asymmetries in price and quantity adjustments by the competitive firm focusing on the crucial role of inventory carry overs in the production and sales decision we describe the profit maximizing behavior of a dynamic competitive firm facing random prices each firm s behavior is incorporated into a stochastic equilibrium model of the competitive industry with uncertain demand the industry model exhibits asymmetric cyclical fluctuations of the keynesian sort when demand is weak output contracts while price holds at a fixed floor when demand is strong price increases as output is constrained by a ceiling even in a pure world of constant returns without increasing costs the inability to instantaneously coordinate production and sales along with the existence of inventories is sufficient to yield a backward i shaped supply curve for the short run journal of economic literature classification numbers 020 021 022

fixed costs of adjustment coordination and industry investment we test whether smooth industry level investment dynamics result from explicit aggregation of asynchronous and possibly lumpy firm level investment we compare the deviations of optimal from actual firm behavior across industries categorized by their ratios of idiosyncratic uncertainty to the sum of idiosyncratic and aggregate uncertainty the deviations are represented by the residuals of a cointegrating regression that is derived from the firm s first order condition under no adjustment costs in support of models with asynchronous firm decisions we find a significant negative relationship across industries between idiosyncratic uncertainty and the persistence of these residuals

inventories rational expectations and the business cycle abstract the simplest macroeconomic models in which markets clear instantaneously and expectations are rational preclude the existence of business cycles that is of serially correlated deviations of output from trend this paper studies one of several mechanisms that can be used to make these so called new classical models produce business cycles the mechanism is the gradual adjustment of inventory stocks two macroeconomic models of inventory holdings are formulated both imply first that current output should be a decreasing function of the stock of inventories and second that inventories once perturbed from equilibrium levels should adjust only gradually these two features are then embedded into an otherwise standard macroeconomic model in which markets clear instantaneously and expectations are rational two principal conclusions are reached first disturbances such as unanticipated changes in money will set in motion serially correlated deviations of output from trend second if desired inventories are sensitive to the real interest rate then even fully anticipated changes in money can affect real variables

a general model of rent seeking for public goods this paper generalizes the model of collective rent seeking over a public good expanding the rent seeker s consumption bundle to include preferences over the public good and a private good our results suggest collective rent seeking is positively related to group size although free riding exists within a group there is not a one for one tradeoff in addition rent seeking increases with wealth finally total effort expended by both groups increases if either group increases in membership size except in the case of an extremely lopsided contest the key condition underlying these results is that the marginal utility of the public good is not inversely related to the private good

money and economic activity inventories and business cycles abstract incomplete information is a necessary condition for any real effects produced by monetary impulses an alternative to the local global inference problem is explored in this paper agents are confronted with permanent and transitory shocks even with full knowledge about the stochastic structure their best perception at any particular time will usually be erroneous prices for each period are set at the beginning of the period on the basis of market conditions the realization of the shock process thus creates a short run disequilibrium absorbed by inventory adjustments this adjustment translates perceived transitory monetary shocks into serially correlated output movements the analysis proceeds within the context of rational expectations it offers a generalization of equilibrium analysis in two respects prices are always in equilibrium relative to perceived conditions but they do not reflect all ongoing shocks quantity adjustments reflect the perceived transitory shocks the framework used involves moreover a stock flow interaction operated by inventory adjustments the stock flow interaction imposes at any time a future expected adjustment path for price level and quantities to the system s unique stock equilibrium a major implication of the analysis resolves a puzzle experienced in a recent paper by robert hall it reconciles intertemporal substitution with lagged effects of monetary impulses it also reconciles small and inconclusive cyclic movements in real wages with the occurrence of production function and large variations in unemployment lastly the nature of the inference problem determined by the pattern of incomplete information produces serially correlated movements conditioned on large permanent shocks

production lags and price behaviour this paper explores the implications of the production lag for the firm s decisions the authors establish a significant relationship between price behavior and the length of the production lag they show that specific results in the literature are crucially dependent upon the assumption about the production lag by allowing the production time to exceed the decision period the basic framework of the earlier price inventory models is significantly extended the model thus incorporates finished goods inventories as well as goods in process inventories copyright 1992 by the london school of economics and political science

inventory and price behaviour the point of this paper is that inventory adjustment attenuates downward pressure on price when realized demand is low because firms accumulate inventory hold overs speculating that demand will be stronger in the succeeding period when realized demand is high the firm draws down its inventories until a stock out occurs and price rises to clear the market

