zero tolerance policies do they inhibit or stimulate illicit drug consumption some have suggested fighting the drug problem with so called zero tolerance policies that impose stiff sanctions for possession of even trace amounts of illicit drugs such policies can swamp the criminal justice system and violate the principle that the punishment should fit the crime but these objections have often been suppressed by an overriding desire to minimize consumption this paper argues to the contrary that under plausible conditions zero tolerance policies may actually encourage controlled users to consume more not less than they would if the punishment increased in proportion to the quantity possessed at the time of arrest this result holds even if for every quantity the punishment under the proportional policy is less than or equal to that under the zero tolerance policy the argument relies on a mathematical model that describes how a typical controlled user s purchasing habits are affected by the punishment anticipated as a function of the quantity possessed a variety of possible p

will business cycles in the euro area converge a critical survey of empirical research this survey of business cycle synchronization in the european monetary union focuses on two issues have business cycles become more similar and which factors drive business cycle synchronization we conclude that business cycles in the euro area have gone through periods of both convergence and divergence still there is quite some evidence that during the 1990s business cycle synchronization in the euro area has increased higher trade intensity is found to lead to more synchronization but the point estimates vary widely the evidence for other factors affecting business cycle synchronization is very mixed

reducing the bullwhip effect looking through the appropriate lens demand amplification now frequently referred to as bullwhip is potentially a very costly phenomenon it can lead to stock outs large and expensive capacity utilisation swings lower quality products and considerable production transport on costs as deliveries are ramped up and down at the whim of the supply chain however the detection of bullwhip depends on which lens is used this in turn depends on the background and requirements of various players within the value stream to gain insight into this scenario we exploit a relatively simple replenishment model because new and novel analytic solutions have been derived for all important performance metrics comparison of the competing bullwhip measures is thereby greatly streamlined in the complex real world the likelihood is that supply chains will generate even greater inconsistency between alternative variance shock and filter lens viewpoints

output dynamics in real business cycles models the time series literature reports two stylized facts about output dynamics in the united states gnp growth is positively autocorrelated and gnp appears to have an important trend reverting component this paper investigates whether current real business cycle rbc models are consistent with these stylized facts many rbc models have weak internal propagation mechanisms and must rely on external sources of dynamics to replicate both facts models that incorporate labor adjustment costs are partially successful they endogenously generate positive autocorrelation in output growth but they need implausibly large transitory shocks to match the trend reverting component in output

behavioral causes of the bullwhip effect and the observed value of inventory information the tendency of orders to increase in variability as one moves up a supply chain is commonly known as the bullwhip effect we study this phenomenon from a behavioral perspective in the context of a simple serial supply chain subject to information lags and stochastic demand we conduct two experiments on two different sets of participants in the first we find the bullwhip effect still exists when normal operational causes e g batching price fluctuations demand estimation etc are removed the persistence of the bullwhip effect is explained to some extent by evidence that decision makers consistently underweight the supply line when making order decisions in the second experiment we find that the bullwhip and the underlying tendency of underweighting remains when information on inventory levels is shared however we observe that inventory information helps somewhat to alleviate the bullwhip effect by helping upstream chain members better anticipate and prepare for fluctuations in inventory needs downstream these experimental results support the theoretically suggested notion that upstream chain members stand to gain the most from information sharing initiatives

labour markets liquidity and monetary policy regimes dans leur etude les auteurs elaborent un modele d equilibre du mecanisme de transmission de la politique monetaire qui fait ressortir les elements de friction relatifs a l acquisition d information sur le marche de la monnaie et a la recherche d emploi

aggregate employment real business cycles and superior information abstract we test whether dynamic stochastic general equilibrium artificial economies associated with several labor market structures provide an adequate characterization of aggregate employment volatility and dynamics our test is robust to possible misspecifications about the information set used by economic agents to forecast future events accounting for agents superior information we find that the divisible labor indivisible labor labor adjustment costs and labor hoarding structures replicate employment volatility in contrast to the nominal wage contracts structure also the labor hoarding structure provides a substantially better account of employment dynamics

the time varying nairu and its implications for economic policy the nairu the unemployment rate consistent with a constant rate of inflation is estimated in this paper as a parameter allowed to vary over time value is determined in an econometric model where the inflation rate depends on its past values demand and supply shocks the nairu estimated for the gdp deflator varies over the past forty years within 5 4 to 6 5 percent its estimated value for the most recent quarter 1996 q2 is 5 6 percent the nairu has declined in recent years in response to global competition immigration other factors weakening labor s bargaining position and the rapidly declining prices of computers and other electronics

