investigates the common dynamic properties of business cycle fluctuations across countries regions and the world we employ a bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates output consumption and investment in a 60 country sample covering seven regions of the world the results indicate that a common world factor is an important source of volatility for aggregates in most countries providing evidence for a world business cycle we find that region specific factors play only a minor role in explaining fluctuations in economic activity we also document similarities and differences across regions countries and aggregates jel f41 e32 c11 c32

housing investment in the united states a supply determined model of housing investment is estimated from quarterly data over the 1963 83 period the model is built on dynamic marginal cost pricing considerations and allows short and long run supply elasticities to differ these are estimated as 1 0 and 3 0 respectively but most of the long run response occurs within 1 year rapid adjustment speed and the sizable long run elasticity of supply are important factors in understanding the volatility of housing investment the data also suggest some anomalies in the expected present value theory of asset pricing for housing capital

tax structure and growth in a model with human capital abstract the effect of the tax structure on the long run growth rate of income and consumption is analyzed where tax structure refers to the mix of taxes on physical and human capital which satisfy an exogenously given government budget constraint the factor used intensively in the consumption good sector relative to the capital goods sector as a whole is taxed more highly in a growth maximizing tax structure an endogenous labor supply the tax treatment of depreciation and the effect of replacing the income tax with a consumption tax are all considered

the timing and duration of development tax rate increases abstract the effects of permanent temporary anticipated and unanticipated changes in a development tax are considered in a model of land development the effect of uncertainty over the timing of the changes is also considered expectations regarding a future tax rate increase are shown to affect the direction of a change in the path of land development in a given time period while the duration of a rate increase affects the magnitude of the change uncertainty regarding the timing of an increase in the development tax rate increases the magnitude of a change in the path of land development

dynamic effects of permanent and temporary tax policies in a q model of investment abstract this paper incorporates the tax policy analysis of hall and jorgenson into a dynamic optimizing model with adjustment costs to develop a q model of investment this framework is particularly useful for analyzing the dynamic effects on investment of permanent and temporary changes in tax policy it is shown that contrary to the conventional intertemporal substitution argument a temporary investment tax credit need not be nore expansionary than a permanent investment tax credit the role of depreciation allowances in determining the dynamic response of investment to temporary changes in the tax rate is also investigated

q and the tax bias theory abstract a growing body of literature analyzes the variation in q the ratio of financial market value to asset current replacement cost and makes inferences about attributes such as monopoly power profitability managerial performance etc these studies ignore potential biases embedded in q that result from non neutral tax policies this study examines the association between q and tax biases and establishes that differences in accumulated depreciation tax shields explain significant variation in q the implication that q should be adjusted for tax biases before use in empirical research is examined further adjusting q for tax biases at least with the factors herein leads only to minor changes in econometric analyses

environmentally responsible inventory models non classical models for a non classical era abstract mathematical models of inventory typically include the three inventory associated costs of surplus shortage and ordering these classic inventory models are then analysed so as to choose inventory parameters that usually minimise the total cost of operating the inventory system being investigated unfortunately classic inventory models do not provide a meaningful basis for analysing many real and increasingly important practical inventory problems and situations it is therefore not surprising that over recent years several authors have discussed these issues in broad terms and suggested that a new paradigm needs to be developed this paper develops some specific aspects of this discussion in particular the paper identifies a range of inventory problems that are not covered appropriately by traditional inventory analysis one of these is to design responsible inventory systems i e systems that reflect the needs of the environment the paper then examines the importance of inventory planning to the environment in greater detail for example packaging is important not only because of its costs and the protection that it provides to the inventory items but also because of its eventual effects on the environment in terms of the use of resources and potential landfill for similar reasons waste which can result from poor inventory management is highly important the location of stores is important because location affects transport costs thus the influence of the secondary aspects of most inventory models packaging waste and location are important but even more important are the inter relations with the total system in particular the location of the manufacturing plants and the effect that inventory planning has on the logistics chain potentially have considerable environmental implications inventory is part of a wider system however until the cost charged for an activity reflects the true environmental cost of that activity it is likely that decisions will be made on the basis of erroneous data in that situation we are faced with either determining the environmental cost of specific actions or to use environmental costs that are somewhat contrived in which case it may be more sensible to use very different performance measures and models the paper discusses these ideas and ways in which inventory policies may reassure us with our environmental concerns

