macroeconomic effects of precautionary demand for oil summary we evaluate the macroeconomic effects of shocks specific to the oil market which mainly reflect fluctuations in precautionary demand for oil driven by uncertainty about future supplies a two stage identification procedure is used first daily changes in the futures spot price spread proxy for precautionary demand shocks and the path of oil prices is estimated this information is then exploited to restrict the oil price response in a vector autoregression impulse responses suggest that such shocks reduce output and raise prices historical decomposition shows that they contributed significantly to the us recessions in the 1990s and in the early 2000s but not to the most recent slump copyright 2014 john wiley sons ltd

the role of market expectations in commodity price dynamics evidence from oil data abstract this paper examines the contribution of market expectations to commodity price dynamics it proposes a dynamic competitive storage framework with an explicit expectations shock along with concurrent shocks to study the commodity price movements this allows for a refined analysis of the expectations effect on price and inventory and the estimation of the expectations applied to the world crude oil market it finds that the contribution of market expectations to the crude oil spot price movements is limited from 1987 to 2014

on the efficiency of futures markets another view abstract one definition of market efficiency holds that today s price of an item contains all the price information that there is about that item that is today s price contains information about people s expectations about the future however in estimating price equations analysts almost exclusively look to the past in developing price forecasting models this paper examines the question how do futures prices affect today s price for heating oil that is do futures markets add to the efficiency of markets by conveying information from the future to the present

foreign ownership and the theory of trade and welfare some standard topics in the theory of international trade are reconsidered in this paper by distinguishing between national and aggregate income when fixed supplies of foreign inputs are present within the home country under conditions that would ensure a national welfare gain if foreign ownership were absent international transfer economic growth or tariff policy might cause a national welfare loss in the presence of foreign ownership the techniques developed could be applied to other domestic distinctions such as those based on race sex age or ethnicity and to the theory of customs unions in a three country world

sense and surprise in competitive trade theory 2010 weai presidential address i introduction the competitive theory of international trade is well known for its abundance of paradoxes perhaps the most widely known is the leontief paradox associated with the rather startling results presented by leontief 1953 that the trade pattern of the united states suggested that its export sectors were more labor intensive than factor proportions found in its import competing sectors this result stimulated decades of research but is not the focus of the present paper other so called paradoxes include the metzler 1949 result wherein a country levying a tariff on an imported item may end up with a lowering of its domestic price that is a tariff may not be protective 1 lerner 1936 who earlier hinted at the metzler outcome emphasized the possibility that a tariff might instead worsen a country s terms of trade which is at the opposite extreme to the metzler result both of these paradoxes are attributed to possible income effects in demand more recently income effects stemming from asymmetry in demand patterns among countries were shown to open the door to paradoxical results if one country makes a transfer to another in a world in which other countries are also engaged in trade in the same commodities the surprising results the giver in the transfer might end up better off i e it may pay to give rather than to receive and or the recipient of the transfer may end up worse off 2 finally a classic result that does not depend on asymmetries in taste patterns but rather upon the degree of elasticity in demand and the nature of growth is the question of whether a country that unequivocally grows transformation schedule shifts out can be made worse off as a consequence of growth the so called immiserizing growth paradox 3 this is an issue familiar to particular sectors of the economy for example agriculture can a good harvest yield lower returns because of the subsequent price fall instead of revisiting these familiar paradoxes here i wish to concentrate on the production side of competitive models used in international trade and to focus on the question involving ways of judging economic models clearly the question of realism often comes up whether it is in terms of assumptions made or of outcomes expected here i suggest a different criterion does the model conform in many ways to common sense that is would one be tempted to suggest that the model is not necessary because common sense would lead to the same results and if it does do the outcomes in certain scenarios seem to be paradoxical or surprising if so can the model reveal in simple terms why these somewhat surprising results make sense 4 i shall restrict myself to a pair of basic models of production used in competitive trade theory the specific factors model on the one hand and the heckscher ohlin model on the other i shall argue that in many ways both conform to common sense but in addition provide the very tools that expose the underlying rationale for surprise ii a preliminary question consider any economy that is characterized by competitive markets and constant returns to scale technology suppose for such an economy there is an increase in the factor endowment bundle to fix on an example suppose there is an increase in the economy s labor force the very general question i wish to ask is how does such an economy absorb this increased endowment to maintain full employment of all factors note that if this economy is not engaged in international trade there will likely result a change in commodity prices as they adjust in order to equilibrate local supply and demand given the points i wish to make later let me assume that the country is engaged in free trade with the rest of the world if this economy were particularly small world prices could be taken as given even if world prices are disturbed it is legitimate to ask how the economy absorbs the extra supplies before any change in commodity prices takes place

exchange rate and wage price dynamics a theoretical analysis and an econometric investigation abstract this paper is an attempt to analyze inflation dynamics in a small open economy as the result of the interaction between wage and price determination behaviors and the interest rate exchange rate feedback in the context of dornbusch s model an extended version of this model is specified and analyzed formally then the model is estimated for five oecd countries using a full information maximum likelihood technique finally simulations of the effect of monetary shocks are presented for four countries