seasonality aggregation and the testing of the production smoothing hypothesis one of the leading hypotheses concerning the dynamics of production over time is the production smoothing hypothesis given a planning horizon which spans a number of production periods the firm need not produce in each period an amount equal to expected sales rather resorting to inventory accumulation and liquidation the firm may follow a production plan temporally smoother than the path of demand if firms faced with convex cost functions chose to smooth the rate of output in order to minimize costs one would expect to observe that the rate of output would vary less than the rate of sales with variations in inventory stocks absorbing some of the fluctuations in sales recently work on the testing of the production smoothing hypothesis has cast doubt on its empirical validity the evidence presented by alan blinder seems to indicate that the variance of production exceeds that of sales in seven out of eight two digit retail industries 1981 and in eighteen out of twenty two digit manufacturing industries 1983 and 1986 the purpose of this paper then is to examine the validity of such tests when seasonally adjusted aggregated data are used the evidence presented show that the relative size of the variances of the seasonally adjusted production and sales does not provide valid tests of the production smoothing hypothesis in addition aggregating over firms where the seasonal patterns differ may also distort tests of production smoothing blinder realized that the use of seasonally adjusted data may not provide an adequate test of the hypothesis stating had they been available i would have preferred to use data that were not seasonally adjusted since the production smoothing model presumably applies to seasonal fluctuations in sales however such data are not available 1983 fn 19 in this paper i focus on the cement industry because the unadjusted disaggregated data are available for the direct testing of the conjecture that aggregate seasonally adjusted data mask production smoothing phenomenon aggregate monthly data on five other industries will also be examined

non stationary hours in a dsge model the time series fit of dynamic stochastic general equilibrium dsge models often suffers from restrictions on the long run dynamics that are at odds with the data using bayesian methods we estimate a stochastic growth model in which hours worked are stationary and a modified version with permanent labor supply shocks if firms can freely adjust labor inputs the data support the latter specification once we introduce frictions in terms of labor adjustment costs the overall time series fit improves and the model specification in which labor supply shocks and hours worked are stationary is preferred

labor and investment frictions in a real business cycle model abstract this paper develops a prototype real business cycle model in which labor and investment frictions may compete directly with technology shocks in accounting for fluctuations in the postwar us economy using ireland s 2004a a method for taking models to the data journal of economic dynamics and control 28 1205 1226 methodology we establish that both types of friction are quantitatively important technology shocks still explain a substantial fraction of the fluctuations in aggregate output as the baseline real business cycle model predicts formal hypothesis tests suggest that changes in the recurrence of shocks frictions and structural parameters all play a role in accounting for the shift in the time series properties of the data between the periods before and after 1980

inflation forecast targeting implementing and monitoring inflation targets abstract inflation targeting is shown to imply inflation forecast targeting the central bank s inflation forecast becomes an explicit intermediate target inflation forecast targeting simplifies both implementation and monitoring of monetary policy the weight on output stabilization determines how quickly the inflation forecast is adjusted towards the inflation target money growth or exchange rate targeting is generally inferior than inflation targeting and leads to higher inflation variability commitment to target rules may be better than commitment to instrument rules

job matching and propagation in the u s labor market the vacancy unemployment ratio and employment react sluggishly to productivity shocks we show that the job matching model in its standard form cannot reproduce these patterns due to excessively rapid vacancy responses extending the model to incorporate sunk costs for vacancy creation yields highly realistic dynamics creation costs induce entrant firms to smooth the adjustment of new openings following a shock leading the stock of vacancies to react sluggishly

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

factor adjustment costs a structural investigation abstract this paper assesses various capital and labor adjustment costs functions estimating a general equilibrium framework with bayesian methods using us aggregate data the estimation finds that the adjustment costs are convex in both capital and labor and allowing for their joint interaction is important the structural model enables us to identify the response of factor adjustment costs to exogenous disturbances and to establish that shocks to technology and the job separation rate are key drivers of adjustment costs the analysis shows that factor adjustment costs enable the model to explain fluctuations in the firm s market value in the data

indicator variables for optimal policy the optimal weights on indicators in models with partial information about the state of the economy and forward looking variables are derived and interpreted both for equilibria under discretion and under commitment an example of optimal monetary policy with a partially observable potential output and a forward looking indicator is examined the optimal response to the optimal estimate of potential output displays certainty equivalence whereas the optimal response to the imperfect observation of output depends on the noise in this observation

real and nominal propagation of nominal shocks the role of real and nominal propagation mechanisms in generating persistent real effects of nominal shocks is analysed analytically in a fully specified intertemporal general equilibrium model while neither a real propagation mechanism capital acccumulation with one period nominal contracts nor nominal propagation staggered nominal contracts in the absence of any real propagation can generate plausible impulse responses with strong persistence it is shown that the two mechanisms interact so as to strengthen persistence possibly unit roots and generate more plausible impulse responses

labor market search endogenous disasters and the equity premium puzzle abstract the present paper investigates i the endogenous disaster mechanism in a textbook search and matching model when calibrated with a constant flow value of unemployment that is close to average labor productivity and ii its contribution to solve the equity premium puzzle i offer a simple explanation for the core of the disaster mechanism the lower bound say xkink on the annuitized costs the firm incurs from investing in a match lies sufficiently close to the body of productivity s distribution if labor productivity drops close to or even below xkink for consecutive periods the firm s annuitized share in expected future productivity of a worker can either only barely or even no longer at all break even the annuitized lower bound of the costs the firm faces vacancies become unprofitable and the economy quickly enters a downward spiral the core of the mechanism relies critically on an unreasonably high and constant flow value of unemployment disasters disappear entirely for slightly smaller or procyclical values and the effects cannot be compensated by empirically plausible adjustments of the model s remaining parameters while the model can generate a sizeable equity premium combined with a small risk free rate if the flow value of unemployment is large and constant and if the coefficient of relative risk aversion and the elasticity of intertemporal substitution are both high premia again collapse by an order of magnitude in the versions of the model without disasters

