time varying smooth transition autoregressive models nonlinear regime switching behavior and structural change are often perceived as competing alternatives to linearity in this article we study the so called time varying smooth transition autoregressive tv star model which can be used both for describing simultaneous nonlinearity and structural change and for distinguishing between these features two modeling strategies for empirical specification of tv star models are developed monte carlo simulations show that neither of the two strategies dominates the other a specific to general to specific procedure is best suited for obtaining a first impression of the importance of nonlinearity and or structural change for a particular time series a specific to general procedure is most useful in careful specification of a model with nonlinear and or time varying properties an empirical application to a large dataset of u s macroeconomic time series illustrates the relative merits of both modeling strategies

does the great recession imply the end of the great moderation international evidence in this paper we examine whether or not the great recession had a temporary or permanent effect on output growth volatility after years of low macroeconomic volatility since the early eighties based on break detection methods applied to a set of advanced countries our empirical results do not give evidence to the end of the great moderation period but rather that the great recession is characterized by a dramatic short lived effect on the output growth but not on its volatility we show that neglecting the breaks both in mean and in variance can have large effects on output volatility modeling based on garch specifications

perishable inventory theory a review this paper reviews the relevant literature on the problem of determining suitable ordering policies for both fixed life perishable inventory and inventory subject to continuous exponential decay we consider both deterministic and stochastic demand for single and multiple products both optimal and sub optimal order policies are discussed in addition a brief review of the application of these models to blood bank management is included the review concludes with a discussion of some of the interesting open research questions in the area

on the structure of lost sales inventory models we provide a new approach to the structural analysis of the standard lost sales inventory system this approach is we think easier to work with than the original one we also derive new bounds on the optimal policy then we show that more variable demand leads to higher cost finally we extend the analysis to several important variations of the basic model

structural breaks in the international dynamics of inflation abstract this paper proposes an iterative procedure to discriminate between structural breaks in the coefficients and the disturbance covariance matrix of a system of equations with recursive proc

the less volatile u s economy a bayesian investigation of timing breadth and potential explanations using a bayesian model comparison strategy we search for a volatility reduction in u s real gross domestic product gdp growth within the postwar sample we find that aggregate real gdp growth has been less volatile since the early 1980s and that this volatility reduction is concentrated in the cyclical component of real gdp sales and production growth in many of the components of real gdp display similar reductions in volatility suggesting the aggregate volatility reduction does not have a narrow source we also document structural breaks in inflation dynamics that occurred over a similar time frame as the gdp volatility reduction

conditional asymmetries in real gnp a seminonparametric approach two critical assumptions are often made in empirical research regarding the relationship between economic variables and economic disturbances linearity and gaussianity together these two assumptions place strong restrictions on the time series behavior of a model most important these restrictions imply conditional symmetry using seminonparametric snp techniques this article presents evidence that real gross national product growth displays conditional asymmetry although these results confirm related results of brock and sayers sichel and hamilton the snp approach is novel in that it emphasizes the relationship between common modeling assumptions and the restrictions that these assumptions place on data

analysis of tailored base surge policies in dual sourcing inventory systems we study a model of a firm managing its inventory of a single product by sourcing supplies from two supply sources a regular supplier who offers a lower unit cost and a longer lead time than a second emergency supplier a practically implementable policy for such a firm is a tailored base surge tbs policy allon g van mieghem ja 2010 global dual sourcing tailored base surge allocation to near and offshore production management sci 56 1 110 124 to manage its inventory under this policy the firm procures a constant quantity from the regular supplier in every period and dynamically makes procurement decisions for the emergency supplier allon and van mieghem describe this practice as using the regular supplier to meet a base level of demand and the emergency supplier to manage demand surges and they conjecture that this practice is most effective when the lead time difference between the two suppliers is large we confirm these statements in two ways first we show the following analytical

regional dimensions of the australian business cycle dixon r and shepherd d regional dimensions of the australian business cycle regional studies this paper deals with the identification of and explanations for co movement in regional business cycles using employment data for australian states and territories regions it shows that both raw growth rates and the deviations from a hodrick prescott trend reflect noise in the series as well as any cycle but that both can be manipulated so as to reveal their cyclical components it is found that growth rate models are dominated by noise whereas the hodrick prescott filter allows identification of the cyclical features of interest the extent of co movements in cyclical fluctuations in employment amongst the regions can be explained by regional industry structure and size of region dixon r and shepherd d hodrick prescott hodrick prescott

optimal policies for a capacitated two echelon inventory system this paper demonstrates optimal policies for capacitated serial multiechelon production inventory systems extending the clark and scarf 1960 model to include installations with production capacity limits we demonstrate that a modified echelon base stock policy is optimal in a two stage system when there is a smaller capacity at the downstream facility this is shown by decomposing the dynamic programming value function into value functions dependent upon individual echelon stock variables we show that the optimal structure holds for both stationary and nonstationary stochastic customer demand finite horizon and infinite horizon results are included under discounted cost and average cost criteria