physical market determinants of the price of crude oil and the market premium abstract we analyze the determinants of the real price of crude oil by means of an equilibrium correction model over the last two decades where we focus on the aspects of the physical market that impact on the clearing price we find that two cointegrating relations affect the changes in prices one refers to opec s behavior attempting to control prices using its market power and quotas the other to the coverage rate of oecd expected future demand using inventory behaviors we derive a forecasting equation for the change in oil prices which we use to assess the speculative elements of the price increases of the period 2000 05 we show that worries alien to the physical markets were the causes of the increase in oil prices and we quantify their overall impact

the value of corporate risk management we model and estimate the value of corporate risk management we show how risk management can add value when revenues and costs are nonlinearly related to prices and estimate the model by regressing quarterly firm sales and costs on the second and higher moments of output and input prices for a sample of 34 oil refiners we find that hedging concave revenues and leaving concave costs exposed each represent between 2 and 3 of firm value we validate our approach by regressing tobin s q on the estimated value and level of risk management and find results consistent with the model

input and output inventories abstract this paper presents a new stage of fabrication inventory model with delivery usage and stocks of input materials that distinguishes between gross production and value added it extends the linear quadratic model of output inventories by adding the joint determination of input inventories empirically input inventories are more important than output inventories maximum likelihood estimation of the decision rules yields correctly signed and significant parameter estimates using data for nondurable and durable goods industries but the overidentifying restrictions of the model are rejected the value added specification dominates because adjustment costs on materials usage are critical to fitting the data

valuing managerial flexibility an application of real option theory to mining investments abstract the value of managerial flexibility is assessed using data on prices costs grades reserves ore extraction and metal output for a panel of canadian copper mines a real option model is estimated and solved for project and option values most empirical researchers i consider the initial investment decision but neglect flexible operation thereafter ii assume that price is stochastic but ignore cost and reserve uncertainty and iii model price as a nonstationary stochastic process the evolution of three state variables price cost and reserves is assessed here differences in assumptions compared to others are found to lead to large differences in estimated project and option values

the cyclical behavior of prices and quantities the case of the automobile market abstract this paper aims at understanding the joint behavior of prices and quantities in a particular market it examines whether we can find decision problems for suppliers and buyers together with a market structure which are consistent with observed price and quantity series because of the homogeneity of the product and the quality of the data we study the automobile market we conclude that the behavior of prices is inconsistent with simple market structures prices appear to be too sticky we then consider potential explanations none appears completely satisfactory in particular costs of changing prices do not explain the joint behavior of prices and quantities

internal supply chain coordination in the electric utility industry abstract electric utilities have a well established vertical internal and external supply chain theoretically information sharing involving production inventory and other policy variables between chain entities can improve supply chain performance such sharing relies on a systematic determination of the optimal policy variables for the chain this paper presents an analysis of the electric utility s decision problem based on an optimal control model in a competitive market environment optimal production and inventory policies are developed for a centralized supply chain under full information sharing the model and policies are tested with electric utility industry data and performance implications are discussed for electric utility managers and public regulators

the technology transfer paradox abstract this paper examines whether a country that enjoys a superior technology in all commodities in a two country multi commodity ricardian setting could actually gain if its technology in which it possesses its greatest comparative advantage is stolen or transferred to the other country without any compensation such a paradoxical possibility is shown always to exist with a finite number of commodities and equal shared cobb douglas demand conditions for certain ranges of relative country size

relative price dispersion and economic shocks an inventory adjustment approach the issue of relative price dispersion rpd has gained prominence in recent years as the economy was subject to economic shocks and to high and variable levels of inflation the concern about the increased rpd was due to its potentially harmful effect on the economy recently blejer and leiderman 4 evaluated empirically the effect of rpd on economic activity in the postwar united states and found that increased rpd leads to a decrease in the level of output and to an increase in the rate of unemployment israelsen and mcdonald 13 showed in a partial equilibrium context that when wage changes are firmly linked to the general price level and labor mobility between markets or industries is limited an increase in rpd may lead to increasing unemployment pischer 10 suggested that rpd is not necessarily harmful but when coupled with unexpected inflation it may be associated with information confusion leading to a loss through the misallocation of resources these concerns have raised the interest in understanding the factors causing and affecting rpd both theoretically and empirlcally the prevailing theoretical explanations of the factors affecting rpd are based on two main approaches c ne approach is based on misinformation type models inspired by lucas s work 14 where individuals are confused between aggregate shocks and relative marketspecific ones barro 3 and cukierman and wachtel 9 have proposed that the greater the vanance of the aggregate shocks the greater the rpd barro 3 pp