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

search for a monetary propagation mechanism abstract this paper examines a monetary propagation mechanism in an economy where exchanges in goods and labor markets involve costly search it is shown that an increase in the money growth rate increases steady state employment and output when the money growth rate is low but reduces steady state employment and output when the money growth rate is already high the model produces persistent hump shaped responses in employment and output to money growth shocks even when the shocks have no persistence the model also generates desirable features in job vacancy sales inventory and the velocity of money all these features emerge here in an economy with perfectly flexible prices and wages journal of economic literatureclassification numbers e40 e30

determining output and inflation variability are the phillips curve and the monetary policy reaction function responsible i introduction the natural rate hypothesis that no long run trade off exists between inflation and unemployment has won over most macroeconomists a new trade off between the variability of inflation and the variability of output has lately attracted considerable attention instead of minimizing a weighted sum of the levels of inflation and unemployment the central bank s objective function minimizes a weighted sum of the variances of inflation and output given this loss function for the central bank a great deal of theoretical research has been undertaken as to which type of monetary policy rule is both efficient and robust clarida et al 1999 and an edited volume by taylor 1999b investigate various monetary policy rules in this article i explore the determinants of inflation and output variability first in a theoretical study i present the theoretical studies of taylor 1994 svensson 1997 and ball 1999a and investigate how the policy parameters in a taylor monetary policy reaction function are related to the variability of output and inflation computational experiments show that first as monetary policy makers increase their degree of responsiveness to inflation the variability of inflation falls but the variability of output increases second if policy makers increase their policy response to output gaps the variances of both inflation and output decrease in addition the experiments illustrate that the changes in the variability of output and inflation can be the result of changes in the responsiveness of prices to output gaps the second part of the article provides cross country evidence regarding the relationship of inflation and output variability to both the policy parameters of the monetary policy reaction function and the slope parameter of the phillips curve by analyzing data from 20 organisation for economic cooperation and development oecd countries this study estimates the parameters of the monetary policy reaction function and the slope parameter of the phillips curve and examines the relationships between the estimated parameters and the variability of output and inflation although there have been numerous empirical investigations of monetary policy reaction functions taylor 1999a clarida et al 2000 among others there is very little empirical evidence concerning a relationship between the parameters in the policy reaction function and the variability of output and inflation for several countries furthermore there is even less empirical literature that considers the relationship between the policy parameters and output and inflation variability in a cross country framework this study attempts to extend the empirical analysis to a group of countries by using international data 1 there are two main findings first inflation will be low and stable in countries where the monetary policy rule has large reaction coefficients and second output will have large fluctuations in countries where the phillips curve is relatively flat 2 the rest of this article is divided up into four sections section ii provides an overview of the taylor svensson ball tsb model the relationship between the model s parameter values and inflation and output variability is explored through simulations section iii describes the empirical data for the 20 oecd countries and reports the estimated parameters of the tsb model section iv presents the results of the cross country regressions used to evaluate the determinants of inflation and output variability finally section v offers conclusions ii the tsb model assumptions the tsb model describes the economy in three equations 1 sub t beta i sub t 1 pi sub t 1 r sup lambda sub t 1 u sub t 2 pi sub t pi sub t 1 alpha sub t 1 e sub t 3 i sub t pi

indicator variables for optimal policy under asymmetric information the optimal weights on indicators in models with partial information about the state of the economy and forward looking variables are derived and interpreted both for equilibria under discretion and under commitment the private sector is assumed to have more information about the state of the economy than the policymaker certainty equivalence holds for the optimal reaction function in state space form t he coefficients are independent of the degree of uncertainty about the state of the economy however in the case of commitment certainty equivalence does not hold for the reaction function in integrative form the policy instrument cannot be written as a distributed lag of past estimates of past states of the economy instead optimal policy will generally depend on new estimates of past states of the economy and in ways that depend on the information structure furthermore the usual separation principle does not hold since the estimation of the state of the economy is not independent of optimization and is in general quite complex we present a general characterization of optimal filtering and control in settings of this kind and discuss an application of our methods to the problem of the optimal use of real time macroeconomic data in the conduct of monetary policy

a sunspot paradox abstract this paper shows that the local stability properties of dynamic general equilibrium macroeconomic models may depend on the length of a period in the model economy this leads to the following paradoxical situation the economy may be driven by sunspots for some decision frequencies while sunspots can have no impact at other decision frequencies