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

production sales and the change in inventories an identity that doesn t add up we examine two measures of monthly manufacturing production the first is the index of industrial production the second is constructed from the accounting identity that output equals sales plus the change in inventories we show that the means variances and serial correlation coefficients of the log growth rates differ substantially between the two series and the cross correlations are in most cases less than 0 4 a model of classical measurement error indicates that in 15 of 20 two digit industries measurement error accounts for over 35 of the variation in the monthly growth rates of seasonally adjusted industrial production

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

endogenous sharing rules in collective group rent seeking this paper examines the possibility of endogenous determination of intra group sharing rules in a collective group rent seeking game collective group rent seeking is considered as a two stage nash cournot game in which sharing rules are determined prior to individual decision on voluntary contribution the solution is subgame perfect and is obtained by backward induction in competition between two groups of the same size the nash equilibrium sharing rule of each group is to distribute rent to each according to relative effort total rent seeking outlays in this case are equal to those obtained by tullock 1980 when more than two groups compete for a rent the sharing rule based on relative effort is again likely to be the nash equilibrium strategy of each group the amount of total rent seeking outlays is also equal to that in tullock 1980 in a nutshell the rent is substantially dissipated if sharing rules are endogenously determined

collective rent dissipation the theory of rent seeking was initiated by tullock 1967 1980 followed by krueger 1974 and posner 1975 and more recently extended in various directions by allard 1988 appelbaum and katz 1986a b c gradstein and nitzan 1989 hillman and katz 1984 1987 hillman and samet 1987 hillman and riley 1989 katz et al 1990 long and vousden 1987 ursprung 1990 and varian 1989 the purpose of this paper is to extend this theory by introducing the possibility of collective group rent seeking with voluntary individual decisions regarding their extent of participation in the collective rent seeking efforts

joint production quasi fixed factors of production and investment in finished goods inventories inventory investment has long been an important area of inquiry for empirical work in macroeconomics this is due in large measure to the fact that inventory investment is a major source of fluctuations in aggregate output empirical work on inventories however has been dominated by the use of simple univariate flexible accelerators 1 the major objective of this paper is to propose and test a multivariate flexible accelerator model for inventory investment the model is tested with data on finished goods inventories from the manufacturing sector of the u s economy there are two reasons for undertaking such a task first at a theoretical level a univariate flexible accelerator model asserts that investment in say finished goods inventories is proportional to the gap between the desired and actual stocks of finished goods such a model presumes that decisions by firms on finished goods inventories are made independently of decisions on other stocks but theory suggests that when firms make simultaneous decisions on a variety of stocks which includes not only finished goods but also goods in process inventories the size of the work force etc decisions on finished goods will interact with decisions on

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

inventories and the structure of macro models the message of this paper can be summed up in two words inventories matter they matter empirically in the sense that inventory developments are of major importance in the propagation of business cycles and they matter theoretically in the sense that recognition of their existence changes the structure of a variety of theoretical macromodels in some fairly important ways this paper is mainly about the implications of inventories for the structure of theoretical macro models but i begin by demonstrating the empirical importance of inventories in business fluctuations this abstract was borrowed from another version of this item

autoregressive modelling and money income causality detection abstract a step wise procedure based on granger s concept of causality and abaike s final prediction error criterion is suggested as a practical means to identify the order of lags of each variable in a multivariate autoregressive process the model seems useful because it can serve as a reduced form formulation to avoid imposing often spurious or false restrictions of the model it also provides a reasonably powerful test of causality the idea is applied to u s postwar money and income data it is found that between m1 and gnp a bivariate feedback model fits the data best between m2 and gnp a one way causal model from money to income performs better diagnostic checks applied to our model seem to indicate the adequacy of our approach

