financial dollarization the role of foreign owned banks and interest rates abstract why in many economies households and firms borrow and make deposits in foreign currency expanding on the existing literature our framework addresses this question allowing for interest rate differentials and access to foreign funds to play a role in explaining this process of asset substitution or financial dollarization using a newly compiled data set on transition economies and employing a standard panel as well as a panel var methodology we find that increasing access to foreign funds leads to higher credit dollarization while it decreases deposit dollarization interest rate differentials matter for the dollarization of both loans and deposits

monetary policy and bank lending in developing countries loan applications rates and real effects abstract recent studies of monetary policy in developing countries document a weak bank lending channel based on aggregate data in this paper we bring new evidence using uganda s supervisory credit register with microdata on loan applications volumes and rates coupled with unanticipated variation in monetary policy we show that a monetary contraction reduces bank credit supply increasing loan application rejections and tightening loan volume and rates especially for banks with more leverage and sovereign debt exposure there are associated spillovers on inflation and economic activity including construction permits and trade and even social unrest

the economics of small business finance the roles of private equity and debt markets in the financial growth cycle abstract this article examines the economics of financing small business in private equity and debt markets firms are viewed through a financial growth cycle paradigm in which different capital structures are optimal at different points in the cycle we show the sources of small business finance and how capital structure varies with firm size and age the interconnectedness of small firm finance is discussed along with the impact of the macroeconomic environment we also analyze a number of research and policy issues review the literature and suggest topics for future research

integrating replenishment decisions with advance demand information there is a growing consensus that a portfolio of customers with different demand lead times can lead to higher more regular revenues and better capacity utilization customers with positive demand lead times place orders in advance of their needs resulting inadvance demand information this gives rise to the problem of finding effective inventory control policies under advance demand information we show that state dependent s s and base stock policies are optimal for stochastic inventory systems with and without fixed costs the state of the system reflects our knowledge of advance demand information we also determine conditions under which advance demand information has no operational value a numerical study allows us to obtain additional insights and to evaluate strategies to induce advance demand information

the exchange rate regime and the currency composition of corporate debt the mexican experience abstract this paper analyzes the effect that the change from a fixed to a floating exchange rate regime that took place in mexico in december 1994 had on the currency composition of corporate debt in particular the paper asks whether a fixed exchange rate regime biases corporate borrowing towards foreign currency due to an implicit exchange rate guarantee given by the government therefore under a predetermined regime firms will not fully internalize their exchange rate risk and will be more likely to engage in balance sheet mismatches than under a floating regime we study the main determinants of foreign currency borrowing of those firms listed in the mexican stock exchange from 1992 to 2000 to test whether balance sheet currency mismatches fell after the adoption of the floating exchange rate regime the results found support the view that the floating exchange rate regime has been useful in reducing exchange rate exposure

bounded growth of the bullwhip effect under a class of nonlinear ordering policies abstract this paper analyzes the bullwhip effect in multi echelon supply chains under a general class of nonlinear ordering policies a describing function approach from control theory is used to derive closed form formulas to predict amplification of order fluctuations along the supply chain it is proven that with consideration of nonlinearity in the ordering policy the magnitude of the bullwhip effect will eventually become bounded after growing through the first few stages of the supply chain it is also proven that the average customer demand as well as the demand fluctuation frequency would directly affect the bounded magnitude while the suppliers demand forecasting method has no effect at all for illustration analytical results for a class of order up to policies are derived and verified by numerical simulations the proposed modeling framework holds the promise to not only explain empirical observations but also serve as the basis for developing counteracting strategies against the bullwhip effect

customer order information leadtimes and inventories we have an inventory to manage the scenario is standard in all respects save one instead of arriving unannounced customers provide advance warning of their demands how should we use this information and what is its effect on system performance the answers turn out to be strikingly simple there are very simple policies which perform effectively in some cases optimally also such demand leadtimes improve performance in precisely the same way that replenishment leadtimes degrade it

production smoothing in the linear quadratic inventory model contrary to popular belief the linear quadratic inventory model does not imply that in response to demand shocks output is always less variable than sales when demand shocks are not anticipated and without this assumption it is hard to see why firms should hold inventories in the first place it is shown that output can be more variable than sales even when the only shocks are demand shocks and the inventory target is not a rising function of sales the variance of output will typically exceed that of sales when the firm s marginal cost curve is fairly flat copyright 1994 by royal economic society