should central banks respond to movements in asset prices in recent decades asset booms and busts have been important factors in macroeconomic fluctuations in both industrial and developing countries in light of this experience how if at all should central bankers respond to asset price volatility we have addressed this issue in previous work bernanke and gertler 1999 the context of our earlier study was the relatively new but increasingly popular monetary policy framework known as inflation targeting see e g bernanke and frederic mishkin 1997 in an inflation targeting framework publicly announced medium term inflation targets provide a nominal anchor for monetary policy while allowing the central bank some flexibility to help stabilize the real economy in the short run the inflation targeting approach gives a specific answer to the question of how central bankers should respond to asset prices changes in asset prices should affect monetary policy only to the extent that they affect the central bank s forecast of inflation to a first approximation once the predictive content of asset prices for inflation has been accounted for there should be no additional response of monetary policy to assetprice fluctuations in use now for about a decade inflationtargeting has generally performed well in practice however so far this approach has not often been stress tested by large swings in asset prices our earlier research employed simulations of a small calibrated macroeconomic model to examine how an inflation targeting policy defined as one in which the central bank s instrument interest rate responds primarily to changes in expected inflation might fare in the face of a boom and bust cycle in asset prices we found that an aggressive inflationtargeting policy rule in our simulations one in which the coefficient relating the instrument interest rate to expected inflation is 2 0 substantially stabilizes both output and inflation in scenarios in which a bubble in stock prices develops and then collapses as well as in scenarios in which technology shocks drive stock prices intuitively inflation targeting central banks automatically accommodate productivity gains that lift stock prices while offsetting purely speculative increases or decreases in stock values whose primary effects are through aggregate demand conditional on a strong policy response to expected inflation we found little if any additional gains from allowing an independent response of central bank policy to the level of asset prices in our view there are good reasons outside of our formal model to worry about attempts by central banks to influence asset prices including the fact that as history has shown the effects of such attempts on market psychology are dangerously unpredictable hence we concluded that inflationtargeting central banks need not respond to asset prices except insofar as they affect the inflation forecast in the spirit of recent work on robust control the exercises in our earlier paper analyzed the performance of policy rules in worst case discussants robert shiller yale university glenn rudebusch federal reserve bank of san francisco kenneth rogoff harvard university

refinements on macroeconomic modeling the role of non separability and heterogeneous labor supply abstract this paper proposes a dynamic stochastic general equilibrium model characterized by heterogenous labor schedules and non separability between consumption and labor in the utility function the model successfully describes output consumption investment and interest rates after a monetary expansion the proposed formulation improves on standard models by using preferences favored by the data and by requiring investment adjustment costs and habit formation parameters more in line with the micro based evidence

human capital formation and business cycle persistence abstract in this paper we examine the role of the formation of human capital in propagating shocks over the business cycle we show that a two sector equilibrium business cycle model with human capital is able to generate persistence in the growth of output and other aggregate variables comparable to that observed in the post war us data a key feature is the relatively low elasticity of substitution between skilled and unskilled labor in the production of human capital

an empirical investigation on causes and effects of the bullwhip effect evidence from the personal care sector abstract this paper analyses the empirical demand data for fast moving consumer goods to measure the bullwhip effect the data consist of the sell in from a large manufacturer to the retailers and the sell out from a retailer to the consumers our findings show that the bullwhip effect can be substantial indeed in more than 50 of the cases the demand upstream sell in is twice as variable as the demand downstream sell out however in other cases it can be negligible and in one case the demand upstream is slightly less variable than the demand downstream so while the bullwhip effect can be very large it need not be so finally we attempted to delve into the dynamics that generate a significant bullwhip effect and discovered that among the various causes that create the bullwhip effect discussed by lee et al 1997a price fluctuations and forward buys driven by sales targets play a decisive role we show that the flatter the final consumer demand sell out the more room there is for the retailers to forward buy in order to take advantage of the deals offered by the manufacturer s sales force toward the end of the sales period on the contrary the more variable the final consumer demand the less willing the retailer is to make a risky inventory investment and thus the more the retailer s orders closely follow consumer demand this result at the product family level is very consistent with the results that cachon et al 2007 obtained at the company industry level

fleshing out the monetary transmission mechanism output composition and the role of financial frictions financial frictions affect the way in which different macroeconomic series respond to a monetary policy shock we embed the financial accelerator of bernanke gertler and gilchrist 1999 into a medium scale dsge model and evaluate the relative importance of financial frictions in explaining monetary transmission specifically we apply minimum distance estimation based on impulse responses for the volcker greenspan period apart from providing estimates for structural parameters our procedure lends itself for specification tests that can be used to assess the relative fit of various restricted models financial frictions turn out to be of lesser importance for the descriptive success of our model

can a real business cycle model pass the watson test abstract watson 1993 measures of fit for calibrated models journal of political economy 101 6 1011 1041 proposes a procedure for evaluating the fit of a dynamic equilibrium business cycle model under watson s criterion the standard real business cycle rbc model fails dramatically in reconciling the dynamics of the model with the data this inability to account for the dynamics of us aggregate data remains a major challenge to rbc theory this paper demonstrates that reasonable modifications can bring rbc theory into closer conformity with the data the empirical results indicate that when habit formation on leisure choice and employment externality are incorporated into the analysis the striking spectral density differentials documented by watson virtually vanish at business cycle frequencies