the generalized theory of transfers and welfare bilateral transfers in a multilateral world paul samuelson s 1952 1954 classic papers on the transfer problem addressed two separate analytical issues the positive effect of a transfer on the terms of trade and the welfare effect of the transfer on the donor and the recipient since then a considerable body of literature has grown up on the positive analysis while samuelson 1954 himself had extended the 2 x 2 x 2 free trade analysis to allow for tariffs and transport costs subsequent writers have analyzed other extensions of the model for example to allow for nontraded goods as with leisure in samuelson 1971 or general nontraded goods in john chipman 1974 and ronald jones 1970 1975 remarkably however the welfare analysis of transfers has not paralleled these developments since wassily leontief 1936 produced an example of immiserizing transfer from abroad and samuelson 1947 argued that the example required market instability the proposition that has monopolized attention has been that a transfer in the conventional 2 x 2 x 2 model in its free trade version cannot immiserize the recipient or enrich the donor as long as world markets are stable in the walras sense interestingly samuelson 1954 who did extend the positive analysis to include tariffs did not go on to ask whether immiserization of the transfer recipient and hence symmetrically enrichment of the donor in a two country model could now arise consistent with market stability recently the welfare analysis of transfers has been extended in two different directions both apparently unconnected and both yielding the conclusion that transfers from abroad can be immiserizing and that the donor may improve its welfare despite market stability one route to this conclusion has been the introduction of a third economic agent or country that is outside of the transfer process in the appendix of his 1960 paper analyzing the interaction between trade policy and income distribution harry johnson discussed the possibility of welfareparadoxical redistribution between two factor income classes capital and labor in an open economy thereby providing what can be interpreted as a treatment of the threeagent transfer problem for the case in which donor and recipient are both completely specialized in the ownership of a single different factor an independent analysis of the three agent transfer problem using a restrictive model with given endowments of goods and fixed coefficients in consumption was also undertaken in an important paper by david gale 1974 2 brecher and bhagwati bhagwati department of economics columbia university new york ny 10027 brecher department of economics carleton university ottawa on kis 5b6 hatta department of political economy the johns hopkins university baltimore md 21218 we thank the national science foundation grant no 524718 for partial financial support of the research underlying this paper the paper was written when brecher and hatta were visiting columbia university 1981 82 gratefully acknowledged are helpful comments and suggestions from john chipman avinash dixit jacques dreze robert feenstra jacob frenkel ronald jones murray kemp andreu mas colell michael mussa john riley lars svensson and robert willig from anonymous referees and from seminar participants at berkeley harvard minnesota rochester chicago and the university of california los angeles after the present paper was submitted for publication and following its presentation at rochester our attention was drawn to this appendix which was noticed by a student of ronald jones subsequently we learned from makoto yano that motoshige itoh had pointed out an important related paper by ryuotaro komiya and t shizuki 1967 whose condition 11 for the johnson case anticipated our equation 12 below we are grateful for having both of these references brought to our attention 2 gale constructs an example in which the donor is enriched along with the recipient furthermore this immediately implies that a reverse transfer will immis

inventories market structure and price volatility abstract the effect of inventories on the level and volatility of price is analyzed under alternative market structures in a fairly general setting it is shown that inventories have no effect on the average level of prices in a cournot duopoly in the absence of depreciation the effect of storage on price volatility is analyzed in a more restrictive linear quadratic setting in which it is found that imperfectly competitive producers make less use of inventories for smoothing random fluctuations than is efficient the effect of market structure on price volatility depends on whether demand shocks or cost shocks are more important

commodity market dynamics and the joint executive committee 1880 1886 using weekly spot and future commodity prices in chicago and new york we construct expected transportation rates for grain between these two cities expected inventory levels in new york and realized errors in the expectations of such variables we incorporate these exogenous commodity market dynamics into porter s 1983 structural modeling of the joint executive committee railroad cartel as in porter we model marginal cost as a parametric function of instrumented output among other factors unlike porter we model pricing over marginal cost as a nonparametric function of a set of variables which include expectations of deterministic demand cycles and cartel stability we estimate the pricing and demand equation simultaneously and semiparametrically our estimated weekly markups during periods of cartel stability are shown to reflect optimal collusive pricing over deterministic business cycles as modeled in haltiwanger and harrington 1991 periods of cartel instability are proven to be trigger

anticipated and unanticipated effects of crude oil prices and gasoline inventory changes on gasoline prices abstract this paper examines the effect of anticipated and unanticipated changes in oil prices and gasoline inventory on us gasoline prices we estimate empirical responses to anticipated and unanticipated changes in oil prices and gasoline inventory and show that gasoline price adjustments are faster and stronger for anticipated changes in oil prices and inventory levels than for unanticipated changes furthermore this difference is statistically significant we use these findings to evaluate the cost of adjustment hypothesis suggested by borenstein and shephard 2002 we also find that there is an asymmetry in the effect of gasoline inventory on gasoline and oil prices this finding complements a well known result that positive and negative changes in oil prices have asymmetric effect on gasoline prices

