macroeconomic implications of production bunching factor demand linkages abstract existing empirical evidence suggests that output is more variable than consumption so that production smoothing is not apparently present in this paper we investigate some macroeconomic implications of the proposition that the empirical evidence reflects the presence of some firms in the economy that produce with nonconvex technologies overall when activities are sufficiently complementary and inventory holding is sufficiently costly nonconvexities at the firm level can generate a pattern of output and sales such that the variance of output exceeds that of sales at an aggregate level in this way nonconvexities at the individual firm level may have macroeconomic consequences

investment financing decisions and tax policy mists have analyzed the effects of taxes on capital spending most studies assume that firms respond to prices set in centralized securities markets such as market interest rates of tobin s q and firms undertake all profitable investment projects firms choose the mix or finance among internal funds debt and new equity independently the availability of finance does not limit investment the implications for tax policy are clear the marginal tax rate on returns from a new project matters for investment not the firm s average tax burden on returns from its investments in place for firms that face imperfect markets for

on the efficiency of law a public choice perspective economists have not yet developed a comprehensive theoretical framework incorporating transaction cost economics within a public choice perspective for predicting when there will be an efficiency problem with the law transaction cost reasoning and the rent seeking insight have not been applied systematically in a dynamic institutional context to evaluate when the law will be used to increase or not minimize problems of bounded rationality and opportunism this paper takes a first step at identifying and remedying this deficiency the paper first provides a critical review of relevant theoretical contributions made by becker 1983 1985 posner 1977 priest 1977 rubin 1977 1982 williamson 1975 1985 and others we then show how analysis of the efficiency of law can be synthesized into a broader whole by incorporating transaction cost economics more fully into existing understanding of rentseeking in the political realm thus within the public choice paradigm this paper develops a deeper transaction cost analysis of the efficiency of law building on prior research by the authors crew and rowley 1988a 1988b twight 1983 1988 the paper identifies variables that position legal rules on a spectrum that ranges from those that are predominantly transaction cost

conditional production smoothing in the united kingdom and japan this article investigates the possibility of macroeconomic conditional production smoothing of inventory investment in japan and the uk it is argued that both unconditional and conditional variances and covariances can be useful to interpret the time paths of sales and production after sales and production shocks the vector error correction model of sales and production is estimated by the bivariate garch procedure based on the cointegration relationship between these variables in the two countries the relative magnitude of the conditional variances of sales and production is explained in terms of sales anticipation errors the relative importance of sales and production shocks and serial correlation in sales shocks the relation of how the conditional second moment corresponds to business cycle phases is briefly analyzed

interpreting the great moderation changes in the volatility of economic activity at the macro and micro levels most advanced economies have experienced a striking decline in the volatility of aggregate economic activity since the early 1980s volatility reductions are evident for output and employment at the aggregate level and across most industrial sectors and expenditure categories inflation and inflation volatility have also declined dramatically previous studies offer several potential explanations for this great moderation we review evidence on the great moderation in conjunction with evidence about volatility trends at the micro level we combine the two types of evidence to develop a tentative story for important components of the aggregate volatility decline and its consequences the key ingredients are declines in firm level volatility and aggregate volatility most dramatically in the durable goods sector surprisingly this has occurred without a decline in household consumption volatility and individual earnings uncertainty our explanation for the aggregate volatility decline stresses improved supply chain management particularly in the durable goods sector and less important a shift in production and employment from goods to services we provide evidence that better inventory control made a substantial contribution to declines in firm level and aggregate volatility consistent with this view if we look past the turbulent 1970s and early 1980s much of the moderation reflects a decline in high frequency short term fluctuations while these developments represent efficiency gains they do not imply nor is there evidence for a reduction in economic uncertainty faced by individuals and households

the political economy of taking and just compensation by creating an implicit right to judicial review and lowering the transaction costs a property owner must incur to challenge a taking the just compensation restriction on eminent domain limits the tendency of political decision makers to avoid the subjective costs their actions inflict on property owners and moves the level of taking closer to the social optimum its impact however is partially to completely erased by the risk aversion of the property owner and the fiscal illusion of the political decision maker unless there are additional constraints in the fiscal constitution

inventory behavior with permanent sales shocks abstract empirically adf tests fail to reject the null hypothesis that sales are i 1 we build a model of inventory behavior that incorporates permanent sales shocks analytically the model with i 1 sales implies that the variance ratio of log production to log sales is one in the long run regardless of the strength of production smoothing stockout avoidance or cost shocks but that at business cycle horizons the conditional variance ratio conditional on past production and sales is greater than one we explain analytically using our model and intuitively four traditional inventory puzzles and three puzzles about inventories and monetary policy

a multi layer demand responsive logistics control methodology for alleviating the bullwhip effect of supply chains this paper presents a multi layer demand responsive logistics control strategy for alleviating effectively and efficiently the bullwhip effect of a supply chain utilizing stochastic optimal control methodology the proposed method estimates the time varying demand oriented logistics system states which originate directly and indirectly downstream to the targeted member of a supply chain and associate these estimated demands with estimates of different time varying weights under the goal of systematically optimizing the logistical performance of chain members in addition an experimental design is conducted where the proposed method is evaluated with the two specified criteria numerical results indicate that the proposed method permits alleviating to a great extent the bullwhip effect in comparison with the existing logistics management strategies furthermore the methodology presented in this study is expected to help address issues regarding the uncertainty and complexity of the distortion of demand related information existing broadly among supply chain members for an efficient supply chain coordination