measuring factor adjustment costs i estimate adjustment costs for labor and capital from the euler equations for factor demand for both factors i find relatively strong evidence against substantial adjustment costs my estimates use annual data from two digit industries my results support the view that rents arising from adjustment costs are relatively small and are not an important part of the explanation of the large movements of the values of corporations in relation to the reproduction costs of their capital i investigate the potential effects of three types of specification error 1 aggregation over time 2 aggregation over firms with heterogeneous demand shocks and 3 estimation of a convex adjustment cost technology in the presence of nonconvex discrete adjustment costs i find that the likely biases from these specification errors are relatively small

uncertainty and monetary policy rules in the united states this paper analyses the impact of uncertainty about the true state of the economy on monetary policy rules in the us since the early 1980s extending the taylor rule to allow for this type of uncertainty we find evidence that the predictions of the theoretical literature on responses to uncertainty are reflected in the behaviour of policymakers suggesting that policymakers are adhering to prescriptions for optimal policy we find that the impact of uncertainty was most marked in 1983 when uncertainty increased interest rates by up to 140 basis points in 1989 90 when uncertainty increased interest rates by up to 50 basis points and in 1996 2001 when uncertainty reduced interest rates by up to 50 basis points over five years

an estimated canadian dsge model with nominal and real rigidities this paper develops a dynamic stochastic general equilibrium dgse model for the canadian economy and evaluates the real effects of monetary policy shocks to generate high and persistent real effects the model combines nominal frictions in the form of costly price adjustment with real rigidities modelled as convex costs of adjusting capital and employment

an empirically simulated investigation of the impact of demand forecasting on the bullwhip effect evidence from u s auto industry this study empirically examines the impacts of three major aspects of demand forecasting on the magnitude of the bullwhip effect three research questions are addressed to investigate the association between 1 forecast accuracy 2 aggregate forecasting and 3 responsive forecasting and the bullwhip effect using forecasted demand generated from popular time series forecasting models and real life demand data the study investigates the relationship between the forecasted results and the consequential bullwhip effect the findings show that the forecasting methods used lead to the variation of the bullwhip effect moreover the lead time reduction and the stable demand forecast are beneficial to reduce the bullwhip effect however our empirical results differ from previous findings in two ways i improving forecast accuracy does not necessarily reduce the bullwhip effect and ii aggregate forecasting does not always reduce the bullwhip effect

the econometric analysis of models with risk terms summary in this paper we have attempted to provide an integrated approach to the estimation of models with risk terms it was argued that there exist orthogonality conditions between variables in the information set and higher order moments of the unanticipated variable density these could be exploited to provide consistent estimators of the parameters associated with the risk term specifically it was recommended that an iv estimator should be applied with instruments constructed from the information set four existing methods commonly used to estimate models with risk terms are examined and applications of the techniques are made to the estimation of the risk term in the us c exchange market and the effects of price uncertainty upon production

on the dynamics of international inflation abstract we investigate the dynamic properties of inflation in 20 oecd countries with a novel approach based on the autocorrelation function we find evidence in favor of long memory and nonlinearity linear autoregressive models are shown to be misspecified

real business cycle models and the forecastable movements in output hours and consumption the authors study the movements in output consumption and hours that are forecastable from a vector autoregression and analyze how they differ from those predicted by standard real business cycle models they show that actual forecastable movements in output have a variance about one hundred times larger than those predicted by the model the authors also find that forecastable changes in the three series are strongly positively correlated with each other on the other hand for parameters whose implications are plausible in other respects the model implies that output consumption and hours should not all be expected to move in the same direction copyright 1996 by american economic association

on measuring the welfare cost of business cycles lucas 1987 argues that the gain from eliminating aggregate fluctuations is trivial following lucas a number of researchers have altered assumptions on preferences and found that the gain from eliminating business cycles are potentially very large however in these exercises little discipline is placed on preference parameters this paper estimates the welfare cost of business cycles allowing for potential time non separabilities in preferences where discipline is placed on the choice of preference parameters by requiring that the preferences be consistent with observed fluctuations in a model of business cycles that is a theoretical real business cycle world is constructed and the representative agent is then placed in this world the agent responds optimally to exogenous shocks given the frictions in the economy the agent s preference parameters along with other structural parameters are estimated using a bayesian procedure involving markov chain monte carlo methods two main results emerge from the paper first the form for the time non separability estimated in this paper is very different than the forms suggested and used elsewhere in the literature second the welfare cost of business cycles is close to lucas s estimate

technology shocks and aggregate fluctuations in an estimated hybrid rbc model this paper contributes to the on going empirical debate regarding the role of the rbc model and in particular of technology shocks in explaining aggregate fluctuations to this end we estimate the model s posterior density using markov chain monte carlo mcmc methods within this framework we extend ireland s 2001 2004 hybrid estimation approach to allow for a vector autoregressive moving average varma process to describe the movements and co movements of the model s errors not explained by the basic rbc model the results of marginal likelihood ratio tests reveal that the more general model of the errors significantly improves the model s fit relative to the var and ar alternatives moreover despite setting the rbc model a more difficult task under the varma specification our analysis based on forecast error and spectral decompositions suggests that the rbc model is still capable of explaining a significant fraction of the observed variation in macroeconomic aggregates in the post war u s economy