trends in inventory management abstract inventory management is one of the success stories of recent years and it is changing rapidly in response to international competition and new technology this paper examines some of these developments inventory is a major investment in most companies it strongly influences the internal flexibility of a company e g by allowing production levels to change easily and by providing good delivery performance to customers yet inventory ties up working capital and space and it can suffer from obsolescence deterioration and shrinkage it can also add to administrative complexity in recent years attention in manufacturing industry has concentrated on an inventory is waste philosophy using jit production usually accompanied by visible pull or consumer demand driven systems the approach is also very effective in supermarket retailing and at its best provides very high stock turn and high profits to the company at the same time as providing good service and fresh items to customers at low cost current changes in inventory management consider the total logistics chain under the term logistics management place a greater emphasis on purchasing rather than producing in house and use more international sourcing changes to recording methods include the use of different methods of information collection and processing e g bar coding in retailing and manufacture and electronic exchange of information control methods are more computer based and are becoming part of increasingly integrated systems there are some obvious problems still to be solved procedures are needed to bring one off analyses of inventory to become part of routine systems work needs to be done to produce performance measures which are consistent between different levels of the organisation and the modelling of dynamic performance needs to become part of the design of our production inventory systems more fundamentally we still do not know how to classify companies let alone how to determine the best approach to inventory planning and control for a particular kind of company

the impact of young workers on the aggregate labor market an increase in the share of youth in the working age population of one state or region relative to the rest of the united states causes a sharp reduction in that state s relative unemployment rate and a modest increase in its labor force participation rate this is inconsistent with many theories of the labor market but can be easily explained by a model of frictional unemployment with on the job search the theory makes strong predictions regarding the behavior of wages which are shown to be consistent with the data the paper also reconciles its findings with an existing body of apparently contradictory empirical evidence

the effects of taxes and dividend policy on capital accumulation and macroeconomic behavior abstract this paper analyzes the macrodynamic effects of changes in various tax rates in an intertemporal optimizing framework two aspects emphasized include the role of dividend policy and the behavior of the stock market both permanent and temporary tax changes are considered with the transitional adjustment paths being characterized in detail the contrast between the short run and long run effects is highlighted in particular an increase in any of the tax rates will cause short run employment to fall and with the capital stock fixed instantaneously the capital labor ratio immediately rises over time as the capital stock declines the capital labor ratio falls

on the demographic adjustment of unemployment the unemployment rate is one of the most important business cycle indicators but its interpretation can be difficult because slow changes in the demographic composition of the labor force affect the level of unemployment and make comparisons across business cycles difficult to purge the unemployment rate from demographic factors labor force shares are routinely used to control for compositional changes this paper shows that this approach is ill defined because the labor force share of a demographic group is mechanically linked to that group s unemployment rate as both variables are driven by the same underlying worker flows we propose a new demographic adjustment procedure that uses a dynamic factor model for the worker flows to separate aggregate labor market forces and demographic specific trends using the u s labor market as an illustration our demographic adjusted unemployment rate indicates that the 2008 2009 recession was much more severe and generated substantially more slack than the early 1980s recession

understanding the evolution of world business cycles abstract this paper studies the changes in world business cycles during the period 1960 2003 we employ a bayesian dynamic latent factor model to estimate common and country specific components in the main macroeconomic aggregates output consumption and investment of the g 7 countries we then quantify the relative importance of the common and country components in explaining comovement in each observable aggregate over three distinct time periods the bretton woods bw period 1960 1 1972 2 the period of common shocks 1972 3 1986 2 and the globalization period 1986 3 2003 4 the results indicate that the common g 7 factor explains on average a larger fraction of output consumption and investment volatility in the globalization period than it does in the bw period

on the effects of investment tax credits on economic efficiency and growth abstract this paper explores the overall efficiency effects of itcs in the context of a disaggregated dynamic general equilibrium simulation model of the u s economy this model postulates forward looking investment decisions and allows for optimal government borrowing and financial crowding out simulation results confirm the conventional wisdom that itcs are distortionary but challenge the equally conventional wisdom that itcs necessarily spur investment and gdp in addition results point to an important policy trade off introducing itcs without neutralizing their budgetary effects would lead to low efficiency losses but would reduce investment and gdp due to financial crowding out in turn imposition of itcs while blocking their budgetary effects would lead to relatively large efficiency losses while minimizing the negative impact on investment and gdp