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

financial globalization financial crises and contagion abstract two observations suggest that financial globalization played an important role in the recent financial crisis first more than half of the rise in net borrowing of the u s non financial sectors since the mid 1980s has been financed by foreign lending second the collapse of the u s housing and mortgage backed securities markets had worldwide effects on financial institutions and asset markets using an open economy model where financial intermediaries play a central role we show that financial integration leads to a sharp rise in net credit in the most financially developed country and to large asset price spillovers of country specific shocks to bank capital the impacts of these shocks on asset prices are amplified by bank capital requirements based on mark to market

macroeconomic volatility and external imbalances abstract does macroeconomic volatility uncertainty affects accumulation of net foreign assets in oecd economies over the period 1970 2012 changes in country specific aggregate volatility are after controlling for a wide array of factors significantly positively associated with net foreign asset position a standard open economy model with time varying macroeconomic uncertainty can quantitatively account for this relationship the key mechanism is precautionary motive more uncertainty induces residents to save more and higher savings are in part channeled into foreign assets data and theory suggest that volatility is an important determinant of the medium long run evolution of external imbalances in developed countries

current account balance and dollar standard exploring the linkages abstract this paper examines whether the international role of the dollar as main global reserve currency has contributed to persistent current account imbalances to this end we analyse how central banks accumulation of reserve assets affects the current account balance of both reserve accumulating and reserve providing countries based on a simple portfolio balance model we show theoretically that the global demand for reserve assets by central banks may lower the current account balance of the reserve issuing country our panel data analysis over the period 1970 2009 confirms this hypothesis any dollar of provided reserve assets decreases the us current account by more than one dollar on average the demand for dollar reserves has lowered the us current account by 1 2 percentage points relative to gdp the flip side of this effect is a higher current account balance in reserve accumulating countries these novel findings show that the worldwide demand for international reserves has contributed to the buildup of global imbalances

revenue management for operations with urgent orders this article is motivated by the case of a company manufacturing industrial equipment that faces two types of demand on the one hand there are the so called regular orders for installations or refurbishing of existing facilities these orders have a relatively long lead time on the other hand there are urgent orders mostly related to spare parts when a facility has a breakdown the delay in such case is much shorter but higher margins can be obtained we study the order acceptance problem for a firm that serves two classes of demand over an infinite horizon the firm has to decide whether to accept a regular order or equivalently how much capacity to set aside for urgent orders in order to maximize its profit we formulate this problem as a multi dimensional markovian decision process mdp we propose a family of approximate formulations to reduce the dimension of the state space via aggregation we show how our approach can be used to compute bounds on the profit associated with the optimal order acceptance policy finally we show that the value of revenue management is commensurate with the operational flexibility of the firm

farsighted r d networks we analyze the formation of bilateral r d collaborations in an oligopoly when each firm benefits from the research done by other firms it is connected to in contrast to myopic stability farsighted stability leads to r d networks consisting of two minimally connected components with the largest one comprising three quarters of firms

time intensive r d and unbalanced trade abstract this paper highlights a novel mechanism that generates global imbalances it develops a general equilibrium trade model with one of two countries having a comparative advantage in a sector whose production is characterized by i rapid anticipated demand growth and ii large up front r d costs international funding of the accruing r d costs generates capital inflows in the r d stage which are balanced by subsequent outflows importantly sector level growth does not generate growth differentials between countries typically regarded as rationales of global imbalances additionally it is shown that a trade surplus can coincide with appreciations of the real exchange rate i argue that switzerland s trade surplus which was driven to record heights during 2010 2014 by pharmaceutical exports exemplifies this mechanism calibrating the model to swiss trade flows underpins this argument

redistributive taxation in a simple perfect foresight model abstract we investigate the redistributive potential of capital taxation in an intertemporal maximizing model of capital formation first even unanticipated redistributive capital taxation is severely limited in its effectiveness since it depresses wages second under any convergent redistributive tax policy which maximizes a paretian social objective the capital income tax will converge to zero independent of the factor supply elasticities these results are independent of workers holdings of capital

political vs currency premia in international real interest differentials a study of forward rates for 24 countries abstract different approaches to quantifying the degree of capital mobility for a cross section of currencies particularly saving investment correlations and tests of real interest parity have appeared to show a surprisingly low degree of financial integration we use a new data set forward rate data for 24 countries including many small industrialized countries and seven ldcs to decompose the real interest differential into two parts the covered interest differential or political premium and the real forward discount or currency premium the latter in turn can be decomposed into the exchange risk premium and expected real depreciation we find a high degree of capital mobility across political boundaries for most of the g 11 countries plus hong kong and singapore for our sample period of 1982 to 1987 even for most of the other ldcs and smaller industrialized countries for which covered interest parity clearly fails the political premium is not as big a component of the real interest differential as the currency premium france would appear to have higher capital mobility than most by the criterion of real interest differentials but is seen in fact to have low capital mobility by the criterion of covered interest differentials a clear example of the superiority of the latter criterion