a novel time varying bullwhip effect metric an application to promotional sales abstract bullwhip effect is a problem of paramount importance that reduces competitiveness of supply chains around the world a significant effort is being devoted by both practitioners and academics to understand its causes and to reduce its pernicious consequences nevertheless limited research has been carried out to analyse potential metrics to measure it that typically are summarized in the coefficient of variation ratio of different echelons demand this work proposes a new metric based on a time varying extension of the aforementioned bullwhip effect metric by employing recursive estimation algorithms expressed in the state space framework to provide at each single time period a real time bullwhip effect estimate in order to illustrate the results a case study based on a serially linked supply chain of two echelons from the chemical industry is analysed particularly this metric is employed to analyse the effect of promotional campaigns on the bullwhip effect on a real time fashion the results show that effectively the bullwhip effect is not constant along time but interestingly it is reduced during the promotional periods and it is bigger before and after the promotion takes place

supply chain decision making will shorter cycle times and shared point of sale information necessarily help using a simulated supply chain experiment based on the well known beer game we examine how changes in order and delivery cycles availability of shared point of sale pos information and the pattern of customer demand affect supply chain efficiency we find that speeding up cycle time is beneficial but the sharing of pos information is not necessarily so whether or not the sharing of pos information is beneficial depends on the nature of the demand pattern represented by the pos information if the demand pattern conveys continual change in ultimate downstream customer demand as does an s shaped demand pattern the pos information can distract the upstream decision maker from what is perhaps more immediately relevant information orders placed by the proximate downstream agent and the supply line

has monetary policy become more effective we investigate the implications of changes in the structure of the u s economy for monetary policy effectiveness estimating a vector autoregression over the pre and post 1980 periods we provide evidence of a reduced effect of monetary policy shocks in the latter period we estimate a structural model that replicates well the economy s response in both periods and perform counterfactual experiments to determine the source of the change in the monetary transmission mechanism and in the economy s volatility we find that by responding more strongly to inflation expectations monetary policy has stabilized the economy more effectively in the post 1980 period

quantifying the bullwhip effect using two echelon data a cross industry empirical investigation the bullwhip effect denotes the phenomenon whereby demand variability is amplified from a downstream site buyer to an upstream site supplier in the supply chain this paper contributes to the literature that empirically investigates the bullwhip effect by providing new evidence regarding its prevalence and magnitude in contrast to previous work we use a two echelon approach which allows us to observe variations at both the upstream and the downstream sites by drawing on a financial accounting standard regarding information disclosure about major customers we are able to link 5494 buyers and suppliers in the u s between 1976 and 2009 we merge this information with quarterly financial accounting data to form a sample of 14 933 buyer supplier dyad observations we correct for sample selection bias using propensity score matching and estimate the average bullwhip effect in our sample to be 1 90 i e 90 demand variability amplification between echelons a significant bullwhip effect is observed across industries mining manufacturing wholesale and retail and is supported by several robustness checks we investigate and discuss how these results can be generalized beyond our sample

endogenous money or sticky prices abstract what explains the correlations between nominal and real variables in the postwar us data are these correlations indicative of significant nominal rigidity or do they simply reflect the particular way that monetary policymakers react to developments in the real economy to answer these questions this paper uses maximum likelihood to estimate a model of endogenous money this model allows but does not require nominal prices to be sticky the results show that nominal price rigidity over and above endogenous money plays a role in accounting for key features of the data

monetary policy with uncertain parameters this thesis contains four chapters each of which examines different aspects of the uncertainty facing monetary policymakers monetary policy and market interest rates investigates how interest rates set on financial markets respond to policy actions taken by the monetary authorities the reaction of market rates is shown to depend crucially on market participants interpretation of the factors underlying the policy move these theoretical predictions find support in an empirical analysis of the u s financial markets predicting monetary policy using federal funds futures prices examines how prices of federal funds futures contracts can be used to predict policy moves by the federal reserve although the futures prices exhibit systematic variation across trading days and calendar months they are shown to be fairly successful in predicting the federal funds rate target that will prevailafter the next meeting of the federal open market committee from 1994 to 1998 monetary policy with uncertain parameters examines the effects of parameter uncertainty on the optimal monetary policy strategy under certain parameter configurations increasing uncertainty is shown to lead to more aggressive policy in contrast to the accepted wisdom should central banks be more aggressive examines why a certain class of monetary policy models leads to more aggressive policy prescriptions than what is observed in reality these counterfactual results are shown to be due to model restrictions rather than central banks being too cautious in their policy behavior an unrestricted model taking the dynamics of the economy and multiplicative parameter uncertainty into account leads to optimal policy prescriptions which are very close to observed federal reserve behavior