pricing and the news vendor problem a review with extensions in the newsvendor problem a decision maker facing random demand for a perishable product decides how much of it to stock for a single selling period this simple problem with its intuitively appealing solution is a crucial building block of stochastic inventory theory which comprises a vast literature focusing on operational efficiency typically in this literature market parameters such as demand and selling price are exogenous however incorporating these factors into the mode l can provide an excellent vehicle for examining how operational problems interact with marketing issues to influence decision making at the firm level in this paper we examine an extension of the newsvendor problem in which stocking quantity and selling price are set simultaneously we provide a comprehensive review that synthesizes existing results for the single period problem and develop additional results to enrich the existing knowledge base we also review and develop insight into a dynamic inventory extension of this problem and motivate the applicability of such models

the time pattern of hedging and the volatility of futures prices the paper proposes a multi period model of hedging which allows for a futures position to be revised within the cash market holding period within this framework we assess the robustness of the two period theory of hedging when generalized to many periods we characterize the normal time path of a hedge and the way it is affected by the requirement that futures accounts mark to market daily finally we show how the resolution of production uncertainty over time affects hedging behavior and determines the volatility of futures prices in the large literature on hedging in futures markets the principal analytical accounts of hedging are framed in a two trade date setting an agent commits himself now to a future purchase or sale of a good whose cash price later is uncertain this risk is hedged by purchase or sale of an appropriate number of futures contracts and holding this futures position until the cash transaction is realized in the present paper we formulate a multi period model of hedging which allows for the futures position to be revised within the cash market holding period the resulting analysis captures an important institutional reality that is absent in a two trade date model namely the fact that the day to day fluctuations of the futures price will generate a series of random cash flows over the period during which a futures position is held this is due to the requirement that futures accounts mark to market daily within this framework we address a number of issues first we assess the robustness of the two period theory of hedging when generalized to many periods second we characterize the normal time path of a hedge and contrast futures and forward contracts from the perspective of an individual hedger finally we show how the resolution of production uncertainty over time affects hedging behaviour and determines the volatility of futures prices while the literature on asset demand in a multiperiod setting is large futures markets are specifically treated in a limited number of studies grauer and litzenberger 1976 are concerned principally with characterizing the relation of spot and futures prices in a market for a storable periodically produced commodity they offer a rationale for positive stock holding in markets where spot price exceeds the futures price richard and sundaresan 1980 are also concerned primarily with characterizing price behaviour since they posit identical consumers in equilibrium individual holdings of futures are zero there is no hedging activity in the sense that we understand it breeden 1980b analyzes the optimal futures position sizes in a multiperiod setting his framework is more general than ours in that his is a multi good multi asset model where preferences

price volatility trading volume and market depth evidence from futures markets the relations between volume volatility and market depth in eight physical and financial futures markets are examined evidence suggests that linking volatility to total volume does not extract all information when volume is partitioned into expected and unexpected components the paper finds that unexpected volume shocks have a larger effect on volatility further the relation is asymmetric the impact of positive unexpected volume shocks on volatility is larger than the impact of negative shocks finally consistent with theories of market depth the study shows large open interest mitigates volatility

have structural changes eliminated the out of sample ability of financial variables to forecast real activity after the mid 1980s evidence from the canadian economy this article evaluates how consistently reliable the information content of individual financial variables is for canada s future output growth we estimate the timing of structural changes in linear growth models and check robustness to specification changes multiple breaks and business cycle asymmetry our simulated out of sample forecast evaluation strategy using the mean square error f type mse f and the new encompassing enc new tests shows that the leading information content of most financial variables for canada s future gross domestic product gdp growth has deteriorated substantially after 1984 04 but the 1 3 year term spread exhibits a consistently reliable predictive ability at the 1 and 2 quarter horizons and has significant forecasting ability at the 8 quarter horizon also the real m1 money growth has regained its ability to forecast output growth since 1991 01

production management output volatility and good luck abstract this paper models the scale of the technology shocks as a decision variable whose value is determined by the production manager it is shown that smaller shocks enhance profit in several ways and thus the firm has an incentive to adopt more reliable production technologies the adoption of these technologies may account for the good luck hypothesis in which the stabilization of gross domestic product gdp since 1984 is attributed to smaller shocks it differs from this hypothesis in two respects first the reduced volatility should be permanent second the stabilization does not require smaller intrinsic shocks to the economy

real time inflation forecasting in a changing world this article revisits the accuracy of inflation forecasting using activity and expectations variables we apply bayesian model averaging across different regression specifications selected from a set of potential predictors that includes lagged values of inflation a host of real activity data term structure data relative price data and surveys in this model average we can entertain different channels of structural instability by either incorporating stochastic breaks in the regression parameters of each individual specification within this average or allowing for breaks in the error variance of the overall model average or both thus our framework simultaneously addresses structural change and model uncertainty that would unavoidably affect any inflation forecast model the different versions of our framework are used to model u s personal consumption expenditures pce deflator and gross domestic product gdp deflator inflation rates for the 1960 2011 period a real time inflation forecast

sources of the great moderation a time series analysis of gdp subsectors recent work finds evidence that the volatility of the u s economy fell dramatically around the first quarter of 1984 we trace the timing of this so called great moderation across many subsectors of the economy in order to better understand its root cause we find that the interest rate sensitive sectors generally experience a much earlier volatility decline than other large sectors of the economy the changes in federal reserve stabilization policies that occurred during the early 1980s support the view that an improved monetary policy played an important role in stabilizing real economic activity we find only mild evidence that good luck was important and little evidence to support the claim that improved inventory management was important