some empirical evidence on the production level and production cost smoothing models of inventory investment the production smoothing model of inventories has long been the basic paradigm within which empirical research on inventories has been conducted the basic hypothesis embedded in this model is that inventories of finished goods serve primarily to smooth production levels in the face of fluctuating demand and convex cost functions however once we allow for shocks to technology and the costs of producing output firms will also use inventories to shift production from periods in which production costs are relatively high to periods in which production costs are relatively low in this sense inventories can serve to smooth production costs rather production levels in this paper we examine the empirical plausibility of the production level and production cost smoothing models of inventories our basic strategy is to derive and contrast a set of unconditional moment restrictions implied by these models in a way that minimizes the role of auxiliary assumptions regarding market structure and industry demand we find overwhelming evidence against the production level smoothing model and very little evidence against the production cost smoothing mode1 we conclude that the variance of production exceeds the variance of sales in most manufacturing industries because the production cost smoothing role of inventories is quantitatively more important than the production level smoothing role of inventories this abstract was borrowed from another version of this item

inventories under joint production an empirical analysis of petroleum refining this study examines the determinants of inventory investment under joint production we simultaneously estimate a set of optimal sales relations variable input demands and a set of euler equations for capital and inventories of raw materials work in process and final products in the petroleum refining industry the euler conditions provide a model for the convenience yield discussed in the returns to storage literature the cost savings from holding inventories and expected changes in marginal production costs are important components of the convenience yield we also find significant cost and stock interactions that may affect short run price and inventory dynamics in petroleum product markets

what do we learn from the price of crude oil futures summary despite their widespread use as predictors of the spot price of oil oil futures prices tend to be less accurate in the mean squared prediction error sense than no change forecasts this result is driven by the variability of the futures price about the spot price as captured by the oil futures spread this variability can be explained by the marginal convenience yield of oil inventories using a two country multi period general equilibrium model of the spot and futures markets for crude oil we show that increased uncertainty about future oil supply shortfalls under plausible assumptions causes the spread to decline increased uncertainty also causes precautionary demand for oil to increase resulting in an immediate increase in the real spot price thus the negative of the oil futures spread may be viewed as an indicator of fluctuations in the price of crude oil driven by precautionary demand an empirical analysis of this indicator provides evidence of how shifts in the uncertainty about future oil supply shortfalls affect the real spot price of crude oil copyright 2010 john wiley sons ltd

futures markets a consequence of risk aversion or transactions costs a two period model of an industry of risk neutral processors who have nonlinear production costs and who face transact ions costs in the spot and futures markets is put forth as a countere xample to the models of commodity markets in which processors risk a version plays the major role the model s equilibrium exhibits the sa lient endogenous features of actual commodity markets namely that t he futures price is below the current spot price that processors hol d inventories despite this opportunity cost that those holding inven tories are short in futures and that processors as a group hold an u nbalanced usually net short position in the futures market copyright 1987 by university of chicago press

convenience yield without the convenience a spatial temporal interpretation of storage under backwardation a mathematical programming model of the wheat marketing system of western australia manifests a typical pattern of regionwide stocks held at a negative intertemporal spread measured at the port no stocks are held at a monetary loss in terms of local prices any apparent loss is an illusion from spatial aggregation of stocks and attribution of incentives at one locality to storers at all locations moreover as the premium for immediate delivery at the port rises stocks increase at relatively inaccessible inconvenient locations where prices are low allowing more to be shipped from locations more convenient to the port

the production and inventory behavior of the american automobile industry understanding inventory movements is central to an understanding of business cycles this paper presents an empirical study of the behavior of inventories in the automobile industry it finds that inventory behavior is well explained by the assumption of intertemporal optimization with rational expectations the underlying cost structure appears to have substantial costs of changing production as well as substantial costs of being away from target inventory thelatter being a function of current sales given this cost structure whether inventory behavior is stabilizing or destabilizing depends on the characteristics of the demand process in the automobile industry inventory behavior is destabilizing the variance of production is larger than the variance of sales

short term variations and long term dynamics in commodity prices in this article we develop a two factor model of commodity prices that allows meanreversion in short term prices and uncertainty in the equilibrium level to which prices revert although these two factors are not directly observable they may be estimated from spot and futures prices intuitively movements in prices for long maturity futures contracts provide information about the equilibrium price level and differences between the prices for the short and long term contracts provide information about short term variations in prices we show that although this model does not explicitly consider changes in convenience yields over time this short term long term model is equivalent to the stochastic convenience yield model developed in gibson and schwartz 1990 we estimate the parameters of the model using prices for oil futures contracts and apply the model to some hypothetical oil linked assets to demonstrate its use and some of its advantages over the gibson schwartz model

factor bias and technical progress abstract the role of factor bias in technical progress has been a bone of contention between labor economists and international trade theorists by considering progress that results in finite changes in techniques these two views can be reconciled for example labor saving technical progress can result in lowered real wages even if it is concentrated in the more labor intensive of two commodities initially produced