borrowing in foreign currency austrian households as carry traders household borrowing in a foreign currency is a widespread phenomenon in austria thirteen percent of austrian households report their housing loan to be denominated in foreign currency mostly swiss franc yet despite its importance peculiar character and acute policy concerns we know little about the attitudes and characteristics of the households involved in this type of carry trade we analyze a uniquely detailed financial wealth survey of 2556 austrian households to sketch a comprehensive profile of the attitudes and characteristics of the households involved we employ both univariate tests and multivariate multinomial logit models the survey data suggest that risk seeking affluent and married households are more likely to take a housing loan in a foreign currency financially literate or high income households are more likely to take a housing loan in general these findings partially assuage policy concerns about household default risk on foreign currency housing loans or household retirement security

the effect of information sharing on supply chain stability and the bullwhip effect this paper analyzes the bullwhip effect in multi stage supply chains operated with linear and time invariant inventory management policies and shared supply chain information such information includes past order sequences and inventory records at all supplier stages the paper characterizes the stream of orders placed at any stage of the chain when the customer demand process is known and ergodic and gives an exact formula for the variance of the orders placed the paper also derives robust analytical conditions based only on inventory management policies to predict the presence of the bullwhip effect and bound its magnitude these results hold independently of the customer demand the general framework proposed in this paper allows for any inventory replenishment policies any ways of sharing and utilizing information and any customer demand processes it is also shown as a special case that sharing customer demand information across the chain significantly reduces but does not completely eliminate the bullwhip effect

foreign banks and foreign currency lending in emerging europe based on survey data from 193 banks in 20 countries we provide the first bank level analysis of the relationship between bank ownership bank funding and foreign currency fx lending across emerging europe our results contradict the widespread view that foreign banks have been driving fx lending to retail clients as a result of easier access to foreign wholesale funding our cross sectional analysis shows that foreign banks do lend more in fx to corporate clients but not to households moreover we find no evidence that wholesale funding had a strong causal effect on fx lending for either foreign or domestic banks panel estimations show that the foreign acquisition of a domestic bank does lead to faster growth in fx lending to households however this is driven by faster growth in household lending in general not by a shift towards fx lending

information distortion in a supply chain the bullwhip effect this article originally appeared in management science april 1997 volume 43 number 4 pp 546 558 published by the institute of management sciences consider a series of companies in a supply chain each of whom orders from its immediate upstream member in this setting inbound orders from a downstream member serve as a valuable informational input to upstream production and inventory decisions this paper claims that the information transferred in the form of orders tends to be distorted and can misguide upstream members in their inventory and production decisions in particular the variance of orders may be larger than that of sales and distortion tends to increase as one moves upstream a phenomenon termed bullwhip effect this paper analyzes four sources of the bullwhip effect demand signal processing rationing game order batching and price variations actions that can be taken to mitigate the detrimental impact of this distortion are also discussed

foreign banks and credit stability in central and eastern europe a panel data analysis abstract we examine whether foreign and domestic banks in central and eastern europe react differently to business cycles and banking crises our panel dataset comprises data of more than 250 banks for the period 1993 2000 with information on bank ownership and mode of entry during crisis periods domestic banks contracted their credit base whereas greenfield foreign banks did not also home country conditions matter for foreign bank growth as there is a significant negative relationship between home country economic growth and host country credit by greenfields finally greenfield foreign banks credit growth is influenced by the health of the parent bank

measuring endogenous supply chain volatility beyond the bullwhip effect most recent research on supply chain volatility has focused on one particular dimension of that volatility namely the amplification of upstream order variability while not ignoring this aspect of supply chain volatility we focus on a different but equally critical aspect of volatility the cyclical oscillation of on hand and on order inventories about their target values we prove that such cyclicality does not require oscillatory or random retailer demand as a prerequisite the resulting volatility is therefore endogenous rather than simply an amplification of exogenous demand inputs we also measure the amount of amplification resulting from a step increase in demand the order amplification is the product of two factors each of which is clearly linked to either on hand or on order inventory our results attest that supply chain volatility can arise in the absence of exogenous oscillatory or random demand and suggest strategies for avoiding or minimizing such volatility