capital account liberalization what do cross country studies tell us capital account liberalization it is fair to say remains one of the most controversial and least understood policies of our day one reason is that different theoretical perspectives have very different implications for the desirability of liberalizing capital flows another is that empirical analysis has failed to yield conclusive results the answer another influential strand of thought contends is that this efficient markets paradigm is fundamentally misleading when applied to capital flows limits on capital movements are a distortion it is an implication of the theory of the second best that removing one distortion need not be welfare enhancing when other distortions are present

capital liberalization and the us external imbalance abstract differences in financial systems are often named as a prime candidate for the current state of global imbalances this paper focuses on cross country heterogeneity in access to international financial markets that derives from the presence of capital controls and argues that the process of capital liberalization over the past decades can explain a substantial fraction of us net external liabilities we present a simple two country model with an internationally traded bond in which capital controls are reflected in the presence of borrowing and lending constraints on that bond in a us versus the rest of the world row scenario we perform experiments that are largely consistent with countries liberalization experiences a reduction in the row s controls on capital outflows and or a tightening in the row s borrowing constraint enable the us economy to better insure against consumption risk relative to the rest of the world and therefore decrease its motives for precautionary asset holdings relative to the rest of the world as a result of these asymmetric shifts in countries barriers to capital mobility the us runs a long run external deficit

domestic or global imbalances rising income risk and the fall in the us current account when default leads to exclusion from financial markets the implied loss of consumption smoothing opportunities is more costly when income volatility is high a rise in income risk thus makes default less attractive allowing creditors to relax borrowing limits i show how in an open economy this endogenous financial deepening may reduce aggregate foreign assets in response to a rise in individual income risk against the precautionary savings intuition conditions for this depend on whether default constrains complete or uncontingent contracts the post 1980 rise in us household income risk strongly reduces foreign assets when domestic markets are complete or world interest rates low

an analysis of bid price controls for network revenue management bid prices are becoming an increasingly popular method for controlling the sale of inventoryin revenue management applications in this form of control threshold or bid prices are set for the resources or units of inventory seats on flight legs hotel rooms on specific dates etc and a product a seat in a fare class on an itinerary or room for a sequence of dates is sold only if the offered fare exceeds the sum of the threshold prices of all the resources needed to supply the product this approach is appealing on intuitive and practical grounds but the theory underlying it is not well developed moreover the extent to which bid price controls represent optimal or near optimal policies is not well understood using a general model of the demand process we show that bid price control is not optimal in general and analyze why bid price schemes can fail to produce correct accept deny decisions however we prove that when leg capacities and sales volumes are large bid price controls are asymptotically optimal provided the right bid prices are used we also provide analytical upper bounds on the optimal revenue in addition we analyze properties of the asymptotically optimal bid prices for example we show they are constant over time even when demand is nonstationary and that they may not be unique

on the optimal taxation of capital income abstract we show that in models in which labor services are supplied jointly with human capital the chamley and judd result on zero capital income taxation in the limit extends to labor taxes as long as accumulation technologies are constant returns to scale moreover for a class of widely used preferences consumption taxes are zero in the limit as well however we show by the construction of two examples that these results no longer hold for certains types of restrictions on tax rates or if there are profits generated journal of economic literatureclassification numbers e62 h21

capacity management for contract manufacturing contract manufacturers sell capacity under different terms to different buyers in a common practice the supplier offers a market standard price and lead time combination for products listed in its catalog at the same time it strikes contracts with some high volume customers who require recurring delivery of a custom product at a short notice usually timed to meet the buyer s production schedule whereas the manufacturer is obligated to satisfy demand from these customers it can dynamically choose which transactional orders to accept in this paper we analyze two scenarios in the first scenario the manufacturer produces contractual orders on a make to order basis and in the second it maintains finished goods inventory for such orders at each decision epoch the manufacturer decides which transactional orders to accept to maximize its long run expected profit when contractual items are made to stock the manufacturer also chooses how much extra capacity to allocate to contractual items over and above what is needed to meet realized demand we establish the structure of the optimal policies and propose scalable heuristics when optimal policies are hard to compute implement our models are then used to study the effect of demand variability on the optimal profit we also show how the amount of capacity available relative to demand changes the desirability of serving either transactional only or both markets

a note on incomplete factor taxation abstract optimal capital taxes may be positive in the steady state in ramsey models with an incomplete set of factor taxes i show this possibility crucially depends on how fiscal policy is constrained at date t 0 if the government is barred from manipulating the value of initial assets the chamley judd result reappears the optimal capital tax is always zero in the steady state