what do inventories tell us about news driven business cycles there is widespread disagreement over the quantitative contribution of news shocks to business cycle fluctuations this paper provides a simple identifying restriction based on inventory dynamics that tightly pins down this contribution structural models predict that finished good inventories should fall when there is an increase in consumption and investment induced by news shocks a structural var with these sign restrictions indicates that news shocks account for at most 20 percent of output volatility since inventories comove positively with consumption and investment in the data shocks that generate negative comovement cannot account for the bulk of fluctuations

native language spoken language translation and trade we construct new series for common native language and common spoken language for 195 countries which we use together with series for common official language and linguistic proximity in order to draw inferences about 1 the aggregate impact of all linguistic factors on bilateral trade 2 the separate role of ease of communication as distinct from ethnicity and trust and 3 the contribution of translation and interpreters to ease of communication the results show that the impact of linguistic factors all together is at least twice as great as the usual dummy variable for common language resting on official language would say in addition ease of communication plays a distinct role apart from ethnicity and trust and so far as ease of communication enters translation and interpreters are significant finally emigrants have much to do with the role of ethnicity and trust in linguistic influence

the output inflation relationship abstract this paper shows how the optimal pricing and production policy of a multiperiod profit maximizing firm under demand and output disturbances leads in the aggregate to a positive relationship between production and price deviations from the expected level as depicted by the lucas type supply function the pricing and production decisions are made simultaneously by market agents who base their decisions on the same rational expectations before the disturbances are realized here although the planned production is not affected by the price deviations there is still a contemporaneous positive relationship between them where both production and prices reflect the firm s adjustment to unexpected levels of inventory we show that this positive relationship prevails even when the production decisions are made ex ante based only on expectations before the realization of the random shocks a closed form linear approximation for the supply function is derived which captures the effect of both systematic and unsystematic economic disturbances finally we present an empirical test which supports our assertion that our inventory adjustment mechanism contributes to the creation of the positive relationship between production and price deviations

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

a comparison of futures and forward prices abstract this paper uses the pricing models of cox ingersoll and ross 1981 richard and sundaresan 1981 and french 1982 to examine the relation between futures and forward prices for copper and silver there are significant differences between these prices the average differences are generally consistent with the predictions of the futures and forward price models however these models are not helpful in describing intra sample variations in the futures forward price differences this failure is apparently caused by measurement errors in both the price differences and in the explanatory variables

welfare aspects of the transfer problem using the standard trade model with three countries and allowing for substitutability in both production and consumption this paper demonstrates that a country may gain by giving a transfer that the receiver may lose and that these two phenomena may appear at the same time this result is an extension of gale s example in a fixed coefficient model where he shows both transferer and transferee may become better off harming the third country and it is contrasted with the traditional welfare proposition whereby a giver is immiserized and a recipient is enriched

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

effect of inventory announcements on crude oil price volatility abstract this paper examines the behavior of crude oil futures price volatility and investigates how the eia weekly crude oil inventory reports announcements especially information shocks impact crude oil price movement and volatility this study focuses on inventory information shocks using a new measure rather than on inventory changes themselves the empirical results reveal that inventory information shocks rather than actual inventory changes negatively affect crude oil returns on the day the eia releases the inventory information although inventory shocks have no effect on daily conditional variance which mainly follows a garch 1 1 process to test the robustness of our model we re estimate the models for three subsamples according to all results we find that the effect of inventory shocks is weakened in rapid growth periods and disappears in steep fall markets

rational expectations and the smoothing properties of inventories of finished goods abstract this paper formulates and estimates a dynamic rational expectations equilibrium model of inventories of finished goods and employment of labor the view that the primary role of inventories of finished goods is to act as a buffer stock in the face of fluctuating demand is examined both the model and estimation results indicate that this is the case because of differences in the costs involved for firms in changing their inventory stocks and labor force in addition to providing some new evidence on the behavior of inventories of finished goods and employment the paper illustrates a technology for maximum likelihood estimation of structural parameters under the hypothesis of rational expectations

on equilibrium in resource markets with scale economies and stochastic prices abstract in this paper i show the existence and the characteristics of equilibrium in a non renewable resource market where extraction costs are non convex and market price is subject to stochastic shocks an empirically relevant setting in my model firms may be motivated to hold inventories to facilitate production smoothing which allows them to continue producing at a smooth pace at any instant when extraction ceases e g when reserves are exhausted this aspect of the model then supports a competitive equilibrium in the presence of non convex costs casual empirical evidence is provided that supports the central features of my model for a variety of non renewable resources lending credence to the explanation for equilibrium i propose

an investigation of the harvest decision of timber firms in the south east united states in the forestry literature stochastic extensions of the classic faustmann model have become the predominant models of optimal harvesting on even aged timber stands a recent attempt to estimate a stochastic version of the faustmann model left several puzzling results unexplained provencher 1995 this paper reports on new estimation and analyses undertaken to resolve these puzzles of particular note is the result that the value of using correct price forecasts in the harvest decision is much lower than indicated by recent simulation studies perhaps because variability in convenience yield dampens the expected gain from exploiting stochastic variation in timber prices