the great diversification and its undoing we investigate the hypothesis that macroeconomic fluctuations are primitively the results of many microeconomic shocks we define fundamental volatility as the volatility that would arise from an economy made entirely of idiosyncratic sectoral or firm level shocks fundamental volatility accounts for the swings in macroeconomic volatility in the major world economies in the past half century it accounts for the great moderation and its undoing the initial great moderation is due to a decreasing share of manufacturing between 1975 and 1985 the recent rise of macroeconomic volatility is chiefly due to the growth of the financial sector jel e23 e32 e44 this article explores the hypothesis that changes in the microeconomic composition of the economy during the postwar period can account for the great moderation and its unraveling both in the united states and in the other major world economies we call fundamental volatility the volatility that would be derived only from microeconomic shocks if aggregate shocks come in large part from microeconomic shocks augmented by amplification mechanisms then aggregate volatility should track fundamental volatility to operationalize this idea the key quantity we consider which constitutes one departure from other studies is the following definition of fundamental volatility

analysis of supply contracts with minimum total order quantity commitments and non stationary demands abstract in this paper we address a buyer supplier arrangement of particular importance total order quantity commitment toqc under the toqc contract that has been negotiated between the buyer and the supplier the former agrees to an obligation to procure a certain quantity of an item from the latter over the predetermined period of time additional quantity can be obtained maybe at a different price the optimal inventory replenishment policy is shown to be dual order up to levels under a given toqc and the optimal toqc is also demonstrated to be mathematically straightforward to obtain

worldwide macroeconomic stability and monetary policy rules we study the interaction of multiple large economies in dynamic stochastic general equilibrium each economy has a monetary policymaker that attempts to control the economy through the use of a linear nominal interest rate feedback rule we show how the determinacy of worldwide equilibrium depends on the joint behavior of policymakers worldwide we also show how indeterminacy exposes all economies to endogenous volatility even ones where monetary policy may be judged appropriate from a closed economy perspective we construct and discuss two quantitative cases in the 1970s worldwide equilibrium was characterized by a two dimensional indeterminacy despite u s adherence to a version of the taylor principle in the last 15 years worldwide equilibrium was still characterized by a one dimensional indeterminacy leaving all economies exposed to endogenous volatility our analysis provides a rationale for a type of international policy coordination and the gains to coordination in the sense of avoiding indeterminacy may be large

dynamic inventory management with total minimum order commitments and two supply options we study optimal policies for dual supply inventory systems where a firm commits to buying a total minimum quantity from both supplies or two separate total minimum quantities from each supply over a finite planning horizon the two supply options differ in their costs and lead times for the system under the joint commitment the optimal policy has a simple structure and can be fully characterized by three critical numbers in each period for the system under the separate commitments we show that the optimal order quantities in each period are monotonic in the starting inventory and the remaining commitments with bounded sensitivity moreover we establish convergence results on the optimal order quantities when the committed quantity from either supply approaches infinity these findings highlight the effects of order commitments on the optimal inventory policies on the basis of these results we develop a simple heuristic for the system under separate commitments and show numerically that it performs

testing for volatility changes in u s macroeconomic time series we test for a change in the volatility of 214 u s macroeconomic time series over the period 1959 1999 we find that approximately 80 of these series have experienced a break in unconditional volatility during this period even though more than half of the series experienced a break in conditional mean most of the reduction in volatility appears to be due to changes in conditional volatility our results are robust to controlling for business cycle nonlinearity in both mean and variance volatility changes are more appropriately characterized as instantaneous breaks than as gradual changes nominal variables such as inflation and interest rates experienced multiple volatility breaks and witnessed temporary increases in volatility during the 1970s on this evidence we conclude that the increased stability of economic fluctuations is widespread

testing for weak form efficiency of crude palm oil spot and future markets new evidence from a garch unit root test with multiple structural breaks there is a sizeable literature that tests for weak form efficiency in commodity and energy spot and future prices while many studies now allow for multiple structural breaks to address the criticism that conventional unit root tests have low power to reject the unit root null in the presence of structural change the extant literature overlooks the fact that conventional unit root tests are biased in the presence of conditional heteroscedasticity we apply a recently developed generalized autoregressive conditional heteroscedasticity garch unit root test with multiple structural breaks to crude palm oil spot and future prices and find much more evidence against weak form efficiency than that found using tests that fail to allow for conditional heteroscedasticity our results point to the importance of allowing for heteroscedasticity when testing for efficiency in commodity and energy spot and future prices

myopic optimal policy for a multi period two delivery lead times stochastic inventory problem with minimum cumulative commitment and capacity abstract this paper studies a single product multi period stochastic inventory problem that imposes the lower and upper bounds on the cumulative order quantity during a planning horizon and allows two delivery lead times this model includes three features the first one is that a buyer purchases a fixed capacity from a supplier at the beginning of a planning horizon and the buyer s total cumulative order quantity during the planning horizon is constrained with the capacity the second one is that the buyer agrees to purchase the product at least a certain percentage of the purchased capacity during the planning horizon the third one is that the supplier allows the buyer to order the product with two delivery lead times we identify conditions under which a myopic ordering policy is optimal we also develop an algorithm to calculate the optimal capacity when the minimum cumulative order quantity commitment is a certain percentage of the capacity we then use the algorithm to evaluate the effect of the various parameters on the buyer s minimum expected total cost during the planning horizon our computation shows that the buyer would benefit from the commitments and two delivery lead times