nonconvex costs and the behavior of inventories this paper explores one possible explanation for the apparent excess volatility of production relative to sales nonconvexities in the technology facing firms it is shown that if firms operate in a region of declining marginal costs then small shifts in demand can cause production to jump substantially estimates for six production to stock industries as well as the automobile industry suggest that all these industries behave as if they were operating in the region of nonconvex costs the results have important implications not only for inventory investment but also for the cyclical behavior of productivity and prices

the bullwhip effect in supply chain networks this paper analyzes the propagation and amplification of order fluctuations i e the bullwhip effect in supply chain networks operated with linear and time invariant inventory management policies the supply chain network is allowed to include multiple customers e g markets any network structure with or without sharing information the paper characterizes the stream of orders placed by any supplier for any stationary customer demand processes and gives exact formulas for the variance of the orders placed and the amplification of order fluctuations the paper also derives robust analytical conditions based only on inventory management policies to predict the presence of the bullwhip effect for any network structure any inventory replenishment policies and arbitrary customer demand processes numerical examples show that the analytical results accurately quantify the bullwhip effect managerial insights are drawn from the analysis the methodology presented in this paper generalizes those in previous studies for serial supply chains

anomalies foreign exchange most all behavior can be explained by assuming that agents have stable well defined preferences and make rational choices consistent with those preferences in markets that eventually clear an empirical result qualifies as an anomaly if it is difficult to rationalize or if implausible assumptions are necessary to explain it within the paradigm this column will present a series of such anomalies readers are invited to suggest topics for future columns by sending a note with some reference to or better yet copies of the relevant research comments on anomalies printed here are also welcome the address

historical energy price shocks and their changing effects on the economy abstract the purpose of this paper is to identify the changes in the impact of energy shocks on economic activity with an interest in assessing if an economy s vulnerability and resilience to shocks improved with economic development using data on the united kingdom over the last three hundred years the paper identifies supply aggregate demand and residual shocks to energy prices and estimates their changing influence on energy prices and gdp the results suggest that the impacts of supply shocks rose with its increasing dependence on coal and declined with its partial transition to oil however the transition from exporting coal to importing oil increased the negative impacts of demand shocks more generally the results indicate that improvements in vulnerability and resilience to shocks did not progress systematically as the economy developed instead the changes in impacts depended greatly on the circumstances related to the demand for and supply of energy sources if these experiences are transferable to future markets a transition to a diversified mix of renewable energy is likely to reduce vulnerability and increase resilience to energy price shocks

analysis of the bullwhip effect in two parallel supply chains with interacting price sensitive demands abstract this paper offers insights into how the bullwhip effect in two parallel supply chains with interacting price sensitive demands is affected in contrast to the situation of a single product in a serial supply chain in particular this research studies two parallel supply chains each consisting of a manufacturer and a retailer and the external demand for a single product depends on its price and the other s price in a situation in which each price follows a first order autoregressive process in this paper we propose an analytical framework that incorporates two parallel supply chains and we explore their interactions to determine the bullwhip effect we identify the conditions under which the bullwhip effect is amplified or lessened with interacting price sensitive demands relative to the situation without interaction

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

dollarization of bank deposits causes and consequences abstract this paper assesses the benefits and risks associated with dollarization of bank deposits we provide novel empirical evidence on the determinants of deposit dollarization its role in promoting financial development and on whether dollarization is associated with financial instability we find that a the credibility of macroeconomic policy and the quality of institutions are both key determinants of cross country variations in dollarization b dollarization is likely to promote financial deepening only in a high inflation environment and c financial instability is likely higher in dollarized economies the implications of these findings for financial sector and monetary policies are briefly discussed

households foreign currency borrowing in central and eastern europe abstract foreign currency loans represent an important feature of recent financial developments in ceecs this might pose a serious challenge for macroeconomic stability against this background we study the determinants of foreign currency loans of households using data on the behavior of households in nine ceecs our results reveal that foreign currency loans are driven by households lack of trust in the stability of the local currency and in domestic financial institutions moreover special factors including remittances and expectations of euro adoption play an important role in selected regions the financial crisis reduced foreign currency borrowing but there is some indication this effect might be only temporary