bullwhip effect and supply chain costs with low and high quality information on inventory shrinkage abstract inventory inaccuracy is the mismatch between the recorded inventory and the physical inventory which is severe and widespread in industry a few studies have investigated the bullwhip effect with the existence of inventory inaccuracy the development of information technologies has provided companies with access to accurate inventory information in real time this will surely affect the bullwhip effect and supply chain costs the aim of this paper is to build an analytical model to systematically investigate these effects we consider a retailer manufacturer supply chain in which the retailer faces inventory shrinkage which is the main cause of inventory inaccuracy both the situations with accurate real time inventory information i e high quality information and the situation with statistical inventory information i e low quality information are studied we examine the relationships between the bullwhip effect information distortion and supply chain costs with different levels of information quality the results of our analysis enrich the existing literature on the bullwhip effect first we show that the bullwhip effect is magnified along the chain when higher quality information on inventory shrinkage specifically real time rather than statistical data is obtained second we show that the magnification of the bullwhip effect does not necessarily result in higher costs third we demonstrate that higher quality information increases the benefits of information sharing our paper provides new insights into the causes extent and economic dynamics of order variability in the presence of inventory inaccuracy and may thus suggest ways of more effectively managing the bullwhip effect and inventory

let s take a break trends and cycles in us real gdp abstract trend cycle decompositions for us real gdp such as the unobserved components models the beveridge nelson decomposition the hodrick prescott filter and others yield very different cycles which bear little resemblance to the nber chronology ascribes much movements to the trend leaving little to the cycle and some imply a negative correlation between the noise to the cycle and the trend we argue that these features are artifacts created by the neglect of a change in the slope of the trend function once this is accounted for all methods yield the same cycle with a trend that is non stochastic except for a few periods around 1973 the cycle is more important in magnitude than previously reported and it accords well with the nber chronology our results are corroborated using an alternative trend cycle decomposition based on a generalized unobserved components models with errors having a mixture of normals distribution for both the slope of the trend function and the cyclical component

is the fed too timid monetary policy in an uncertain world estimates of the taylor rule using historical data from the past decade or two suggest that monetary policy in the u s can be characterized as having reacted in a moderate fashion to output and in

forecast uncertainty and the taylor rule abstract in this paper we derive a modification of a forward looking taylor rule by integrating two variables that measure the uncertainty of inflation and gdp growth forecasts into an otherwise standard new keynesian model we show that certainty equivalence in new keynesian models is a consequence of log linearization and that a second order taylor approximation leads to a reaction function that includes the uncertainty of macroeconomic expectations to test the model empirically we use the standard deviation of individual forecasts around the median consensus forecast as a proxy for forecast uncertainty our sample covers the euro area the united kingdom and the united states for the period 1990q1 2016q4 we find that the bank of england and the european central bank have a significantly negative reaction to inflation forecast uncertainty our findings also reveal that the federal reserve bank of england lowers raises its interest rate in response to higher gdp growth forecast uncertainty we conclude by offering some implications for optimal monetary policy rules and central bank watchers

technology shocks and the business cycle on empirical investigation abstract this paper uses maximum likelihood to estimate a prototypical real business cycle model under several different assumptions regarding the stochastic process governing technological change the estimation approach permits the use of formal statistical hypothesis tests to help discriminate between competing specifications the approach also allows each specification to be evaluated based on its ability to generate accurate out of sample forecasts overall the results indicate that the data prefer a version of the model in which technology shocks are extremely persistent but still trend stationary

evidence on the role of cash flow for investment abstract recent work in macroeconomics argues that imperfections in capital markets may lead to business cycle fluctuations by propagating relatively modest shocks evidence for such a mechanism also known as the financial accelerator consists largely of firm level studies showing that cash flow is an important predictor of investment but this evidence is often viewed with skepticism because cash flow is also a good indicator of investment opportunities in this paper we develop a framework for estimating the extent to which the predictive power of cash flow can be attributed to its role as a fundamental versus its role in alleviating credit frictions for firms with access to commercial paper and bond markets we find that the perfect capital markets model of investment can fully account for the role of cash flow for firms with only limited access to capital markets as indicated by lack of participation in public debt markets however investment appears to be excessively sensitive to fluctuations in cash flow these results thus clarify the role of cash flow in investment equations and provide support for the existence of a financial accelerator

is the political business cycle for real abstract this paper constructs and examines a macroeconomic model which combines features from both real and political business cycle models we augment a standard real business cycle tax model by allowing for varying levels of government partisanship and competence in order to replicate two important empirical regularities first that on average the economy expands early under democratic presidents and contracts early under republican presidents second that presidents whose parties successfully retain the presidency have stronger than average growth in the second half of their terms the model generates both of these features that conform to u s post world war ii data

neutral technology shocks and the dynamics of labor input results from an agnostic identification this article studies the dynamic response of labor input to neutral technology shocks it uses benchmark dynamic stochastic general equilibrium models enriched with labor market search and matching frictions and investment specific technological progress that enables a new agnostic identification scheme based on sign restrictions on a structural vector autoregression svar the estimation supports an increase of labor input in response to neutral technology shocks this finding is robust across different perturbations of the svar model