extracting a robust u s business cycle using a time varying multivariate model based bandpass filter we develop a flexible business cycle indicator that accounts for potential time variation in macroeconomic variables the coincident economic indicator is based on a multivariate trend cycle decomposition model and is constructed from a moderate set of us macroeconomic time series in particular we consider an unobserved components time series model with a common cycle that is shared across different time series but adjusted for phase shift and amplitude the extracted cycle can be interpreted as a model based bandpass filter and is designed to emphasize the business cycle frequencies that are of interest to applied researchers and policymakers stochastic volatility processes and mixture distributions for the irregular components and the common cycle disturbances enable us to account for the heteroskedasticity present in the data forecasting results are presented for a set of different specifications point forecasts from the preferred model indicate a future recession with the uncertainty over the business cycle growing quickly as the forecast horizon increases copyright 2010 john wiley sons ltd

the effect of seasonal adjustment on the properties of business cycle regimes we study the impact of seasonal adjustment on the properties of business cycle expansion and recession regimes using analytical simulation and empirical methods analytically we show that the x 11 adjustment filter both reduces the magnitude of change at turning points and reduces the depth of recessions with specific effects depending on the length of the recession a monte carlo analysis using markov switching models confirms these properties with particularly undesirable effects in delaying the recognition of the end of a recession however seasonal adjustment can help to clarify the true regime when this is well underway these results continue to hold when a seasonally non stationary process with regime dependent mean is misspecified as one with deterministic seasonal effects the empirical findings based on four coincident us business cycle indicators reinforce the analytical and simulation results by showing that seasonal adjustment leads to the identification of longer and shallower recessions than obtained using unadjusted data copyright 2008 john wiley sons ltd

estimating potential output core inflation and the nairu as latent variables this article proposes a new method to obtain estimates of the nairu the core inflation rate and the trend investment rate for the united states using an unobserved components model that is compatible with the usual decomposition of real gross domestic product into trend and cycle the model includes okun s law a forward looking phillips curve and an accelerator type investment equation and accounts for some volatility breaks in two components the unknown parameters in the model are estimated by maximum likelihood using a kalman filter initialized with a partially diffuse prior and the unobserved components are estimated using a smoothing algorithm our results show that the output gap is positively correlated with the deviations of the investment rate from its trend and the inflation rate from core inflation and negatively correlated with the deviations of the unemployment rate from the nairu

testing for multiple regimes in the tail behavior of emerging currency returns it is by now generally accepted that foreign exchange returns exhibit heavy tails as measured by the so called tail index however it is unclear whether the tail behavior remains stationary in the presence of recurrent switches in the exchange rate regime we therefore test the null hypothesis of tail index constancy by applying a single breaks test in rounds which enables the detection of multiple breakpoints we are able to identify multiple jumps in the tail index of currency returns moreover some breaks coincide with documented shifts in monetary and exchange rate policies

market models and heteroscedasticity of residual security returns bickel s tests provide attractive robust alternatives to traditional tests of heteroscedasticity nyse securities have homoscedastic residuals once nonnormality of security returns is allowed some portfolio designs may generate some heteroscedastic residuals but this heteroscedasticity is reduced by the kraus litzenberger quadratic market model this result suggests a misspecification in the traditional market model

conditional convergence in us disaggregated petroleum consumption at the sector level abstractwe test for convergence in disaggregated petroleum consumption at the sector level for the united states using the recently proposed garch unit root test suitable for high frequency data we find evidence of convergence for just over half of the series including total petroleum consumption in each sector and approximately three quarters of the disaggregated petroleum consumption series in transportation

how does germany s green energy policy affect electricity market volatility an application of conditional autoregressive range models abstract based on a dynamic model for the high low range of electricity prices this article analyses the effects of germany s green energy policy on the volatility of the electricity market using european energy exchange data from 2000 to 2015 we find rather high volatility in the years 2000 2009 but also that the weekly price range has significantly declined in the period following the year 2009 this period is characterised by active regulation under the energy industry law enwg the eu emissions trading directive etd and the renewable energy law eeg in contrast to the preceding period price jumps are smaller and less frequent especially for day time hours implying that current policy measures are effective in promoting renewable energies while simultaneously upholding electricity market stability this is because the regulations strive towards a more and more flexible and market oriented structure which allows better integration of renewable energies and supports an efficient alignment of renewable electricity supply with demand

industry evidence of enhanced production stability since 1984 abstract mcconnell and perez quiros have recently provided evidence that the growth rate of gdp has stabilized since 1984 they conclude that the enhanced stability can be attributed to improvements in inventory management in the durables sector this study examines the behavior of output in two digit sic manufacturing industries in an effort to determine whether this increase in stability is evident in less aggregated data after accounting for changes in demand volatility output stabilized in four of the six 2 digit durables industries modeled here total durables output stabilized by 9 these improvements appear to be the result of milder short run output responses to demand shocks this suggests that output has become less responsive to demand shocks and casts doubt on enhanced flexibility of production that should be characteristic of improved production management

financial amplification of foreign exchange risk premia abstract theories of financial frictions in international capital markets suggest that financial intermediaries balance sheet constraints amplify fundamental shocks we present empirical evidence for such theories by decomposing the u s dollar risk premium into components associated with macroeconomic fundamentals and a component associated with financial intermediary balance sheets relative to the benchmark model with only macroeconomic state variables balance sheets amplify the u s dollar risk premium we discuss applications to financial stability monitoring