inventories and the volatility of production a stylized fact associated with inventory behavior is that the variance of production exceeds the variance of sales this paper presents a model of production decisions with demand uncertainty that incorporates no nnegativity constraints on inventories even with no productivity shocks optimal behavior by the firm is consistent with this stylized fact either if demand exhibits positive serial correlation or if the firm can backlog excess demand the reason is that a demand shock affects both the actual inventory level given unchanged production and the desired level production must replenish the stock and adjust to the new desired level copyright 1987 by american economic association

inventories as an asset the volatility of copper prices the spot price of copper metal is known to be extremely volatile from 1958 to 1980 the mean monthly average price was 0 49 per pound in constant 1967 dollars while the standard deviation of month to month changes in the real price was 0 06 claims to copper inventories are traded on the london metal exchange lme a competitive world asset market this paper empirically investigates the dynamics of copper spot prices on the lme focusing on the rate of return to holding copper metal and on the implications of inventory stockouts for this rate of return we make one major departure from the standard economic theory of exhaustible resources 2 instead of assuming constant short run marginal cost srmc we incorporate rising srmc of extraction into the model 3 this technological assumption provides an economic motive for production smoothing by holding inventories equilibrium inventory holdings ameliorates rising srmc by moving extraction to low srmc time periods we show that this amelioration is imperfect because of inventory stockouts when stockouts can occur the spot price of a resource reflects transient shocks to its scarcity value as well as permanent shifts more specifically the economic motive for inventory holding affects the equilibrium price dynamics of exhaustible resources in two ways first as long as positive inventories are being held their holders should earn the competitive rate of return thus the price of extracted resource should rise at the rate of interest in expected value this result differs from most recent theoretical studies of exhaustible resources which conclude that price minus marginal extraction cost should rise at the rate of

do language barriers affect trade abstract language barriers may be more important to international trade than previously thought the language barrier index a newly constructed variable that uses detailed linguistic data is used to show that language barriers are significantly negatively correlated with bilateral trade

forward trading and storage in a cournot duopoly a dynamic game is presented that models the effects of forward trading and storage in an imperfectly competitive market it is shown that the pro competitive effects of forward trading found in previous work are weakened by the addition of storage but not eliminated the price level lies between that of a cournot game and that of a game with forward trading but without storage

income effects and paradoxes in the theory of international trade every field in economics has its paradoxes phenomena which initially are thought to confound economic sense but ultimately come to be better understood the field of international trade can claim its fair share the examples of the metzler paradox wherein a tariff fails to provide protection or that of immerising growth wherein a country suffers a loss in welfare despite an improvement in production possibilities come easily to mind more recently a reexamination of the transfer problem in the context of many country trade or of tax distortions has revealed possibilities for donor countries to gain or transfer recipients to lose results which would be considered so paradoxical in standard treatments as to be ruled out by stability arguments behind each of the examples just cited lies a rational explanation in which income effects prove crucial in supporting a paradoxical outcome in some situations the potential for paradox rests on the possibility of income redistribution nationally or internationally when tastes differ among the various trading participants paradox becomes impossible if tastes at the margin are identical in other instances income redistribution is not the crucial mechanism and paradoxical outcomes may occur even if all traders possess the same taste patterns all cases share the property that paradoxes can arise only if the terms of trade are sufficiently disturbed substitution effects high values of which serve to dampen the required adjustment of prices to a market disturbance thus work to prevent paradoxical outcomes in the first section of this paper i focus on those issues for which income effects are associated with income redistribution especially the analysis of tariffs and transfers in markets that initially are free of taxes or other distortions in the second section i analyse an issue for which income redistribution is no longer the central ingredient the welfare consequences of growth a standard technique in game theory allows for a reinterpretation of the growth case to reveal the fundamental connection between a wide variety of standard two country results in the theory of international trade and the possibility of paradoxes in the three agent transfer problem i would therefore argue that the three agent transfer literature has wider applicability than is commonly perceived in the final section i analyse briefly the frequently encountered argument that some instances of paradoxical welfare loss can be avoided by optimal tariff policy i wish to thank isaias coelho for helpful conversations makoto yano for stimulating my interest in the transfer problem with many agents and j peter neary for comments on an earlier draft useful suggestions were also received at seminar presentations at the institute for international economic studies in stockholm and the london school of economics research support was provided by the national science foundation grants ses 78o6159 and ses 8309386 i the role of substitution effects in transfer paradoxes with more than two commodities and agents is discussed by de meza 1983