fiscal year ends and nonlinear incentive contracts the effect on business seasonality salesperson and executive compensation contracts typically specify a nonlinear relationship between firm revenues and pay these agents therefore have incentive to manipulate prices influence the timing of customer purchases and vary effort over their firms fiscal years this paper empirically establishes results consistent with agents focusing on performance over the fiscal year most notably in addition to varying with the calendar business cycle manufacturing firms sales are higher at the end of the fiscal year and lower at the beginning than they are in the middle further evidence is found in fiscal year price movements and patterns in the industry variation of fiscal year effects

local identification in dsge models abstract the issue of identification arises whenever structural models are estimated lack of identification means that the empirical implications of some model parameters are either undetectable or indistinguishable from the implications of other parameters therefore identifiability must be verified prior to estimation this paper provides a simple method for conducting local identification analysis in linearized dsge models estimated in both full and limited information settings in addition to establishing which parameters are locally identified and which are not researchers can determine whether the identification failures are due to data limitations such as lack of observations for some variables or whether they are intrinsic to the structure of the model the methodology is illustrated using a medium scale dsge model

in search of intra industry bullwhips abstract previous research e g cachon et al 2007 has examined the prevalence and magnitude of the bullwhip effect across industries measuring the bullwhip as the ratio of the variance in the stream of orders placed relative to the variance in orders received in some cases surrogates are used for the order measures our contribution is to use the decomposition framework of jin et al 2016a to look intra industry examining whether the bullwhip is created in shipping manufacturing or ordering and exploring whether this varies across industries our analysis is based on monthly industry level u s census bureau data we find and begin to explain significant differences across industries regarding the source of the bullwhip be it in shipping manufacturing and or ordering we also examine how the bullwhip is impacted by the duration and end point of the time aggregation interval our results suggest that some managers may want to shift their reporting period

the effects of real and nominal uncertainty on inflation and output growth some garch m evidence in this paper we use garch m methods to test four hypotheses about the effects of real and nominal uncertainty on average inflation and output growth in the united states from 1948 to 1996 we find no evidence that higher inflation uncertainty or higher output growth uncertainty raises the average inflation rate we also find no support for the idea that more risky output growth is associated with a higher average real growth rate our key result is that in a variety of models and sample periods inflation uncertainty significantly lowers real output growth copyright 2000 john wiley sons ltd

do measures of monetary policy in a var make sense no in many vector autoregressions vars monetary policy shocks are identified with the least squares residuals from a regression of the federal funds rate on an assortment of variables such regressions appear to be structurally fragile and are at odds with other evidence on the nature of the u s federal reserve s reaction function furthermore the residuals from these regressions show little correlation across various vars or with funds rate shocks that are derived from forward looking financial markets my results provide a sharp critique of current monetary vars

sources and propagation of international output cycles common shocks or transmission abstract this paper studies the generation and transmission of international cycles in a multi country model with production and consumption interdependencies two sources of disturbance are considered and three channels of propagation are compared technology disturbances which are mildly correlated across countries are more successful than government expenditure disturbances in reproducing actual data the presence of a common component to the shocks and of production interdependencies appear to be crucial in quantitatively matching the properties of the data

endogenous vs exogenously driven fluctuations in vintage capital models in this paper we present a particular case of the creative destruction model of caballero and hammour quart j econ 111 1996 805 851 in which both exogenous and endogenous fluctuation sources are present we show that job creation follows a delayed differential equation with periodic coefficients the delay is equal to the optimal age of capital goods the period of the coefficients is equal to the period of an exogenous profitability cycle we mathematically show that job creation is asymptotically periodic with the same period as the profitability cycle furthermore using an explicit numerical method we find that replacement echoes generally dominate the short run dynamics finally we find that the combination of the two fluctuations sources favors the appearance of asymmetries in job creation and job destruction patterns

labor and the market value of the firm what role does labor play in a firm s market value we explore this question using a production based asset pricing model with frictions in the adjustment of both capital and labor we posit that hiring of labor is akin to investment in capital and that the two interact with the interaction being a crucial determinant of the time series behavior of market value we use aggregate u s corporate sector data to estimate firms optimal hiring and investment decisions and the consequences for firms value the model generates a good fit of the data we decompose the estimated market value thereby quantifying the link between firms value and gross hiring flows employment gross investment flows and physical capital we find that a conventional specification quadratic adjustment costs for capital and no hiring costs performs poorly hiring and investment flows unlike employment and capital stocks are volatile and both are essential to account for market value volatility a key result is that firms value embodies the value of hiring and investment over and above the capital stock

financing constraints and inventories abstract this paper investigates the impact of financing constraints on firms inventory and cash management in particular it examines the extent to which the presence of such constraints may account for certain empirical regularities these include e g the excess variance of production vis a vis that of sales as well as the counter cyclicality and persistence of the inventory sales ratio we model the intertemporal decision making on production cash retention and dividends of a firm that is exposed to stochastic demand shocks in every period and faces constrained access to external sources of finance it is found that the presence of financing constraints can explain the excess variance of production in a model which otherwise would not deliver this result moreover as long as demand is positively serially correlated they also contribute to the counter cyclicality and persistence of the inventory sales ratio the paper suggests that financing constraints should not be discarded as a factor driving the cyclical behaviour of inventories