measuring and predicting heterogeneous recessions this paper examines the usefulness of a more refined business cycle classification for monthly industrial production ip beyond the usual distinction between expansions and contractions univariate markov switching models show that a three regime model is more appropriate than a model with only two regimes interestingly the third regime captures severe recessions contrasting the conventional view that the additional third regime represents a recovery phase this is confirmed by means of markov switching vector autoregressive models that allow for phase shifts between the cyclical regimes of ip and the conference board s leading economic index lei the timing of the severe recession regime mostly corresponds with periods of substantial financial market distress and severe credit squeezes providing empirical evidence for the financial accelerator theory

heteroskedasticity robust panel unit root tests this article proposes new unit root tests for panels where the errors may be not only serial and or cross correlated but also unconditionally heteroscedastic despite their generality the test statistics are shown to be very simple to implement requiring only minimal corrections and still the limiting distributions under the null hypothesis are completely free from nuisance parameters monte carlo evidence is also provided to suggest that the new tests perform well in small samples also when compared to some of the existing tests supplementary materials for this article are available online

could the global financial crisis improve the performance of the g7 stocks markets abstractfinancial crises are normally associated with negative effects on financial markets in this article we investigate whether the most recent global financial crisis gfc had any positive impact on the g7 canada france germany italy japan the united kingdom and the united states indices to conduct the analysis we employ the mean variance mv analysis capm statistics hurst exponent runs test multiple variation ratio test and stochastic dominance sd tests our mv and capm results conclude that most of the g7 stock indices are significantly less volatile the results from hurst exponent run tests and multiple variation ratio confirm that efficiency improved in the post gfc period finally our sd results conclude that there is no arbitrage opportunity and the markets are efficient due to the gfc and in general investors prefer investing in the indices after the gfc overall we conclude that the gfc led to markets that are more efficient and mature confirming that crises can also

on the optimal policy structure in serial inventory systems with lost sales we study a periodically reviewed serial inventory system in which excess demand from external customers is lost we derive elementary properties of the vector of optimal order quantities in this system in particular we derive bounds on the sensitivity or more mathematically the derivative of the optimal order quantity at each stage to the vector of the current inventory levels our analysis uses the concept of l natural convexity which was studied in discrete convex analysis and recently used in the study of single stage inventory systems with lost sales we also remark on how our analysis extends to models with capacity constraints and or backordering

the asian debt and development crisis of 1997 causes and consequences abstract interpretations of the asian crisis have coalesced around two rival stories the death throes of asian state capitalism story about internal real economy causes and the panic triggering debt deflation in a basically sound but under regulated system story that gives more role to external and financial system causes the paper presents the stories and assesses the evidence the evidence in particular the chronology of the crisis supports the second rather better than the first the paper discusses the interests driving capital account liberalization without a framework of regulation the single most irresponsible act of public authorities in the whole crisis us and uk financial firms allied with their treasuries and with the imf the wto and the oecd saw themselves at a chronic disadvantage in the asian system of long term relationships and patient capital this alliance supported by segments of asian political and financial elites achieved dramatic domestic financial sector liberalization and capital account opening in asia over the 1990s setting up the conditions for crisis paradoxically the crisis may be looked back upon not as the triumph of benign globalization and neoliberal economic doctrine but as the beginning of its end

new policies for the stochastic inventory control problem with two supply sources we study an inventory system under periodic review in the presence of two suppliers or delivery modes the emergency supplier has a shorter lead time than the regular supplier but the unit price he offers is higher excess demand is backlogged we generalize the recently studied class of dual index policies veeraraghavan s a scheller wolf 2008 now or later dual index policies for capacitated dual sourcing systems oper res 56 4 850 864 by proposing two classes of policies the first class consists of policies that have an order up to structure for the emergency supplier we provide analytical results that are useful for determining optimal or near optimal policies within this class this analysis and the policies we propose leverage our observation that the classical lost sales inventory problem is a special case of this problem the second class consists of policies that have an order up to structure for the regular supplier here we derive bounds on the optimal order quantity from the emergency supplier in any period and use these bounds for finding effective policies within this class finally we undertake an elaborate computational investigation to compare the performance of the policies we propose with that of dual index policies one of our policies provides an average cost saving of 1 1 over the best dual index policy and has the same computational requirements another policy that we propose has a cost performance similar to the best dual index policy but its computational requirements are lower

an elasticity approach to the newsvendor with price sensitive demand we introduce a measure of elasticity of stochastic demand called the elasticity of the lost sales rate which offers a unifying perspective on the well known newsvendor with pricing problem this new concept provides a framework to characterize structural results for coordinated and uncoordinated pricing and inventory strategies concavity and submodularity of the profit function as well as sensitivity properties of the optimal inventory and price policies are characterized by monotonicity conditions or bounds on the elasticity of the lost sales rate these elasticity conditions are satisfied by most relevant demand models in the marketing and operations literature our results unify and complement previous work on price setting newsvendor models and provide a new tool for researchers modeling stochastic price sensitive demand in other contexts