should capital income be taxed in the steady state this paper provides a new economic interpretation of the well known dynamic optimal taxation principle that capital income should not be taxed in the steady state we show that the result is related to the minimization of distortions at the intratemporal margin when every factor of production can be taxed at the optimal rate capital income should not be taxed in the steady state but when there are restrictions on the taxation of production factors the tax rate on capital income in the steady state is different from zero

technical note a note on the structure of joint inventory pricing control with leadtimes we consider a joint inventory pricing control problem for a periodic review single stage inventory system with a positive order leadtime and a linear order cost demands in consecutive periods are independent but their distributions depend on the price in accordance with a stochastic demand function of additive form pricing and ordering decisions are made simultaneously at the beginning of each period the objective is to maximize the total expected discounted profit over a finite horizon we partially characterize the structure of the optimal joint ordering and pricing policies we also show that our structural analysis can be extended to a multistage or serial inventory system with constant or stochastic leadtimes and an assemble to order system with price sensitive demand

airline seat allocation with multiple nested fare classes this paper addresses the problem of determining optimal booking policies for multiple fare classes that share the same seating pool on one leg of an airline flight when seats are booked in a nested fashion and when lower fare classes book before higher ones we show that a fixed limit booking policy that maximizes expected revenue can be characterized by a simple set of conditions on the subdifferential of the expected revenue function these conditions are appropriate for either the discrete or continuous demand cases these conditions are further simplified to a set of conditions that relate the probability distributions of demand for the various fare classes to their respective fares the latter conditions are guaranteed to have a solution when the joint probability distribution of demand is continuous characterization of the problem as a series of monotone optimal stopping problems proves optimality of the fixed limit policy over all admissible policies a comparison is made of the optimal solutions

optimal taxation of capital income in general equilibrium with infinite lives this paper analyzes the optimal tax on capital income in general equilibrium models of the second best agents have infinite lives and utility functions which are extensions from the koopmans form the population is heterogeneous the important property of the models is the equality between the social and the private discount rates in the long run i find that the optimal tax rate is zero in the long run for a special case of additively separable utility functions i then determine the tax rates along the dynamic path and conditions that are sufficient for the local stability of the steady state

intertemporal distortions in the second best we consider a very general class of public nance problems that encompasses ramsey models of optimal taxation as well as economies with limited commitment private information and political economy frictions we identify a su cient condition to rule out permanent intertemporal distortions at the optimum if there exists an admissible allocation that converges to the rst best steady state then all intertemporal distortions are temporary in the second best we analyze a series of applications to illustrate the signi cance of this result

international real business cycles we ask whether a two country real business cycle model can account simultaneously for domestic and international aspects of business cycles with this question in mind we document a number of discrepancies between theory and data the most striking discrepancy concerns the correlations of consumption and output across countries in the data outputs are generally more highly correlated across countries than consumptions in the model we see the opposite

capital controls and exchange rate instability in developing economies abstract a large literature on the appropriate sequencing of financial liberalization suggests that removing capital controls prematurely may contribute to currency instability this paper investigates whether legal restrictions on international capital flows are associated with greater currency stability we employ a comprehensive panel data set of 69 developing economies over the 1975 1997 period identifying 160 currency crises we control for macroeconomic political and institutional characteristics that influence the probability of a currency crisis employ alternative measures of restrictions on international payments and account for possible joint causality between the likelihood of a currency attack and the imposition of capital controls we find evidence that restrictions on capital flows do not effectively insulate economies from currency problems rather countries with less restrictive capital controls and more liberalized regimes appear to be less prone to speculative attacks

optimal fiscal policy in a stochastic growth model although most neoclassical growth models focus on competitive equilibria which are pareto optimal and ignore the role of government recent works by romer 28 29 judd 20 baxter and king s and bizer and judd 7 have shown that government can be introduced into and suboptimal equilibria can be studied in these models as well their studies however are positive analyses of the effects of fiscal policy in competitive equilibria the purpose of this paper is to apply ramsey s 27 theory of optimal taxation to the normative study of fiscal policy in a stocastic growth model ramsey studied a static representative consumer economy with many goods in his formulation a government consumes a fixed amount of these goods which it purchases at market prices and finances by levying flat rate excise taxes prices and quantities are determined in a competitive equilibrium the government is benevolent and its objective is to choose the optimal tax rates to maximize the representative consumer s utility a number of economists among them kydland and prescott 23 barro 3 turnovsky and brock 31 and lucas and stockey 26 have noted that ramsey s formulation can be applied to dynamic economies with uncertainty if one reinterprets the goods in static problems as dated state contingent goods in this framework a fiscal policy is a rule which specifies state contingent tax rates and the amount of public debt issue in each date the optimal fiscal policy is defined as the one which leads to a quantity