where ricardo and mill rebut and confirm arguments of mainstream economists supporting globalization most noneconomists are fearful when an emerging china or india helped by their still low real wage rates outsourcing and miracle export led developments cause layoffs from good american jobs this is a hot issue now and in the coming decade it will not go away prominent and competent mainstream economists enter into the debate to educate and correct warm hearted protestors who are against globalization here is a fair paraphrase of the argumentation that has been used recently by alan greenspan jagdish bhagwati gregory mankiw douglas irwin and economists john or jane doe spread widely throughout academia yes good jobs may be lost here in the short run but still total u s net national product must by the economic laws of comparative advantage be raised in the long run and in china too the gains of the winners from free trade properly measured work out to exceed the losses of the losers this is not by mysterious fuzzy magic but rather comes from a sharing of the trade induced rise in total global vectors of the goods and services that people in a democracy want never forget to tally the real gains of consumers alongside admitted possible losses of some producers in this working out of what schumpeter called creative capitalist destruction correct economic law recognizes that some american groups can be hurt by dynamic free trade but correct economic law vindicates the word creative destruction by its proof sic that the gains of the american winners are big enough to more than compensate the losers

fuel tax incidence and supply conditions abstract the incidence of taxes on consumers and producers plays a central role in evaluating energy tax policy yet the literature testing the main predictions of the tax incidence model is sparse in this paper we examine the pass through rate of state gasoline and diesel taxes to retail prices and importantly we estimate the dependence of pass through on factors constraining the gasoline and diesel supply chains we consider several factors that alter the elasticity of supply including within state heterogeneity in gasoline content requirements refinery capacity utilization inventory constraints and variation in the demand for untaxed uses of diesel in general we find that in periods of time when the supply chain is constrained and the constraint is plausibly unrelated to shifts in demand the pass through rate of fuel taxes declines we describe several potential implications for tax policy including tax breaks during peak driving season and during times of supply disruptions such as after major hurricanes

price and inventory dynamics in petroleum product markets abstract unlike many studies of commodity inventory behavior this paper estimates a model with endogenous spot and forward prices inventories production and net imports our application involves markets for refined petroleum products in the united states our model is built around the supply and demand for storage we estimate the model using generalized method of moments and perform dynamic simultaneous simulations to estimate the impacts of supply and demand shocks supply curves for the industry are inelastic and upward sloping high inventory levels depress prices inventories fall in response to higher sales consistent with production smoothing under higher input prices refiners reduce their stocks of crude oil but increase their product inventories consistent with cost smoothing in some cases imports of products are more variable than production or inventories

optimal control and equilibrium behavior of production inventory systems the relationship between commodity inventory and short term price variations has received considerable attention but the understanding has been limited to single stage cross sectional relation in this paper we aim to deepen our understanding of the inventory price relationship in two dimensions across time and across production stages we first examine an individual firm controlling production and two stages of inventory under uncertain input and output prices and operating costs we next establish and characterize the rational expectations equilibrium for an economy in which competitive production firms link a raw material market and a finished goods market with uncertain and price sensitive supply and demand we characterize the dynamics of inventory market price and gross margin based on theoretical analysis simulation and empirical evidence from the petroleum industry we find that inventory fluctuations lag behind price variations and the length of the lags depend on how far the inventory is from the source of the supply or demand shocks we also find that shocks are both dampened and delayed when propagating through the production stages and that shocks have a prolonged effect on inventories and prices at both stages

the production smoothing model is alive and well abstract monthly data in physical units for seven industries are used to examine the production smoothing hypothesis the results strongly support this hypothesis significant effects of expected future sales on current production are found for four industries and the estimated decision equations for all seven industries imply production smoothing behavior the previous negative results appear to be due to the use of data biased against the hypothesis the shipments and inventory data of the department of commerce the paper also shows that sensible results can be obtained from estimating approximations to decision equations as opposed to estimating euler equations

inventory investment and the empirical phillips curve in this paper we study the calvo pricing models with finished goods inventory investment to demonstrate that the current inflation can be expressed as a function of the marginal cost of sales not the marginal production cost and expected future inflation under the assumption that the true aggregate marginal costs are not observable in actual data we make use of equilibrium conditions for aggregate finished goods inventories to measure the time series of marginal costs thereby leading to the construction of inflation series on the basis of the phillips curve our results indicate the possibility of a successful fit of the empirical new keynesian phillips curve without relying on unit labor cost a conventional measure of marginal production cost in the literature

input and output inventories in general equilibrium we build and estimate a two sector goods and services dynamic stochastic general equilibrium model with two types of inventories materials input inventories facilitate the production of nished goods while nished goods output inventories yield utility services the model is estimated using bayesian methods the estimated model replicates the volatility and cyclicality of inventory investment and inventory to target ratios although inventories are an important element of the model s propagation mechanism shocks to inventory e ciency or management are not an important source of business cycles when the model is estimated over two subperiods pre and post 1984 changes in the volatility of inventory shocks or in structural parameters associated with inventories such as the input inventory to output ratio play a small role in reducing the volatility of output

native language and acquired language as determinants of product level trade the present paper estimates response parameters of bilateral export flows at the disaggregated harmonised system 6 digit level to two fractional variables reflecting the language commonality between exporting and importing countries common native language versus common acquired language in particular the response to common acquired language is shown to vary systematically with the price and trade elasticity of demand across products and with the degree of product differentiation and competition across products these findings support the notion that there is a relatively important role to play for foreign language acquisition in stimulating cross border trade and international integration which are known to induce average consumer gains