combined pricing and inventory control under uncertainty this paper addresses the simultaneous determination of pricing and inventory replenishment strategies in the face of demand uncertainty more specifically we analyze the following single item periodic review model demands in consecutive periods are independent but their distributions depend on the item s price in accordance with general stochastic demand functions the price charged in any given period can be specified dynamically as a function of the state of the system a replenishment order may be placed at the beginning of some or all of the periods stockouts are fully backlogged we address both finite and infinite horizon models with the objective of maximizing total expected discounted profit or its time average value assuming that prices can either be adjusted arbitrarily upward or downward or that they can only be decreased we characterize the structure of an optimal combined pricing and inventory strategy for all of the above types of models we also develop an efficient value iteration method to compute these optimal strategies finally we report on an extensive numerical study that characterizes various qualitative properties of the optimal strategies and corresponding optimal profit values

cyclical patterns in the variance of economic activity this article models the conditional mean and variance of real gross national product gnp and its components using asymmetric exponential generalized autoregressive conditional hetero scedasticity a model previously applied only to financial variables the results imply that the variance of real gnp is higher following negative innovations than positive innovations and that this asymmetry arises in the cyclically sensitive sectors further evidence links this asymmetry to the phase of the business cycle the conditional variance appears to be largest around business cycle troughs in addition shocks to the conditional variance of gnp and its components typically persist for long periods the evidence of asymmetry in conditional variance is robust to a variety of alternative specifications

are statistical reporting agencies getting it right data rationality and business cycle asymmetry this article provides new evidence on the rationality of early releases of industrial production ip and producer price index ppi data rather than following the usual practice of examining only first available and fully revised data we examine the entire revision history for each variable thus we are able to assess for example whether earlier releases of data are in any sense less rational than later releases and when data become rational our findings suggest that seasonally unadjusted ip and ppi become rational after approximately 3 4 months whereas seasonally adjusted versions of these series remain irrational for at least 6 12 months after initial release for all variables examined we find evidence that the remaining revision is predictable from its own past or from publicly available information in other economic and financial variables in addition we find a clear increase in the volatility of revisions during recessions suggesting that early data releases are less reliable in toughe

refitting the kuznets curve using a gender specific threshold model abstractprevious studies have reached mixed conclusions regarding the relationship between inequality and per capita income these studies however fail to consider gender differences in income inequality and how these may impact on the relationship between income inequality and per capita income using australian taxation statistics we derive three sets of gini coefficients i e female male and total for the period 1950 2013 we then examine the relationship between inequality and real per capita income and find that a gender specific threshold panel regression outperforms three other conventional models our findings suggest that one set of coefficients does not fit all in that the use of aggregate and constant coefficients may mask variations within and between gender inequality over time

s s optimality in joint inventory pricing control an alternate approach we study a stationary single stage inventory system under periodic review with fixed ordering costs and multiple sales levers such as pricing advertising etc we show the optimality of s s type policies in these settings under both the backordering and lost sales assumptions our analysis is constructive and is based on a condition that we identify as being key to proving the s s structure this condition is entirely based on the single period profit function and the demand model our optimality results complement the existing results in this area

tests of market models heteroskedasticity or misspecification abstract this paper investigates the nature and the incidence of heteroskedasticity and misspecification in the market models by utilizing tests that are generally applicable the results show that heteroskedasticity appears more frequently than misspecification even though both are serious problems the evidence also indicates that the use of a quadratic market model or equally weighted market returns may lead to a smaller percentage of heteroskedastic cases but that in general this advantage has to be offset against an increase in the occurrence of specification errors small firms and january returns are also observed to produce a higher incidence of both heteroskedasticity and misspecification

measuring network systemic risk contributions a leave one out approach abstract the aim of this paper is to propose a new network measure of systemic risk contributions that combines the pair wise granger causality approach with the leave one out concept this measure is based on a conditional granger causality test and consists of measuring how far the proportion of statistically significant connections in the system breaks down when a given financial institution is excluded we analyse the performance of our measure of systemic risk by considering a sample of the largest banks worldwide over the 2003 2018 period we obtain three important results first we show that our measure is able to identify a large number of banks classified as global systemically important banks g sibs by the financial stability board fsb second we find that our measure is a robust and statistically significant early warning indicator of downside returns during the last financial crisis finally we investigate the potential determinants of our measure of systemic risk and find similar results to the existing literature in particular our empirical results suggest that the size and the business model of banks are significant drivers of systemic risk

nonlinearities and nonstationarities in stock returns this article addresses the question of whether recent findings of nonlinearities in high frequency financial time series have been contaminated by possible shifts in the distribution of the data it applies a recursive version of the brock dechert scheinkman statistic to daily data on two stock market indexes between january 1980 and december 1990 it is shown that october 1987 is highly influential in the characterization of the stock market dynamics and appears to correspond to a shift in the distribution of stock returns sampling experiments show that simple linear processes with shifts in variance can replicate the behavior of the tests but autoregressive conditional heteroscedastic filters are unable to do so

technical note optimal dynamic joint inventory pricing control for multiplicative demand with fixed order costs and lost sales this note studies the optimal dynamic decision making problem for a retailer in a price sensitive multiplicative demand framework our model incorporates lost sales holding cost fixed and variable procurement costs as well as salvage value we characterize the structure of the retailer s discounted expected profit maximizing dynamic inventory policy for both finite and infinite selling horizon problems