on the stability of supply chains this paper examines the stability of decentralized multistage supply chains under arbitrary demand conditions it looks for intrinsic properties of the inventory replenishment policies that hold for all customer demand processes and for policies with desirable properties it is found that the overall conditions experienced by suppliers several stages removed from the final customer e g the variances of the orders they receive and the inventories they keep depend on the policy much more than on the demand process a policy specific but demand independent upper bound for the order variance amplification factor of any decentralized policy is shown to exist and its formula is presented the bound is always tight for the suppliers at the end of a long chain so that a policy exhibits the bullwhip effect if and only if its bound is greater than 1 a simple necessary condition for bullwhip avoidance is also identified in terms of a policy s gain gain is the marginal change in average inventory induced by a policy when there is a small but sustained change in the demand rate it is shown thatall policies with positive gain produce the bullwhip effect if they do not use future order commitments because manufacturers can reduce costs by operating with positive gain this explains the prevalence of the bullwhip effect a family of commitment based policies that can dynamically maintain any desired inventory level for any demand rate e g achieve positive gain without the bullwhip effect is also presented the family includes just in time strategies as a special case simulation results are used as an illustration

foreign currency denominated debt an empirical examination we examine the determinants of debt issuance in 10 major currencies by large u s firms using the fraction of foreign subsidiaries and tests exploiting the disaggregated nature of our data we find strong evidence that firms issue foreign currency debt to hedge their exposure both at the aggregate and the individual currency levels we also find some evidence that firms choose currencies in which information asymmetry between domestic and foreign investors is low we find no evidence that tax arbitrage liquidity of underlying debt markets or legal regimes influence the decision to issue debt in foreign currency

what drives credit dollarization in transition economies abstract this paper provides an in depth analysis of the use of foreign currencies in the lending activities of banks in transition economies the impact of bank and firm variables on credit dollarization is studied in an optimal portfolio allocation model and estimated using new aggregate data for 21 transition economies for the period 1990 2003 empirical results provide evidence that credit dollarization is the combined outcome of domestic deposit dollarization and banks desire for currency matched portfolios beyond regulatory requirements the effects of international financial factors and natural hedges are less robust across alternative specifications the paper further discusses the role of regulations in affecting the impact of these factors on credit dollarization and calls for more developed domestic forward foreign exchange markets

foreign bank entry credit allocation and lending rates in emerging markets empirical evidence from poland abstract earlier studies have documented that foreign banks charge lower lending rates and interest spreads than domestic banks we hypothesize that this may stem from the superior efficiency of foreign entrants that they decide to pass onto borrowers performance hypothesis but could also reflect a different loan allocation with respect to borrower transparency loan maturity and currency portfolio composition hypothesis we are able to differentiate between the above hypotheses thanks to a novel dataset containing detailed bank specific information for the polish banking industry our findings demonstrate that banks differ significantly in terms of portfolio composition and we attest to the portfolio composition hypothesis by showing that having controlled for portfolio composition there are no differences in lending rates between banks

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

characterization of the bullwhip effect in linear time invariant supply chains some formulae and tests the authors analyze the bullwhip effect in multistage decentralized supply chains operated with linear and time invariant inventory management policies the focus is on robustness the supply chain is modeled as a single input single output control system driven by arbitrary customer demands the authors derive robust analytical conditions to predict the presence of the bullwhip effect and bound its magnitude based only on the way inventories are managed these results hold independently of the customer demand the authors also characterize the stream of orders placed at any stage of the chain when the customer demand process is known and ergodic and give an exact formula for the variance of the orders placed this formula generalizes existing results by broadening the class of inventory replenishment policies and customer demand processes to which it applies the authors also show that the bullwhip effect can be mitigated by introducing commitments for future orders into the ordering policies

measuring and avoiding the bullwhip effect a control theoretic approach an important contributory factor to the bullwhip effect i e the variance amplification of order quantities observed in supply chains is the replenishment rule used by supply chain members first the bullwhip effect induced by the use of different forecasting methods in order up to replenishment policies is analysed variance amplification is quantified and we prove that the bullwhip effect is guaranteed in the order up to model irrespective of the forecasting method used thus when production is inflexible and significant costs are incurred by frequently switching production quantities up and down order up to policies may no longer be desirable or even achievable in the second part of the paper a general decision rule is introduced that avoids variance amplification and succeeds in generating smooth ordering patterns even when demand has to be forecasted the methodology is based on control systems engineering and allows important insights to be gained about the dynamic behaviour of replenishment rules