co movements in relative commodity prices and international capital flows a simple model co movements in relative commodity prices and international capital flows a simple model suppose a number of countries produce a commodity which employs local labor and a type of capital that is internationally mobile within the framework of a specific factors model the paper argues that there is a presumption about the international movement of capital when the relative price of the industry using that capital rises on world markets capital flows towards countries less heavily involved in producing the commodity internal labor flows contribute towards worldwide industry dispersion and the volume of international trade in that commodity tends to fall i introduction fluctuations in the composition of world demand may cause a particular commodity to experience periods during which price is high relative to other commodities to alternate with periods during which price is relatively low a number of countries may share not only in the production of such a commodity but also in the use of some factor call it capital specific to its production but capable of being relocated from one country to another that is some productive activities may combine local factors with inputs that have international markets what can be said about the location of internationally mobile capital as shifts in demand result in changes in relative commodity prices is there anything systematic about the likely degree of international concentration or diversification of production over periods in which a commodity s price is alternatively high and low the purpose of this article is to sketch out a simple model in which a presumption does exist about the location of internationally mobile capital the relative concentration of production and the volume of international trade in a commodity during the course of a cycle in its price relative to the prices of other commodities the model is a variant of the sector specific general equilibrum production model in which one type of capital is internationally mobile so that rates of return remain equalized among countries the presumption is that when a commodity s price is relatively high compared with other commodities real capital specifically used to produce that commodity tends to leave regions that are relatively large producers furthermore this tendency of international capital mobility to encourage a dispersion of world production when a commodity s price is relatively high and a concentration of the world s production when price is low is enhanced by the mobility within each country of factors used jointly with other sectors finally international trade in a commodity experiencing such a price cycle tends to be second best compared with own production in the sense that the volume of trade tends to contract precisely when the commodity s price is high relative to other commodities ii the presumption about international capital flows production structures within countries are assumed to follow the sector specific model as described in jones 1975 mobile labor is combined with each of several types of specific capital goods in producing outputs in one activity capital is assumed to be internationally mobile although retaining its sectoral specificity such mobility serves to equalize the return to this factor in all areas in which it is employed although commodities are traded technologies and factor endowments are not assumed to be the same so the returns to local specific factors and national wage rates can differ from country to country although the argument can be posed in the context of a many country trading world the logic is more easily revealed in a two country setting suppose both home and foreign countries each produce a number of traded commodities and one of these say x1 makes use of a specific factor say k1 which is mobile internationally such mobility ensures that the rental on type 1 capital at home r1 is kept in line with the foreign return r1

uncertainty and the convenience yield in crude oil price backwardations abstract this study examines why firms hold stocks of crude oil particularly during price backwardations when spot prices exceed prices for forward delivery using a stochastic control model this paper shows that the equilibrium value of inventories contains the conventional hotelling principle the convenience yield from the classical theory of storage and an option value related to price uncertainty our empirical results suggest that a convenience yield and risk premium are important elements of crude oil price backwardations

can the production smoothing model of inventory behavior be saved the production smoothing model of inventory behavior has a long and venerable history and theoretical foundations that seem very strong yet certain overwhelming facts seem not only to defy explanation within the production smoothing framework but actually to argue that the basic idea of production smoothing is all wrong most prominent among these is the fact that the variance of detrended production exceeds the variance of detrended sales this paper first documents the stylized facts then it derives the production smoothing model rigorously and explains how the model can be amended to make it consistent with the facts finally it reviews the theoretical and empirical evidence and tries to draw some tentative conclusions

the language effect in international trade a meta analysis abstract gravity models of international trade have been frequently applied to estimate the impact of common official or spoken language on bilateral trade this study provides a meta analysis based on 701 language effects collected from 81 academic articles on average a common official or spoken language increases trade flows directly by 44

exploration activity long run decisions and the risk premium in energy futures investment by oil firms positively affects the futures basis and negatively predicts excess returns on crude oil futures i build an equilibrium model of drilling exploration and storage to understand these facts firms capital stock lowers extraction costs as firms drill in increasingly expensive fields drilled wells produce the resource at a geometrically declining rate however by specifying consumers habit level equaling production from old wells the futures basis and risk premium are only related to drilling investment and inventory investment leads to a more elastic drilling response by firms and dampens oil price increases from demand shocks thus lowering the risk premium received october 10 2015 editorial decision march 30 2018 by editor philip strahan author has furnished an internet appendix which is available on the oxford university press web site next to the link to the final published paper online

speculative carryover an empirical examination of the u s refined copper market this article develops and estimates an empirically tractable model of equilibrium storage the method bridges the gap between theoretical rational expectations models and applied commodity market work the application to the u s refined copper market provides estimates of structural supply and demand rational price forecasts and the risk of copper storage that is consistent with modern portfolio theory