coordinating inventory control and pricing strategies with random demand and fixed ordering cost the finite horizon case we analyze a finite horizon single product periodic review model in which pricing and production inventory decisions are made simultaneously demands in different periods are random variables that are independent of each other and their distributions depend on the product price pricing and ordering decisions are made at the beginning of each period and all shortages are backlogged ordering cost includes both a fixed cost and a variable cost proportional to the amount ordered the objective is to find an inventory policy and a pricing strategy maximizing expected profit over the finite horizon we show that when the demand model is additive the profit to go functions arek concave and hence an s s p policy is optimal in such a policy the period inventory is managed based on the classical s s policy and price is determined based on the inventory position at the beginning of each period for more general demand functions i e multiplicative plus additive functions we demonstrate that the profit to go function is not necessarilyk concave and an s s p policy is not necessarily optimal we introduce a new concept the symmetrick concave functions and apply it to provide a characterization of the optimal policy

is income inequality persistent evidence using panel stationarity tests 1870 2011 using data on inequality for 21 oecd countries over the period 1870 2011 this paper tests the piketty hypothesis that income inequality is likely to grow in the 21st century it is shown that the null hypothesis of trend stationarity of inequality cannot be rejected at conventional significance levels suggesting that shocks to income inequality are likely to be temporary

structural change tests in tail behaviour and the asian crisis this paper explores tests of the hypothesis that the tail thickness of a distribution is constant over time using hill s conditional maximum likelihood estimator for the tail index of a distribution tests of tail shape constancy are constructed that allow for an unknown breakpoint the recursive test is shown to be inconsistent in one direction and only a one sided test is recommended specifically the test can be used when the alternative hypothesis is that the tail index decreases over time a rolling and sequential version of the test is consistent in both directions the methods are illustrated on recent stock price data for thailand malaysia and indonesia the period covers the recent asian financial crisis and enables us to assess whether breakpoints in domestic asset return distributions are related to known changes in institutional arrangements in the foreign currency markets of these countries

structural changes in the time series of food prices and volatility measurement volatility in product prices is of considerable interest in the food and agricultural policy arena standard deviation sd type of measures including variance and the coefficient of variation have been commonly used for estimating realized volatility these methods are relatively simple to calculate and focus on the width of the data despite these merits they have a shortcoming in that the statistics can be amplified when the time series is nonstationary this study suggests a new way to measure price variation the structural breaks in the unconditional mean of a time series are determined and then the conventional sd type of measures for each regime are calculated this method addresses the weak point of the sd type of measure and is a competitive alternative to the conditional variance type or the trend deviation type of measures when the time series at comparison have notably different data generating processes or have nonstationarity

the relationships between permanent and transitory movements in u s output and the unemployment rate this paper estimates the permanent and transitory movements in u s output and the unemployment rate and the relationships between them the results suggest that permanent movements in u s output and the unemployment rate are important for explaining overall fluctuations further the correlation between changes in these series arises in large part due to the relationship between their permanent components

bayesian counterfactual analysis of the sources of the great moderation we use counterfactual experiments to investigate the sources of the large volatility reduction in us real gdp growth in the 1980s contrary to an existing literature that conducts counterfactual experiments based on classical estimation and point estimates we consider bayesian analysis that provides a straightforward measure of estimation uncertainty for the counterfactual quantity of interest using blanchard and quah s 1989 structural var model of output growth and the unemployment rate we find strong statistical support for the idea that a counterfactual change in the size of structural shocks alone with no corresponding change in the propagation of these shocks would have produced the same overall volatility reduction as what actually occurred looking deeper we find evidence that a counterfactual change in the size of aggregate supply shocks alone would have generated a larger volatility reduction than a counterfactual change in the size of aggregate demand shocks alone we show that these results are consistent with a standard monetary var for which counterfactual analysis also suggests the importance of shocks in generating the volatility reduction but with the counterfactual change in monetary shocks alone generating a small reduction in volatility copyright 2007 john wiley sons ltd

electricity market structure electricity price and its volatility abstract the transition of the singapore electricity market structure shows that real time pricing with vesting contracts appears more effective than day ahead or real time pricing with a cap in maintaining a low electricity price and its volatility

coordinating inventory control and pricing strategies for perishable products we analyze a joint pricing and inventory control problem for a perishable product with a fixed lifetime over a finite horizon in each period demand depends on the price of the current period plus an additive random term inventories can be intentionally disposed of and those that reach their lifetime have to be disposed of the objective is to find a joint pricing ordering and disposal policy to maximize the total expected discounted profit over the planning horizon taking into account linear ordering cost inventory holding and backlogging or lost sales penalty cost and disposal cost employing the concept of l concavity we show some monotonicity properties of the optimal policies our results shed new light on perishable inventory management and our approach provides a significantly simpler proof of a classical structural result in the literature moreover we identify bounds on the optimal order up to levels and develop an effective heuristic policy numerical results show that our heuristic policy performs well in both stationary and nonstationary settings finally we show that our approach also applies to models with random lifetimes and inventory rationing models with multiple demand classes

long term asset tail risks in developed and emerging markets a power law typically governs the tail decay of financial returns but the constancy of the so called tail index which dictates the tail decay remains relatively unexplored we study the finite sample properties of some recently proposed endogenous tests for structural change in the tail index given that the finite sample critical values strongly depend on the tail parameters of the return distribution we propose a bootstrap based version of the structural change test our empirical application spans developed and emerging financial asset returns somewhat surprisingly emerging stock market tails are not more inclined to structural change than their developed counterparts emerging currency tails on the contrary do exhibit structural shifts in contrast to developed currencies our results suggest that extreme value theory evt applications in hedging tail risks can assume stationary tail behavior over long time spans provided one considers portfolios that solely consist of stocks or bonds

testing for covariance stationarity in stock market data abstract this paper proposes several non parametric tests for covariance stationarity and applies them to common stock return data from 1834 1987 recursive variance plots post sample prediction tests cumulative sum henceforth cusum tests and modified scaled range tests all show strong non stationarity in stock returns primarily due to the large increase in volatility during the great depression these tests should be useful as diagnostics for data where the assumptions underlying the desired statistical procedure require stationarity

unit root properties of crude oil spot and futures prices in this article we examine whether wti and brent crude oil spot and futures prices at 1 3 and 6 months to maturity contain a unit root with one and two structural breaks employing weekly data over the period 1991 2004 to realise this objective we employ lagrange multiplier lm unit root tests with one and two endogenous structural breaks proposed by lee and strazicich 2003 minimum lagrange multiplier unit root test with two structural breaks review of economics and statistics 85 1082 1089 2004 minimum lm unit root test with one structural break working paper no 04 17 department of economics appalachian state university we find that each of the oil price series can be characterised as a random walk process and that the endogenous structural breaks are significant and meaningful in terms of events that have impacted on world oil markets

dynamic pricing in the presence of inventory considerations research overview current practices and future directions the benefits of dynamic pricing methods have long been known in industries such as airlines hotels and electric utilities where the capacity is fixed in the short term and perishable in recent years there has been an increasing adoption of dynamic pricing policies in retail and other industries where the sellers have the ability to store inventory three factors contributed to this phenomenon 1 the increased availability of demand data 2 the ease of changing prices due to new technologies and 3 the availability of decision support tools for analyzing demand data and for dynamic pricing this paper constitutes a review of the literature and current practices in dynamic pricing given its applicability in most markets and its increasing adoption in practice our focus is on dynamic intertemporal pricing in the presence of inventory considerations

asymmetric business cycles theory and time series evidence abstract we offer a theory of economic fluctuations based on intertemporal increasing returns agents who have been active in the past face lower costs of action today this specification explains the observed persistence in individual and aggregate output fluctuations even in the presence of i i d shocks because individuals respond to the same shock differently depending on their recent past experience the exact process for output the sharpness of turning points and the degree of asymmetry are determined by the form of heterogeneity our general formulation under certain assumptions reduces to a number of popular state space unobserved components models we find that on us data our general formulation performs better than many of the existing econometric models largely because it allows sharper downturns and more pronounced asymmetries than linear models and is smoother than discrete regime shift models our estimates imply that only modest intertemporal returns are needed for our model to explain us gnp and that heterogeneity across agents plays an important role in the propagation of business cycle shocks

evidence of heteroscedasticity and mis specification issues in the market model results from the athens stock exchange the traditional tests and the relevant explanations given by researchers on the basis of their empirical results in cases where there is evidence of heteroscedasticity and surrounding mis specification issues in the market model is investigated and criticized to this purpose data from the athens stock exchange are used to get meaningful comparisons and results the authors first apply the classical heteroscedasticity and mis specification tests used in the literature by researchers and analyse the results also under a classical view they then apply more recent and efficient tests to find out contradictions and disproportions between the former and the latter tests as well as to draw comments and conclusions supplementary to the existing evidence and to propose other appropriate ways for estimation and specification of the market model it appears as a general conculsion of the authors work that singnificant distortions are observed in the traditional market model when it is used in small but con

non renewable resource prices deterministic or stochastic trends in this paper we examine temporal properties of 11 natural resource real price series from 1870 to 1990 recent studies by ahrens and sharma trends in natural resource commodity prices deterministic or stochastic j environ econom manage 33 1997 59 74 berck and roberts natural resource prices will they ever turn up j environ econom manage 31 1996 65 78 and slade grade selection under uncertainty least cost last and other anomalies j environ econom manage 15 1988 189 205 among others find that many non renewable resource prices have a stochastic trend we revisit this issue by employing a lagrangian multiplier unit root test that allows for two endogenously determined structural breaks with and without a quadratic trend contrary to previous research we find evidence against the unit root hypothesis for all price series our findings support characterizing natural resource prices as stationary around deterministic trends with structural breaks we additionally show that both pre testing for unit roots with breaks and allowing for breaks in the forecast model can improve forecast accuracy overall the results in this paper are important in both a positive and normative sense without an appropriate understanding of the dynamics of a time series empirical verification of theories forecasting and proper inference are potentially fruitless

the overvaluation of purchasing power parity abstract recent panel studies of purchasing power parity have reported strong evidence of mean reversion in real exchange rates however these studies fail to control for cross sectional dependence in the data this failure has dramatic consequences raising the significance level of tests with a nominal size of 5 percent to as much as 50 percent it is shown in this paper that controlling for cross sectional dependence no evidence against the random walk null can be found in panels of up to 64 real exchange rates this finding cannot be attributed to low power as there is ample power in panels of this size to reject the unit root null