inventories stock outs and production smoothing if stock outs are ignored and if demand shocks are additive then optimal behaviour requires that the marginal cost of production mc be equated with the expected marginal revenue of increasing expected sales by one unit emr however with more general demand shocks and still ignoring stock outs the excess of mc over emr has the same sign as the covariance of the slope of the demand curve and the marginal valuation of inventory the equality of emr and mc is also broken by taking account of stock outs even if demand shocks are additive if there is a production lag then taking account of stock outs implies that optimal behaviour will be characterized by production smoothing even if the cost of production is linear two alternative definitions of production smoothing are presented and optimal behaviour in the presence of stock outs displays each type of smoothing it is a well known proposition that a firm producing a storable good under conditions of increasing marginal cost will tend to smooth the time profile of its production relative to the time profile of its sales the incentive to smooth production arises from the fact that the cost function is a convex function of the level of production for a given average level of production average costs can be reduced by reducing the variation in production of course if the cost function is linear in the level of production then this incentive to smooth production disappears however we will demonstrate in this paper that if the possibility of stock outs is explicitly incorporated into the firm s dynamic optimization problem i e if we impose a non negativity constraint on inventories and if there is a lag in production then optimal behaviour can be characterized by production smoothing even if the cost function is linear

production chains and aggregate output volatility abstract a production chain s aggregate output volatility depends upon a number of factors including the number of firms in a chain the management strategy of the firms the point at which products are differentiated lead times and the persistence of demand shocks the influence of these factors is quantified here with an n firm model of the production chain under pure production to stock pts the firms in the chain respond simultaneously to a demand shock producing a positive covariance across firms that raises aggregate volatility under production to order pto the chain s response to a demand shock is staggered but when demand shocks are persistent there is a catch up effect that raises the volatility of each firm s production above that of a firm that under pts nevertheless pto chains typically exhibit less volatility than pts chains thanks to the covariance effect further simulations demonstrate that the production chain stabilizes as the number of production cycles in an observation period increases

markups aggregation and inventory adjustment in this paper i suggest a unified explanation for two puzzles in the inventory literature first estimates of inventory speeds of adjustment in aggregate data are very small relative to the apparent rapid reaction of stocks to unanticipated variations in sales second estimates of inventory speeds of adjustment in firm level data are significantly higher than in aggregate data the paper develops a multisector model where inventories are held to avoid stockouts and price markups vary along the business cycle the omission of countercyclical markup variations from inventory targets introduces a downward bias in estimates of adjustment speeds obtained from partial adjustment models when the cyclicality of markups differs across sectors this downward bias is shown to be more severe with aggregate rather than firm level data similar results apply not only to inventories but also to labor and prices montercarlo simulations of a calibrated version of the model suggest that these biases are quantitatively significant

inventory management for stochastic lead times with order crossovers we study the impact of stochastic lead times with order crossover on inventory costs and safety stocks in the order up to out policy to motivate our research we present global logistics data which violates the traditional assumption that lead time demand is normally distributed we also observe that order crossover is a common and important phenomenon in real supply chains we present a new method for determining the distribution of the number of open orders using this method we identify the distribution of inventory levels when orders and the work in process are correlated this correlation is present when demand is auto correlated demand forecasts are generated with non optimal methods or when certain ordering policies are present our method allows us to obtain exact safety stock requirements for the so called proportional order up to pout policy a popular implementable linear generalization of the out policy we highlight that the out replenishment policy is not cost optimal in global supply chains as we are able to demonstrate the pout policy always outperforms it under order cross over we show that unlike the constant lead time case minimum safety stocks and minimal inventory variance do not always lead to minimum costs under stochastic lead times with order crossover we also highlight an interesting side effect of minimizing inventory costs under stochastic lead times with order crossover with the pout policy an often significant reduction in the order variance

tax policy and heterogeneous investment behavior abstract we estimate the effect of temporary tax incentives on equipment investment using shifts in accelerated depreciation analyzing data for over 120 000 firms we present three findings first

the impact of forecasting methods on the bullwhip effect abstract this paper considers the impact of forecasting methods on the bullwhip effect for a simple replenishment system in which a first order autoregressive process describes the customer demand and an order up to inventory policy characterizes the replenishment decision a bullwhip effect measure is derived for the optimal forecasting procedure that minimizes the mean squared forecasting error for the specified demand process similar measures are obtained for the moving average and exponential smoothing methods the findings indicate that different forecasting methods lead to bullwhip effect measures with distinct properties in relation to lead time and underlying parameters of the demand process moreover a simple rule is established to help managers select a forecasting method that yields the lowest inventory cost

money and the business cycle with one period nominal contracts a modified version of the nominal contract developed by j a gray 1976 and s fischer 1977 is introduced in a general equilibrium model with money which has been used in the real business cycle literature money is introduced in the model through cash in advance constraint two kinds of contracts are examined namely a nominal wage contract and a nominal price contract the nominal wage contract improves the fit of the model in many respects the nominal price contract increases the output volatility enormously but it has some unrealistic features

optimal policies and approximations for a serial multiechelon inventory system with time correlated demand since clark and scarf s pioneering work most advances in multiechelon inventory systems have been based on demand processes that are time independent this paper revisits the serial multiechelon inventory system of clark and scarf and develops three key results first we provide a simple lower bound approximation to the optimal echelon inventory levels and an upper bound to the total system cost for the basic model of clark and scarf second we show that the structure of the optimal stocking policy of clark and scarf holds under time correlated demand processes using a martingale model of forecast evolution third we extend the approximation to the time correlated demand process and study in particular for an autoregressive demand model the impact of lead times and autocorrelation on the performance of the serial inventory system

understanding the inventory cycle abstract careful examination of aggregate data from the u s and other oecd countries reveals that production and inventory behavior exhibit paradoxical features 1 inventory investment is strongly countercyclical at very high frequencies e g 2 3 quarters per cycle it is procyclical only at relatively low cyclical frequencies such as the business cycle frequencies e g 8 40 quarters per cycle 2 production is less volatile than sales around the high frequencies it is more volatile than sales only around business cycle or lower frequencies 3 unlike capital investment or gdp the bulk of the variance of inventory investment is concentrated around high frequencies rather than around business cycle frequencies these features of production and inventory behavior at the low and high frequencies provide a litmus test for inventory theories this paper shows that the stockout avoidance theory kahn j 1987 inventories and the volatility of production american economic review 77 667 679 has much better potential than other competing theories for explaining the seemingly paradoxical features of inventory fluctuations observed at different cyclical frequencies my analysis suggests that demand shocks are the main source of the business cycle

taking stock a critical assessment of recent research on inventories empirical and theoretical aspects of inventory behavior became hot topics in the 1950s and early 1960s no one seemed to notice the tension that was developing between the emerging macroeconomic and microeconomic views of inventories macroeconomists routinely thought of inventories as a destabilizing factor yet the prevailing micro theory viewed inventories as a stabilizing factor it was a fascinating question that was barely explored instead somewhat inexplicably interest in inventories dried up as if inventories were of minor economic significance and little intrinsic interest by the early 1980s then economists once again knew something they had known in the 1950s that inventory investment is of first order importance in business cycles but they were also beginning to realize that the standard production smoothing buffer stock model of inventories was in deep trouble this paper focuses on developments since that realization

a time series framework for supply chain inventory management we consider a supply chain in which the underlying demand process can be described in a linear state space form inventory is managed at various points of the chain members based on local information that each member observes and continuously updates the key feature of our model is that it takes into account the ability of the members to observe subsets of the underlying state vector and adopt their forecasting and replenishment policies accordingly this enables us to model situations in which the members are privy to certain explanatory variables of the demand with the latter possibly evolving according to a vector autoregressive time series for each member we identify an associated demand evolution model for which we propose an adaptive inventory replenishment policy that utilizes the kalman filter technique we then provide a simple methodology for assessing the benefits of various types of information sharing agreements between members of the supply chain we also discuss inventory positioning and cost performance assessment in the supply chain our performance metrics and inventory target levels are usually presented in matrix forms allowing them to accommodate a relatively large spectrum of linear demand models and making them simple to implement several illustrations for possible applications of our models are provided

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

taming the bullwhip effect whilst watching customer service in a single supply chain echelon we study a generalised order up to policy that has highly desirable properties in terms of order and inventory variance and customer service levels it generates we quantify exactly the variance amplification in replenishment orders i e the bullwhip effect and the variance of inventory levels over time for i i d and the weakly stationary auto regressive ar moving average ma and auto regressive moving average arma demand processes we demonstrate that high customer service as measured by fill rate and smooth replenishments need not increase inventory cost substantially we observe that in some instances of the arma demand pattern this comes at the expense of a relatively small increase in safety stock whilst in other instances inventory levels can actually be reduced

eminent domain power and afterwards leviathan s post taking opportunism this paper investigates post taking procedures a research area not yet fully explored it discusses the economic implications underlying the landowner s repurchase right rr which can be invoked upon the occurrence of a so called change in use after taking rr is compared with the government s discretion regarding such changes the lack of post taking accountability tends to create power ripe for abuse and rr appears to be an effective device for constraining leviathan s opportunism finally a parsimonious estimation supports that under the overriding rr regime there exists the systematic post taking opportunism whereby original public projects are changed into inappropriate projects

uncertainty in sales and inventory behaviour in the u s trade sectors this paper investigates uncertainty in sales and inventory behavior for the u s wholesale and retail trade sectors first using a vector error correction model with garch m the authors find that the uncertainty measured by forecast error variance in sales does not affect inventory behavior in both trade sectors second using forecast error variance decomposition and estimated permanent components they observe that the uncertainty may be attributed more to demand shocks than to cost shocks

gradual reforms of capital income taxation this paper analyzes the intertemporal allocation effects of anticipated tax rate changes reconsidering the recommendations of the meade committee in a perfect foresight general equilibrium model of economic growth it is shown that the r base or consumption tax can be more distortionary than an income tax and that a revenue neutral integration of corporate and personal taxation will lower social welfare moreover it is argued that a dividend tax dominates the r base tax because it places its distortions on the financial rather than on the real side of the economy copyright 1989 by american economic association

the taking of land when should compensation be paid the analysis focuses on the question of whether the payment of compensation for land taken by eminent domain is efficient when the taking decision is independent of land use zero compensation is efficient but full compensation is not when the project decision is no longer independent of land use and can be affected by investor decisions neither compensation rule is generally efficient because of the moral hazard problem with risk averse consumers and risk neutral firms the previous conclusions remain essentially unchanged however when the project decision rule involves a budgetary fiscal illusion additional compensation may be necessary to correct the incentives facing the project decision maker

the value of early order commitment in a two level supply chain abstract one approach to supply chain coordination is early order commitment whereby a retailer commits to purchase a fixed order quantity at a fixed delivery time before demand uncertainty is resolved in this paper we develop an analytical model to quantify the cost savings of an early order commitment in a two level supply chain where demand is serially correlated a decision rule is derived to determine whether early order commitment will benefit the supply chain and accordingly to determine the optimal timing for early commitment our results indicate that the supply chain would experience greater savings from early order commitment when a the inventory item receives less value added activities at the retailer site b the manufacturing lead time is short c demand correlation over time is positive but weak or d the delivery lead time is long if a condition exists we also propose a rebate scheme for the supply chain partners to share the gains of practicing early order commitment

the stabilizing effect of inventory in supply chains this paper presents a hierarchical model framework for the analysis of the stabilizing effect of inventories in multiechelon manufacturing distribution supply chains this framework is used to compare the variance of demand to the variance of replenishment orders at different echelons of the system e g retailer wholesaler empirical data and experience with management games suggest that in most industries inventory management policies can have a destabilizing effect by increasing the volatility of demand as it passes up through the chain the bullwhip effect our model helps to explain these observations and indicates mechanisms that can promote stabilization the analysis results also define sufficient conditions for the existence of stabilization and relate these conditions to the optimality of myopic control policies

the linear quadratic inventory model as a micro foundation for keynesian theories of the business cycle abstract aggregate inventory investment is invariably procyclical this suggests that inventories play a destabilizing role in the economy as predicted by early keynesian models of the business cycle however this behavior is believed to be inconsistent with the most prominent micro theory of inventories the linear quadratic model this is not the case the linear quadratic model when placed in a simple macro framework can account for the procyclical behavior of inventory investment even when the only shocks are independent demand shocks inventory targets are independent of sales and individual firms adjust inventories slowly towards their target levels

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

measure of bullwhip effect in supply chains the case of high order autoregressive demand process abstract bullwhip effect the phenomenon in which variance of demand is amplified when moving upstream has attracted the attention of many researchers for the last few decades although the main sources that cause bullwhip effect have been identified quantifying the bullwhip effect still remains a challenge in the past measuring the bullwhip effect for supply chains with autoregressive demand process has been conducted by some researchers however most past researches focused mainly on the simple ar 1 model in many practical situations autoregressive models with higher order should be employed because they might better represent the demand process up to now very little effort has been spent on this matter therefore this research is conducted to fill this gap by first dealing with ar 2 demand process and investigating the behavior of the developed measure with respect to autoregressive coefficients and order lead time extension to the general ar p demand process is then considered

a measure of bullwhip effect in supply chains with a mixed autoregressive moving average demand process abstract in this paper we quantify the impact of the bullwhip effect the phenomenon in which information on demand is distorted as moving up a supply chain for a simple two stage supply chain with one supplier and one retailer assuming that the retailer employs a base stock inventory policy and that the demand forecast is performed via a mixed autoregressive moving average model arma 1 1 we investigate the effects of the autoregressive coefficient the moving average parameter and the lead time on the bullwhip effect

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

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

an exact analytical solution to the production inventory control problem abstract the full set of continuous differential delay equations describing the inventory and orders for a typical industrial production control system are solved exactly for a step function surge in demand the replenishment delay is explicitly included the order rate is tuned with three parameters which modulate the demand smoothing the recovery of the inventory deficit and the desired level of work in process the analytical solutions are validated by comparison with numerical integration and confirm the instabilities and inventory deficits found elsewhere useful management strategies can be deduced and the approach should be widely applicable in supply chains

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

modeling and analysis of cash flow bullwhip in supply chain abstract the bullwhip effect that occurs in supply chain inventory can distort demand forecasts and lead to inefficiencies such as excessive inventory stock outs and backorders in this paper we theorize that inventory bullwhip also leads to cash flow bullwhip cfb specifically this paper focuses on studying cfb by developing mathematical and simulation models to analyze the relationship between inventory and cash flow bullwhip by using cash conversion cycle ccc as a metric the mathematical models for inventory bullwhip are developed for two stage and generic multi stage supply chains and then by extending these inventory models the cfb models are developed for two stage cfb predicted by the proposed mathematical models approximately differ 14 from detailed simulation models we find that increasing variability increases inventory and cash flow bullwhip along with lead time whereas increasing the demand observation period has the opposite effect the average marginal impact of the bullwhip effect on the cfb is approximately 20 additionally the cfb is also an increasing function of an expected value of inventory and a decreasing function of an expected value of demand

competitive production and increases in risk the theory of the firm is a monumental achievement of neoclassical economics without this engine of analysis it would be difficult if not impossible to comprehend the pricing output and input decisions of firms as they respond to routine events like the imposition of a tax the opening of a new market a technical innovation and a sudden shortage of a key factor of production it is remarkable that this theory has been successful in explaining behavior that to a large extent is motivated by both profit and risk when the theory itself has only explicitly considered the profit motive this is not the place to dwell on the evolution of economic theory it suffices to note that there are many important economic phenomena that the purely deterministic theory does not explain the purpose of this note is to elucidate the way in which risk influences the output decisions of riskaverse entrepreneurs and the number of riskneutral firms in a competitive industry in both cases the predicted behavior differs from that of the deterministic theory in our study we shall restrict attention to the behavior of firms in a single period 2 setting the firm has no control over price and because storage makes no sense simply sells all of its output at the going price the source of uncertainty is the requirement that the firm produce before price is known where the price is a random variable with a known probability distribution the firm chooses output to maximize its expected utility it is well known that in the presence of uncertainty the optimal output of the risk averse firm is less than that of the riskneutral firm moreover increases in risk aversion in the sense of arrow and john pratt lead to further diminutions in output on the other hand for a fixed degree of risk aversion the change in output induced by a mean preserving increase in risk depends on the shape of the cost curve as well as the sign of the third derivative of the utility function u and the sign of the second derivative of qu q next competitive industry behavior under uncertainty is analyzed in order to isolate the effect of uncertainty firms are assumed to be risk neutral we show that both the optimal number of firms in the industry and excess capacity increase as industry output becomes riskier results like this are important for probabilistic economics for it would be unfortunate if the vitality of the stochastic theory of the firm relied solely on the controversial assumption of risk aversion 3

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

the production impact of cash for clunkers implications for stabilization policy during july and august of 2009 americans purchased nearly 700 000 new automobiles or light trucks under the government s cash for clunkers program officially the car allowance rebate system or cars under the terms of the purchase qualified buyers traded in their old vehicles to receive a rebate on the price of a new vehicle the amount of the rebate either 3 500 or 4 500 depended on both the model that was traded in and the model that was acquired the direct cost to taxpayers of subsidizing these purchases was roughly 2 8 billion the program had two primary goals to reduce energy consumption and pollution by inducing consumers to replace their old gas guzzlers with newer fuel efficient models and to serve as a stimulus for the troubled automobile industry and the u s economy as a whole in this article we take a close look at the second objective exploring how the cars program affected sales and more important production in the automobile industry 1 drawing on our findings we then propose an answer to the more difficult question of the program s impact on u s gross domestic product gdp 2 in line with other recent studies our analysis shows that the cars program had only a transitory cumulative effect on sales we estimate an initial impact of about 450 000 additional automobile sales but these were essentially shifted from the periods before and especially after the program we calculate that by january 2010 the cumulative effect of the cars program on auto sales was essentially zero 3 more important for our purposes however is the program s effect on automobile production while most studies of cars have focused on sales we argue that the program s success as a stimulus to the economy hinges on its impact on production production increases are more likely to translate into higher gdp and employment gdp being fundamentally a measure of production sales clearly rose at the outset but given that the industry can simply let inventory stocks absorb the increase in sales higher sales alone do not imply higher gdp or employment 4 overall we find that the program had a very modest and short lived effect on production production was about 200 000 units higher during the program in comparison to the 450 000 increase in sales sales from september 2009 to january 2010 were correspondingly lower than they would have been in the absence of cars which allowed producers to have lower production while still replenishing their inventory stocks thus on a quarterly basis we estimate that the cars program shifted production by around 100 000 units from 2009q4 and 2010q1 to 2009q3 these calculations suggest that the program had a negligible direct effect on gdp shifting less than roughly 2 billion or less than one tenth of 1 of gdp into 2009q3 from the subsequent two quarters this contrasts starkly with a study released by the department of transportation dot in the immediate aftermath of the program which concluded that cars had given a substantial boost to both gdp and employment in the final section of the article we discuss why our conclusions differ from those of the dot study our findings raise broader questions beyond just this particular program about the efficacy of efforts to stimulate short term spending it is clearly a mistake to gauge their impact by just looking at the spending they induce without looking at the supply side it is reasonable to expect that producers will use other margins than production and employment to respond to temporary movements in sales so the only question is quantitative how large is the gap between the sales and production impact we find it to be large in the case of cash for clunkers in what follows we will lay out the economics behind our analysis by examining how rebates and other transitory price changes affect consumer purchases and manufacturers inventory decisions

are financing constraints binding for investment evidence from a natural experiment abstract this paper shows that the availability of cash flows dominates the effects of cost of capital for investment at the firm level using an exogenous tax reform in canada as a quasi natural experiment i find that a temporary and unexpected increase in the cost of capital for firms with low availability of retained earnings has no effect on investment of those firms a subsequent direct increase in the availability of cash flows has large effects on investment this suggests that internal financing constraints are binding for firms as they prefer to use low cost retained earnings to finance their investment

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 sticky prices note in a recent contribution to this review alan blinder provides an interesting analysis of the relationship between optimal inventory decisions and the process of price adjustment arguing that inventory permits separation of production and sale decisions and allows the firm greater flexibility in responding to anticipated demand disturbances blinder shows that the responsiveness of relative prices depends critically upon the cost of storage and the temporal structure of the demand shocks few economists would fault the intuitive substance of blinder s basic proposition and the proposition is justified with characteristic precision the analysis however is considerably less general than blinder maintains the formal argument of his paper relies upon a simple model of a monopolist capable of backlogging orders and storing unsold goods as the model is constructed order backlogs assume a role of fundamental importance in any stationary equilibrium this feature of the model vitiates blinder s extension of his result to situations in which order backlogs are prohibited the basic monopoly model developed in sections i and ii of blinder s paper places no restriction upon the sign of inventory negative inventory is interpreted as net unfilled orders while no distinction is drawn between reductions in gross inventory and additions to the order backlog as a result the cost of holding inventory is symmetric around an arbitrary minimum point the only role of inventory is to permit the time paths of production and sales to differ gross inventory allows production to antedate sales while order backlogs generate revenue before production costs are borne under these circumstances if future costs and revenues are discounted it is natural to expect any stationary equilibrium level of net inventory to be negative this can be shown to be true of blinder s model it is useful to distinguish in general between the nonstochastic stationary level of inventory n and the stochastic stationary level n the former is realized when the current expected demand disturbance eo is zero and production equals sales the latter which differs from customary usage represents the level of inventory expected to prevail when adjustment to the current nonzero expected demand disturbance is complete if the demand disturbance is not a random walk so that p 1 in blinder s 5 the two equilibria coincide relatively little attention is devoted to either stationary solution because blinder s main interest is in the optimal current solution level n1 the stochastic stationary level is crucially important however since it represents the goal toward which the current choice must provide an optimal first step to verify that both nand n are negative whenever production is strictly positive note that blinder s necessary condition 7 with the coefficient cl set equal to zero together with the definition of xa as the deviation of the shadow value of inventory q from its nonstochastic stationary value q implies

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

the power to tax analytical foundations of a fiscal constitution preface 1 taxation in constitutional perspective 2 natural government a model of leviathan 3 constraints on base and rate structure 4 the taxation of commodities 5 taxation through time income taxes capital taxes and public debt 6 money creation and taxation 7 the disposition of public revenues 8 the domain of politics 9 open economy federalism and taxing authority 10 toward authentic tax reform prospects and prescriptions epilogue notes selected bibliography index

inventories inflation dynamics and the new keynesian phillips curve abstract we introduce inventories into an otherwise standard new keynesian model and study the implications for inflation dynamics inventory holdings are motivated as a means to generate sales for demand constrained firms we derive various representations of the new keynesian phillips curve with inventories and show that one of these specifications is observationally equivalent to the standard model with respect to the behavior of inflation when the model s cross equation restrictions are imposed however the driving variable in the new keynesian phillips curve real marginal cost is unobservable and has to be proxied by for instance real unit labor cost an alternative approach is to impute marginal cost by using the model s optimality conditions we show that the stock sales ratio is linked to marginal cost we also estimate these various specifications of the new keynesian phillips curve using gmm we find that the predictive power of the inventory specification at best approaches that of the standard model but does not improve upon it

investment incentives and corporate tax asymmetries abstract recent facts on the importance of corporate losses motivate more careful study of the impact of tax incentives for investment on firms that lose money i model firm investment decisions in a setting featuring financing constraints and carrybacks and carryforwards of operating losses i estimate investment responses to tax incentives allowing effects to vary with cash flows and taxable status results suggest that asymmetries in the corporate tax code could have made recent bonus depreciation tax incentives at most 4 less effective than they would have been if all firms were fully taxable cash flows have more important effects on the impact of tax incentives recent declines in cash flows would predict a 24 decrease in the effectiveness of bonus depreciation results thus suggest that tax incentives have the smallest impact on investment exactly when they are most likely to be put in place during downturns in economic activity when cash flows are low

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

taxes and corporate policies evidence from a quasi natural experiment we document important interactions between tax incentives and corporate policies using a quasi natural experiment provided by a surprise announcement that imposed corporate taxes on a group of canadian publicly traded firms the announcement caused a dramatic decrease in value prospective tax shields partially offset the losses adding 4 6 to firm value on average and vary with the tax status of the marginal investor further firms adjust leverage payout cash holdings and investment in response to changing tax incentives overall the event study and time series evidence supports the view that taxes are important for corporate decision making

production smoothing evidence from physical product data we reconsider the paradox that the variance of production often exceeds the variance of shipments a result that casts doubt on the production smoothing model of inventory behavior most studies of production smoothing have analyzed two digit sic dollar value data from commerce department surveys in contrast this paper examines disaggregated physical product data and finds that production is smoother than shipments in about two thirds of the 38 industry or product groupings considered however doubts about the model persist most notably euler equation estimates of the model s cost parameters are usually imprecise and often do not have the signs postulated by production smoothing models

an empirical investigation of dynamic ordering policies adaptive base stock policy is a well known tool for managing inventories in nonstationary demand environments this paper presents empirical tests of this policy using aggregate firm level data first we extend a single item adaptive base stock policy in previous literature to a multi item case second we transform the policy derived for the multi item case to a regression model that relates firm level inventory purchases to firm level sales and changes in sales forecasts we focus on two research questions can the adaptive base stock policy explain cross sectional ordering behaviors under sales growth to the extent that the adaptive base stock policy fails to explain ordering behaviors under sales growth are there frictions that explain such a finding our empirical results demonstrate disparities in ordering behaviors between firms experiencing high and moderate sales growth contrary to theoretical prediction this implies that inventory purchases are a function of not only current sales and changes in sales forecast but also past sales growth as potential explanations for this departure from theoretical prediction we show that both future demand dynamics and inventory holding risks depend on past sales growth in addition we find that firms inventory holding risks may also be affected by purchasing constraints imposed by supply chain contracts our results provide managerial implications for practitioners and inform future theoretical research this paper was accepted by martin lariviere operations management

safety stock determination with correlated demands and arbitrary lead times abstract in this new paper a new method is proposed for determining the safety stock when daily demands are autocorrelated and lead times follow an arbitrary distribution the method is then used as a basis for examining effects on the safety stock when the usual assumptions namely independence and normality of daily demand and normality of lead times are violated the new method is derived by using inequalities on the basis of probability arguments it is simple to use and provides an upper bound of the safety stock further numerical investigation based on the new method shows that the effect of autocorrelation is more pronounced than departure from normality in determining the safety stock substantial error may be incurred if such autocorrelation is ignored in the test cases

coordinating lead times and safety stocks under autocorrelated demand we consider a supply chain in which orders and lead times are linked endogenously as opposed to assuming lead times are exogenous this assumption is relevant when a retailer s orders are produced by a supplier with finite capacity and replenished when the order is completed the retailer faces demands that are correlated over time either positively or negatively which may for example be induced by a pricing or promotion policy the auto correlation in demand affects the order stream placed by the retailer onto the supplier and this in turn influences the resulting lead times seen by the retailer since these lead times also determine the retailer s orders and its safety stocks which the retailer must set to cover lead time demand there is a mutual dependency between orders and lead times the inclusion of endogenous lead times and autocorrelated demand represents a better fit with real life situations however it poses some additional methodological issues compared to assuming exogenous lead times or stationary demand processes that are independent over time by means of a markov chain analysis and matrix analytic methods we develop a procedure to determine the distribution of lead times and inventories that takes into account the correlation between orders and lead times our analysis shows that negative autocorrelation in demand although more erratic improves both lead time and inventory performance relative to iid demand positive correlation makes matters worse than iid demand due to the endogeneity of lead times these effects are much more pronounced and substantial error may be incurred if this endogeneity is ignored

a panel data study on spanish firms inventory investment this paper raises several questions about inventory investment of a sample of 172 big nonfinancial spanish companies inventory investment has been usually explained by two alternative theories the production smoothing model and the s s model first we provide a descriptive analysis based on industry level data to show some shortcomings of the first model then we test a flexible accelerator model using firm level data the results seem to show that inventory investment previous period inventories and sales are closely and significantly related this evidence although not conclusive rejects both the pure production smoothing model and the s s model at the same time our results confirm the view of a target inventory level and the plausibility of the so called stock adjustment model so that the optimal inventory holding buffers sales volatility

impact of market demand mis specification on a two level supply chain this paper investigates the impact of mis specifying the market demand process on a serially linked two level supply chain box jenkins models are used to represent both the true and a mis specified market demand processes it is shown that the impact of mis specification on cost is minor if the supply chain tries to minimise the market demand forecast errors furthermore our analysis suggests that mis specification does not always result in additional costs a managerial insight is revealed poor forecast accuracy is not always bad for the total supply chain costs in other words employing more accurate forecasting methods may actually result in higher total supply chain costs

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

inventories and the automobile market this article studies the within model year pricing production and inventory management of new automobiles using new monthly data on u s transaction prices we document that for the typical vehicle prices fall over the model year at a 9 0 annual rate concurrently both sales and inventories are hump shaped to explain these time series we formulate an industry model for new automobiles in which inventory and pricing decisions are made simultaneously the model predicts that automakers build to stock inventory management policy substantially influences the time series of prices and sales accounting for four tenths of the price decline observed over the model year

the production smoothing model of inventories revisited an error correction specification which nests the linear quadratic production smoothing and stock adjustment models of inventories is estimated on u s seasonally adjusted two digit sic data the restrictions of the general model to the production smoothing specification is accepted for four out of six of the production to stock industries and for total nondurables the estimation results do not suggest any use of inventories to smooth the level of production but there is evidence of smoothing of the rate of change of production for three production to stock industries and for both total nondurables and total durables coefficient estimates may however be biased copyright 1994 by royal economic society

stochastic financial analytics for cash flow forecasting abstract accurate cash flow forecasting is essential for successful management of firms and it becomes especially critical during uncertain market and credit conditions without accurate cash flow forecasting a firm may fail to meet its short term obligations and risk bankruptcy accurate cash flow forecasting can be limited by a number of factors including changes in macro economic conditions that influence liquidity in the economy customer payment behavior that can vary from time to time as well by industry and dynamics of the particular supply chain itself we develop stochastic financial analytics for cash flow forecasting for firms by integrating two models 1 markov chain model of the aggregate payment behavior across all customers of the firm using accounts receivable aging and 2 bayesian model of individual customer payment behavior at the individual invoice level as the stochastic dynamics of cash flow evolves every day the forecast can be updated every time an invoice is paid the proposed model is back tested using empirical data from a small manufacturing firm and found to differ 3 6 from actual monthly cash flow and differs approximately 2 4 compared to actual annual cash flow the forecast accuracy of the proposed stochastic financial analytics model is found to be considerably superior to other techniques commonly used furthermore in computer simulation experiments the proposed model is found to be largely robust to supply chain dynamics including when subjected to severe bullwhip effect the proposed model has been implemented in excel which allows it to be easily integrated with the accounts receivable aging data making it practicable for small and large firms

the bullwhip effect in capacitated supply chains with consideration for product life cycle aspects abstract this paper presents an analysis of the bullwhip effect and net stock amplification in a three echelon supply chain considering step changes in the production rates during a product s life cycle demand the analysis is focused around highly complex and engineered products e g automobiles that have relatively long production life cycles and require significant capital investment in manufacturing using a simulation approach we analyze three stages of the product life cycle including low volumes during product introduction peak demand and eventual decline toward the end of the life cycle parts of the simulation model have been adopted by a major north american automotive oem as part of a scenario analysis tool for strategic supply network design and analysis the simulation results show that performance of a system as a whole deteriorates when there is a step change in the life cycle demand while restriction in production capacity does not significantly impact the bullwhip effect it increases the net stock amplification significantly for the supply chain setting under consideration furthermore a number of important managerial insights are presented based on sensitivity analysis of interaction effect of capacity constraints with other supply chain parameters

industrial production volatility and the supply chain abstract the issue of production volatility is important to firms interested in managing their supply chain this paper empirically estimates the volatility of industrial production using the garch and egarch time series models three questions are addressed can volatility be predicted is the effect of unexpected changes in production on volatility asymmetric and how persistent is volatility following a production disturbance the results indicate that production volatility is time varying and can be predicted in the majority of cases examined and that overestimates of production lead to greater increases in volatility than do underestimates

working capital and fixed investment new evidence on financing constraints this article presents new tests for finance constraints on investment by emphasizing the often neglected role of working capital as both a use and a source of funds the coefficient of endogenous working capital investment is negative in a fixed investment regression as expected if working capital competes with fixed investment for a limited pool of finance this finding addresses a criticism of previous research on finance constraints that cash flows may simply proxy shifts in investment demand in addition previous studies may have underestimated the impact of finance constraints on growth and investment because firms smooth fixed investment in the short run with working capital

investment tax incentives and frequent tax reforms despite the frequency of tax changes and their potential importance to investors almost all of the analysis of tax based investment incentives assumes investors never anticipate any tax changes we depart from this approach by analyzing the historical pattern of u s corporate investment incentives over the period 1953 86 incorporating the feature of investor awareness that the tax code may change our analysis incorporates a predictive equation for future tax variables into a model of optimal investment subject to adjustment costs and uncertainty we find that expectations of future tax changes significantly affect the incentive to invest only if adjustment costs are low in this case the incentive to invest in 1986 was strong as investors are estimated to have anticipated the coming reduction in investment incentives this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

optimal centralized ordering policies in multi echelon inventory systems with correlated demands this paper treats a depot warehouse system in which demand occurs at the warehouse or retail level this work differs from a number of other studies in that we allow item demands to be correlated both across warehouses and also correlated in time our motivation for this generalization arises from our experience with an actual system of this type used by a major national producer and distributor of consumer products we observed both high correlations between successive monthly demands around 0 7 and correlations between demands for an item at different locations also about 0 7 in a given time period we derive an explicit expression for the optimal safety stock as a function of the level of correlation through time the analysis requires two assumptions 1 the allocation assumption and 2 the equal coefficient of variation assumption similar assumptions have been used by other researchers finally numerical evaluations are included to illustrate the impact of the various magnitudes of correlation

interest rates and the market for new light vehicles we study the impact of interest rates changes on both the demand for and supply of new light vehicles in an environment where consumers and manufacturers face their own interest rates an increase in the consumers interest rate raises their cost of financing and thus lowers the demand for new vehicles an increase in the manufacturers interest rate raises their cost of holding inventories both channels have equilibrium effects that are amplified and propagated over time through inventories which serve as a way to both smooth production and facilitate greater sales at a given price through the estimation of a dynamic stochastic market equilibrium model we find evidence of both channels at work and of the important role played by inventories a temporary 100 basis point increase in both interest rates causes vehicle production to fall 12 percent and sales to fall 3 25 percent at an annual rate in the short run

bullwhip effect measurement and its implications the bullwhip effect or demand information distortion has been a subject of both theoretical and empirical studies in the operations management literature in this paper we develop a simple set of formulas that describe the traditional bullwhip measure as a combined outcome of several important drivers such as finite capacity batch ordering and seasonality our modeling framework is descriptive in nature as it features certain plausible approximations that are commonly employed in practical inventory systems the results are nonetheless compelling and can be used to explain various conflicting observations in previous empirical studies building on the theoretical framework we discuss the managerial implications of the bullwhip measurement we show that the measurement can be completely noninformative about the underlying supply chain cost performance if it is not linked to the operational details such as decision intervals and leadtimes specifically we show that an aggregated measurement over relatively long time periods can mask the operational level bullwhip in addition we show that masking also exists under product or location aggregation in some illustrative cases

measure of bullwhip effect in supply chains with autoregressive demand process abstract in supply chain management one of the most critical problems which require a lot of effort to deal with is how to quantify and alleviate the impact of bullwhip effect the phenomenon in which information on demand is distorted while moving upstream although it is well established that demand forecast lead time order batching shortage gaming and price fluctuation are the main sources that lead to the bullwhip effect the problem of quantifying bullwhip effect still remain unsolved in many situations due to the complex nature of the problem in this research a measure of bullwhip effect will be developed for a simple two stage supply chain that includes only one retailer and one supplier in the environment where the retailer employs base stock policy for their inventory and demand forecast is performed through the first order autoregressive model ar 1 the effect of autoregressive coefficient and lead time on this measure will then be investigated

equilibrium adjustment with endogenous information and inventories the paper analyzes the interaction of information acquisition and inventory flexibility with industry adjustment to imperfectly perceived cost and demand disturbances improved information about disturbances reduces the extent to which disturbances are unperceived and dampens the use of inventories reduced inventory flexibility induces firms to devote more resources to acquiring information about disturbances the analysis demonstrates how equilibrium price and output adjustment depend endogenously on the degree of inventory flexibility and other structural parameters influencing the acquisition of information in this paper we analyze how endogenous information acquisition and inventory flexibility influence price and output adjustment in a competitive industry we focus on the potential substitutability of information acquisition for inventory flexibility when disturbances are imperfectly perceived by individual firms the analysis highlights the general issue of how market adjustment depends on structural parameters that influence agents incentives to acquire information there are several reasons why information acquisition may play a role in market adjustment first the rapid development of information technology has enabled firms to gather and process data relevant to production and sales decisions from a greater number of external and internal sources this trend has reduced the costs of forecasting and monitoring factors influencing production and demand conditions for the individual firm relative to those of its competitors as well as for the industry as a whole in particular it has permitted quicker awareness of changing customer demand as well as greater control of the flow of inputs and intermediate goods during the production process this implies that the resources devoted to information acquisition and processing have come to play an important role in firm decisions 2 second improved information about demand and cost conditions may affect the function of inventories inventory adjustment allows a firm s production costs to be smoothed in response to anticipated movements in demand and costs and to be buffered against unanticipated disturbances see ashley and orr 1985 thus

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

temporary investment tax incentives theory with evidence from bonus depreciation even modest reductions in the after tax cost of capital purchases provide strong incentives for increased investment indeed for tax subsidies that are temporary and for capital goods that are very long lived the incentive to invest when the after tax price is temporarily low is essentially infinite firms that would have purchased new capital equipment in the future instead make their purchases during the period of the subsidy for tax increases the effects are the opposite firms that would have normally invested now delay until the tax rate returns to normal we present a model of the equilibrium effects of temporary investment tax incentives the model reveals a simple relationship between the shadow price of investment goods and the size of a temporary investment tax incentive specifically for sufficiently long lived capital goods goods with very low rates of economic depreciation and for sufficiently short lived investment tax subsidies the shadow value of capital should be nearly unchanged and thus the pre tax shadow price of capital goods should fully reflect the magnitude of the tax subsidy this result holds regardless of the elasticity of investment supply and regardless of the underlying demand for capital instead it relies only on the firm s ability to arbitrage predictable movements in the after tax price of long lived capital over time two conclusions immediately follow first observ ing price increases following a temporary tax incentive is not evidence that investment supply is relatively inelastic a temporary investment tax subsidy can substantially affect investment even if it bids up the price of investment sharply second because economic theory dictates that the shadow price of investment moves one for one with a temporary tax subsidy the elasticity of supply can be inferred from quantity data alone recent changes in us tax law allow us to use the model and its implications to estimate struc tural parameters that govern the supply of investment the 2002 and 2003 tax bills provided temporarily accelerated tax depreciation called bonus depreciation for certain types of qualified capital goods under the 2002 bill firms could immediately deduct 30 percent of investment purchases and then depreciate the remaining 70 percent under standard depreciation schedules

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

intertemporal substitution and new car purchases this article presents a dynamic demand model for motor vehicles this approach accounts for the change in the mix of consumers over the model year and measures consumers substitution patterns across products and time i find intertemporal substitution is significant consumers are more likely to change the timing of their purchase in reaction to a price increase rather than buy another vehicle in the same period further i find automakers use of large cash back rebates at the end of the model year although boosting overall sales induces large numbers of consumers to delay their purchases and so pay lower prices

how sensitive is investment to cash flow when financing is frictionless i analyze the sensitivity of a rm s investment to its own cash ow in the benchmarkcase where nancing is frictionless this sensitivity has been proposed as a measure of nancing constraints in earlier studies i nd that the investment cash ow sensitivities that obtain in the frictionless benchmarkare very similar both in magnitude and in patterns they exhibit to those observed in the data in particular the sensitivity is higher for rms with high growth rates and low dividend payout ratios tobin s q is shown to be a more noisy measure of near term investment plans for these rms does a high sensitivityof a rm s investment to its own cash ow indicate that the rm is nancially constrained a large body of research starting with fazzari hubbard and petersen 1988 hereafter fhp suggests that rms facing nancing constraints should exhibit high investment cash ow sensitivities re ecting the wedge between the costs of external and internal funds empirical ndings seem to give support to this hypothesis since rms classi ed as constrained on a priori criteria such as size dividend payout or leverage do have higher cash ow sensitivities even after controlling for their investment opportunities by conditioning on tobin s q however the reliability of these results critically depends on whether q is a proper control for the investment opportunity set if q performs worse for certain classes of rms higher sensitivities may obtain for these rms simply because cash ow re ects information about investment opportunities this critique is not new in his discussion of fhp poterba 1988 was the rst to point out that measurement error in q may cloud the empirical results similar concerns have been raised in subsequent studies as well while the qualitative point is well known its quantitative impact on the investment cash ow sensitivity has not been analyzed can the linkbetween cash ow and the investment opportunity set account for the observed magnitudes of the sensitivity or are these magnitudes too large to be explained without nancing frictions

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

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