sleeping with the enemy the economic cost of internal environmental conflicts this paper extends the literature on collective rent seeking by introducing the possibility that a competing group may be a subset of another we develop a model that incorporates the potential for some individuals to be party of both sides of a conflict which creates interdependence of payoffs results indicate that strategic individual behavior and the resulting rent dissipation is affected by the relative size of the groups we conduct an experimental test of the model and find that observed laboratory behavior corresponds well with the game theoretic comparative static predictions

mcis and monetary policy abstract several central banks have recently adopted a monetary conditions index mci to guide monetary policy under floating exchange rates this paper discusses some analytical and practical questions raised by mcis furthermore using data for australia canada and new zealand which all operate monetary policy under floating rates and with an inflation target it estimates the responses of the central banks to exchange rate changes the results reveal clear differences between central banks while the reserve bank of australia does not appear to respond the bank of canada and the reserve bank of new zealand who use the mci as an operating target do respond quite strongly to movements in the exchange rate

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

inside money output and inventories in a business cycle this paper describes a dynamic general equilibrium asset pricing model of a competitive monetary economy with a storable good and a cash in advance constraint where output inside money and inventories are endogenously determined inventories allow firms to react to high low productivity states by increasing decreasing production in good bad times in response to a temporary change in the productivity of labor inside money and output are positively and serially correlated with inside money changing before output output fluctuates more than sales and prices fluctuate less in a flexible price model with no storage

using mixed frequency data to improve macroeconomic forecasts of inventory investment this paper briefly reviews and extends the evidence on the importance of inventory investment in business cycles a method for combining high frequency observations with forecasts of a conventional quarterly econometric model is then proposed the method is applied to the michigan quarterly econometric model of the u s economy to see if improved forecasts of inventory investment can be obtained the use of a small set of monthly indicators is found to yield improved forecasts of real gnp but are of little help in forecasting inventory investment a more comprehensive set of monthly indicators including inventory and sales may be needed to obtain improved estimates of quarterly inventory investment

the seasonal cycle and the business cycle almost all recent research on macroeconomic fluctuations has worked with seasonally adjusted or annual data this paper takes a different approach by treating seasonal fluctuations as worthy of study in their own right our results show that seasonal fluctuations are an important source of variation in all macroeconomic quantity variables but are small or entirely absent in both real and nominal price variables the timing of the seasonal fluctuations consists of increases in the second and fourth quarters a large decrease in the first quarter and a mild decrease in the third quarter the paper demonstrates that with respect to each of several major stylized facts about business cycles the seasonal cycle displays the same characteristics as the business cycle in some cases even more dramatically than the business cycle that is we find that at seasonal frequencies as well as at business cycle frequencies output movements across broadly defined sectors move together the timing of production and the

rent seeking for pure public goods in this paper we present a formal analysis of rent seeking for public goods by two or more groups with different numbers of individuals we begin by considering equally wealthy groups under risk neutrality a case which constitutes our basic model several surprising and interesting results emerge from the analysis of this basic case the problem is then extended to deal with a groups with different wealth levels and b risk aversion this last extension brings about a further crop of interesting and useful results

seasonality in surveys a comparison of belgian french and german business tests abstract seasonal effects appear in qualitative responses of monthly business surveys the seasonal effects can be extracted like in regression or time series models via dummy variables in surveys however there is another route to extract the seasonal effects by incorporating questions on the questionnaires which force respondents to make a distinction between seasonal and cyclical effects it is shown in the paper that a comparison of these two approaches on theoretical grounds is inconclusive evidence from belgian french and german surveys is used to make a comparison the approach with survey based seasonal measures is found more desirable moreover the responses to the request to separate seasonal from cyclical effects seem to be fairly consistent

effort levels in contests the public good prize case abstract we examine the equilibrium individual players groups and total effort levels expended in a contest where groups compete with one another to win a group specific public good prize and the players choose their effort levels simultaneously and independently

the stylized facts about the behavior of manufacturers inventories and backorders over the business cycle 1959 1980 recent theoretical work has highlighted the role of inventories in propagating business cycles this paper attempts to provide an empirical foundation for current and future research on the role inventories play in business cycles the evidence presented here indicates that inventories and backorders are major variables in predicting output fluctuations further the evidence is that disaggregating inventories by stage of fabrication is important in predicting output in concert with previous findings our results suggest that disaggregated inventories ought to be a component of models of the business cycle

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances