the ir relevance of real wage rigidity in the new keynesian model with search frictions we explore the role of real wage dynamics in a new keynesian business cycle model with search and matching frictions in the labor market both job creation and destruction are endogenous we show that the model generates counterfactual inflation and labor market dynamics in particular it fails to generate a beveridge curve vacancies and unemployment are positively correlated introducing real wage rigidity leads to a negative correlation and increases the magnitude of labor market flows to more realistic values however inflation dynamics are only weakly affected by real wage rigidity this is because of the presence of labor market frictions which generate long run employment relationships the measure of real marginal cost that is relevant for inflation dynamics via the phillips curve contains a dynamic component that does not necessarily move with real wages

the nash solution of a maintenance production differential game abstract a simple two person nonzero sum differential game between the maintenance crew of a firm and the production department of the same firm is considered it is assumed that preventive maintenance decelerates the decrease in quality of a machine whereas the production activities set by the firm reduces the quality of the machine due to the special structure of the game a system of two differential equations for the non cooperative nash solution trajectories can be derived this provides a possibility to obtain qualitative insights into the structure of the solution paths by phase diagram methods without solving the necessary optimality conditions explicitly for small salvage values of the machine it is shown that the optimal maintenance expenditures decrease over time whereas the optimal production rate increases monotonically moreover another interpretation of the differential game analyzed is given as a conflict situation between a firm polluting the environment by producing an output and a governmental agency cleaning up the pollution

continuous review inventory models where random lead time depends on lot size and reserved capacity the processing time of large orders is in many industries longer than that of small orders this renders supply lead times in such settings to be increasing in the order size yet that pattern is not re ected in existing inventory control models especially those allowing for random lead times this work aims at rectifying the situation our setting is an order quantity reorder point model with backordering where the shortage penalty is incurred per unit per unit time the processing time of each unit is random the processing time of a lot is correlated with its size for the case where lead time is proportional to the lot size we obtain a closed form solution that is unlike the classical q r model where lead time is independent of lot size no iterations are required here we also analyze a case where the processing time exhibits economies of scale in the lot size finally we consider a situation where a customer can secure shorter processing times by reserving capacity at the supplier s manufacturing facility 2000 elsevier science b v all rights reserved

job destruction and propagation of shocks this paper considers propagation of aggregate shocks in a dynamic general equilibrium model with labor market matching and endogenous job destruction cyclical fluctuations in the job destruction rate magnify the output effects of shocks as well as making them much more persistent interactions between capital adjustment and the job destruction rate play an important role in generating persistence propagation effects are shown to be quantitatively substantial when the model is calibrated using job flow data incorporating costly capital adjustment leads to significantly greater propagation

a pareto optimal solution of a maintenance production differential game abstract this paper deals with a maintenance production problem modelled as a two player nonzero sum differential game in a firm the maintenance department is responsible for the maintenance of the machines used by the production department maintenance expenditures improve the quality of the machines but are costly production on the other hand yields revenue to the firm but reduces the quality of the machines assuming that the two departments will make a decision on maintenance expenditures and production rate in a cooperative mood we are looking for a pareto optimal solution using phase diagram analysis it turns out that the equilibrium in state costate plane is a saddle point implying in the most realistic cases decresing maintenance expenditures and increasing production rate it is interesting to note that the basic features of the pareto solution are the same as in the one player solution i e the optimal control problem also some similarities with the non cooperative nash solution are pointed out

an optimal r q policy in a stochastic inventory system with all units quantity discount and limited sharable resource abstract this paper is concerned with the single item inventory system with resource constraint and all units quantity discount under continuous review where demand is stochastic and discrete in most actual inventory systems the resource available for inventory management is limited and the system is able to confront the resource shortage by charging more costs considering the resource constraint as a soft constraint beside a quantity discount opportunity makes the model more practical an optimization problem is formulated for finding an optimal r q policy for the problem in which the per unit resource usage depends on unit purchasing price the properties of the cost function are investigated and then an algorithm based on a one dimensional search procedure is proposed for finding an optimal r q policy which minimizes the expected system costs and converges to a global optimum based on the properties of the partially conditioned cost functions the presented algorithm is modified such that its search path to optimal policy is changed experimental results show that the performance of the modified version of the presented algorithm is much better than the original algorithm in various environments of test problems

what do unions maximise evidence from survey data highly formalised models of union behaviour have been developed and are widely used within neoclassical economics this approach is justified by the argument that most goals pursued by unions can be reduced to a wage or wage equivalent employment trade off however the strong assumptions made about union goals and preferences how these are determined and the range of issues over which a union will seek to bargain with a firm are not supported by extensive empirical evidence this paper explores these issues through a survey of union leaders to ascertain the range of union goals and their preferences and the types of issues over which unions bargain with employers the results of the survey present convincing evidence that standard neoclassical models do not adequately capture union bargaining behaviour or union goals and preferences the findings presented here also throw open but do not resolve the question of whether unions are rational maximisers the most inter esting result not widely found within the economics or industrial relations literature concerns the nature of union bargaining preferences union bargaining over employment appears to be asymmetric around current levels of employment in that unions appear to care more about the employment implications of their bargain ing strategies when they are likely to result in employment decreases

leadtime reduction in a q r inventory system an agency perspective abstract we examine the problem of designing and implementing a continuous review q r inventory system from an agency perspective in which the agent s effort influences the item s replenishment leadtime our results are as follows if the agent is risk neutral a linear or quadratic contract achieves first best for a risk averse agent with an exponential utility function assuming a normal leadtime distribution we determine the optimal linear contract extensive numerical experiments suggest that ignoring the possible influence of the agent on the replenishment leadtime can be costly but that the cost penalty of ignoring agency can be significantly reduced by a simple contract

unemployment insurance and precautionary saving abstract models of precautionary saving imply that households will hold more assets when faced with greater income uncertainty however previous empirical studies of income uncertainty have produced somewhat mixed support for the precautionary saving hypothesis in this paper we note that differences in the state contingent income stream available to workers through the unemployment insurance ui program provides an excellent source of variation for testing the presence of a precautionary savings motive simulations of a stochastic life cycle model suggest that a ui system similar to the type currently in place in the u s can lead to a significant reduction in the assets accumulated by a median worker moreover there is considerable variation in the ui benefit schedules for workers living in different states in the u s which provides an exogenous source of variation for empirically testing the precautionary saving hypothesis we carry out this test using data on expected ui benefit replacement rates and financial assets held by households in the survey of income and program participation our empirical results are consistent with the predictions of the model and suggest that reducing the ui benefit replacement rate by 50 percent would increase gross financial asset holdings by 14 percent or 241 for the average worker we also find empirical evidence that this crowd out effect of ui on household saving is stronger for those facing higher unemployment risk and weaker for older workers both of which are implications from our precautionary saving model

the macroeconomic effects of fiscal policy we investigate the macroeconomic effects of fiscal policy using a bayesian structural vector autoregression b svar approach we identify fiscal policy shocks via a partial identification scheme but also i include the feedback from government debt ii look at the impact on the composition of output iii assess the effects on asset markets iv use quarterly data and v analyse empirical evidence from the us the uk germany and italy the results show that government spending shocks in general have a small effect on gross domestic product gdp lead to important crowding out effects have a varied impact on housing prices and generate a quick fall in stock prices government revenue shocks generate a mixed effect on housing prices and a small and positive effect on stock prices the empirical evidence also suggests that it is important to explicitly consider the government debt dynamics in the model

a single item continuous review inventory problem with space restriction abstract with today s high cost of land acquisition observed in most countries management can no longer afford large storage facilities to house their products for this reason one of the main concerns of inventory managers is to ensure that enough storage space is available upon the delivery of a product they therefore have to determine the least cost ordering policy so as to meet demand and taking into account the space limitation in this paper we investigate the problem of a single item continuous review inventory problem in the presence of a space restriction when the demand is stochastic through a sensitivity analysis study it is found that ordering cost storage capacity average demand per unit time and holding cost rate are the most influential problem parameters on the expected inventory costs it is also shown numerically that a simple solution based on economic order quantity is performing very well with an average and maximum cost penalty of 0 19 and 2 03 respectively

near optimal r q policies for a two stage serial inventory system with poisson demand we consider a two stage serial inventory system whose cost structure exhibits economies of scale in both stages in the system stage 1 faces poisson demand and replenishes its inventory from stage 2 and the latter stage in turn orders from an outside supplier with unlimited stock each shipment either to stage 2 or to stage 1 incurs a fixed setup cost we derive important properties for a given echelon stock r q policy for an approximation of the problem where all states are continuous based on these properties we design a simple heuristic algorithm that can be used to find a near optimal r q policy for the original problem numerical examples are given to demonstrate the effectiveness of the algorithm

the consequences of rigid wages in search models the standard theory of equilibrium unemployment the mortensen pissarides search and matching model cannot explain the magnitude of the business cycle fluctuations in two of its central elements unemployment and vacancies modifying the model to make the present value of wages unresponsive to current labor market conditions amplifies fluctuations in unemployment and vacancies by an order of magnitude significantly improving the performance of the model despite this the welfare consequences of such rigid wages is negligible jel e24 e32 j30 j41 j63 j64

real wage rigidities and the new keynesian model most central banks perceive a trade off between stabilizing inflation and stabilizing the gap between output and desired output however the standard new keynesian framework implies no such trade off in that framework stabilizing inflation is equivalent to stabilizing the welfare relevant output gap in this paper we argue that this property of the new keynesian framework which we call the divine coincidence is due to a special feature of the model the absence of nontrivial real imperfections we focus on one such real imperfection namely real wage rigidities when the baseline new keynesian model is extended to allow for real wage rigidities the divine coincidence disappears and central banks indeed face a trade off between stabilizing inflation and stabilizing the welfare relevant output gap we show that not only does the extended model have more realistic normative implications but it also has appealing positive properties in particular it provides a natural interpretation for the dynamic inflation unemployment relation found in the data

an inventory model with poisson demands and emergency orders abstract in this paper we explicitly consider the opportunity to use an emergency supply mode to hedge against demand uncertainty when replenishing a single item inventory normal orders with a relatively long and constant lead time are controlled by a standard r q policy these orders can only be issued when no other orders are outstanding when a normal order is outstanding emergency orders are controlled by a reorder point r j and an order up to level u j where j is a measure of the time remaining until the normal order is delivered the emergency orders have a short lead time and they may also have different ordering costs compared to normal orders demands not satisfied immediately from inventory are backordered we formulate a long run average cost model that includes ordering costs for the two types of orders backordering costs and holding costs backordering costs are considered both as a unit based cost and as a cost rate a tailor made policy iteration algorithm is designed and utilized to minimize the inventory cost rate with state dependent emergency orders for comparisons an algorithm for finding a best simple emergency order policy is also implemented simulation is used to check the validity of our model numerical results are presented for a set of parameter variations and compared to results without emergency orders as well as to results from an earlier model in the literature our results show that substantial cost savings might be obtained by using emergency orders especially when backordering costs are high however the marginal gains are fairly small if state dependent emergency orders are used instead of a simple emergency order policy

differential game models in management science abstract this paper reviews a number of differential games applications to management science and operations research problems published with a few exceptions during the last decade the purpose of the article is to provide the reader with an up to date account of the state of the art within this field after having stated in an introduction the general differential games framework as well as some conceptual problems we proceed to review the models which have been divided into the following functional areas investment consumption and employment production inventories and maintenance marketing advertising pricing and rd bargaining natural resources and pollution the survey concludes with some remarks on applicability solvability and directions for future research

employment hours and the welfare effects of intra firm bargaining intra firm bargaining between a multiple worker firm and an individual employee leads to overhiring taking advantage of the decreasing returns to scale in employment the firm can reduce the marginal product by hiring an additional worker thereby reducing the bargaining wage paid to all existing employees we show that this externality is amplified when firms can adjust hours per worker as well as employment hours are too low at the steady state this misallocation of labor leads to sizeable welfare losses our finding is important for economies in which hours adjustment play an important role as it does in many euro area countries

the macroeconomic effects of lockdown policies abstract a tractable incomplete market model with endogenous unemployment risk sticky prices real wage rigidity and a fiscal side is calibrated to euro area countries and used to analyze the macroeconomic effects of lockdown policies modeling them as a shock to the extensive margin of labor adjustment a rise in separations produces large and persistent negative effects on output unemployment and welfare raises precautionary savings and lowers inflation in line with early evidence about inflation dynamics modeling lockdowns as a shock to the intensive margin a fall in labor utilization produces small and short lived macroeconomic and welfare effects and implies a counterfactual rise in inflation conditional on a lockdown separation shock raising public spending or extending ui benefits by large amounts is much more effective in stimulating the economy than during normal times quantitatively however the ability of such policies to flatten the output and unemployment curves remains limited even though these policies can alleviate a reasonable share of the aggregate welfare losses from the lockdown

impact of inventory inaccuracy on service level quality in q r continuous review lost sales inventory models this article focus on the behavior of a q r continuous review lost sales inventory model exposed to an inventory record inaccuracy iri an unusual phenomenon has been observed which runs counter to certain empirical practices in the smes based on the principle that safety stock is only necessary for certain intervals in the data inaccuracy rate both analytical results and simulation modeling are proposed to investigate the relationship between the quality of service safety stock and inventory inaccuracy under demand variations it is shown that the service level quality is a non monotone function of the inaccuracy rate i e the service level quality increases up to an iri level and subsequently decreases other inaccuracy distribution functions have produced the same phenomena with constant demand as well as with demand fluctuations finally another noteworthy result also shows the same phenomenon between the function involving a level of safety stock defined by simulation and the function between the service level quality and iri these different observed results are discussed in terms of both their contribution to the q r inventory management policies in smes and of the limitations to this study

optimal maintenance and production rates for a machine a nonlinear economic control problem abstract this paper derives qualitative properties such as monotonicity and limiting behavior of the optimal policy for a class of nonlinear optimal control problems the problem structure is characteristic of certain economic investment problems where two control instruments influence the rate of deterioration of a capital good an example for this is the problem of determining the optimal production and maintenance rates for a machine when the effectiveness of the maintenance expenditures is subject to decreasing returns to scale and where the marginal deterioration is an increasing function of the production rate a stability analysis in both of the phase planes state costate and state control is carried out and it is shown that the jacobian determinants in both cases are identical also provided is a sensitivity analysis of the equilibrium furthermore other applications of the model in the areas of advertising and pollution control models are proposed

a multi product continuous review inventory system with stochastic demand backorders and a budget constraint abstract common characteristics of inventory systems include uncertain demand and restrictions such as budgetary or storage space constraints several authors have examined budget constrained multi item stochastic inventory systems controlled by continuous review policies without considering marginal shortage costs existing models assume that purchasing costs are paid at the time an order is placed which is not always the case since in some systems purchasing costs are paid when orders arrive in the latter case the maximum investment in inventory is random since the inventory level when an order arrives is a random variable hence payment of purchasing costs on delivery yields a stochastic budget constraint for inventory this paper models a multi item stochastic inventory system with backordered shortages when estimation of marginal backorder cost is available and payment is due upon order arrival the budget constraint can easily be converted into a storage constraint

monetary policy rules based on real time data this paper examines the magnitude of informational problems associated with the implementation and interpretation of simple monetary policy rules using taylor s rule as an example i demonstrate that real time policy recommendations differ considerably from those obtained with ex post revised data further estimated policy reaction functions based on ex post revised data provide misleading descriptions of historical policy and obscure the behavior suggested by information available to the federal reserve in real time these results indicate that reliance on the information actually available to policy makers in real time is essential for the analysis of monetary policy rules

the impact of employment tax cuts on unemployment and wages the role of unemployment benefits and tax structure abstract i model and simulate the effects of employment tax cuts on unemployment and wages in four equilibrium models competitive union bargaining search and efficiency wages i find that if the ratio of unemployment compensation to wages is fixed the effect of the tax cut is mainly on wages but if income out of work is fixed in real terms there are substantial employment effects when wages are determined by bargaining revenueneutral reforms that make the tax more progressive also reduce unemployment thus policy towards unemployment compensation and tax structure are key influences on the effect of taxes on unemployment

vacancy durations a model for employer s search this paper investigates a dutch data set on vacancy durations and numbers of applicants to enquire employers search strategies a nonsequential search process assumes that most vacancies are filled from a pool of applicants which is formed shortly after the posting of the vacancy the time spent on recruiting applicants and the duration of the selection process are estimated with a proportional hazard model via the arrival and attrition rates of applicants

sticky prices in the euro area a summary of new micro evidence this paper summarises the vast evidence on micro price setting recently obtained for euro area countries we consider studies with micro data on consumer and producer prices as well as survey information the main findings are 1 prices in the euro area are sticky and stickier than in the us 2 downward price rigidity is only slightly more marked than upward price rigidity 3 heterogeneity and asymmetries are observed in price setting and 4 the relevance of theories that explain price stickiness such as implicit or explicit contracts marginal costs and coordination failure is confirmed whereas menu costs pricing thresholds and costly information explanations are judged much less relevant by firms jel c25 d40 e31

resuscitating the wage channel in models with unemployment fluctuations higher wages all else equal translate into higher inflation more rigid wages imply a weaker response of inflation to shocks this view of the wage channel is deeply entrenched in central banks views and models of their economy in this paper we present a model with equilibrium unemployment which features three distinctive properties first using a search and matching model with right to manage wage bargaining a proper wage channel obtains second accounting for fixed costs associated with maintaining an existing job greatly magnifies profit fluctuations for any given degree of wage fluctuations which allows the model to reproduce the fluctuations of unemployment over the business cycle and third the model implies a reasonably low elasticity of steady state unemployment with respect to changes in benefits the calibration of the model implies low profits but does not require a small gap between the value of working and the value of unemployment for the worker

business cycles unemployment insurance and the calibration of matching models this paper theoretically and empirically documents a puzzle that arises when an rbc economy with a job matching function is used to model unemployment the standard model can generate sufficiently large cyclical fluctuations in unemployment or a sufficiently small response of unemployment to labor market policies but it cannot do both variable search and separation finite ui benefit duration efficiency wages and capital all fail to resolve this puzzle however either sticky wages or match specific productivity shocks can improve the model s performance by making the firm s flow of surplus more procyclical which makes hiring more procyclical too

the role of labor markets for euro area monetary policy in this paper we explore the role of labor markets for monetary policy in the euro area in a new keynesian model in which labor markets are characterized by search and matching frictions we first investigate to which extent a more flexible labor market would alter the business cycle behavior and the transmission of monetary policy we find that while a lower degree of wage rigidity makes monetary policy more effective i e a monetary policy shock transmits faster onto inflation the importance of other labor market rigidities for the transmission of shocks is rather limited second having estimated the model by bayesian techniques we analyze to which extent labor market shocks such as disturbances in the vacancy posting process shocks to the separation rate and variations in bargaining power are important determinants of business cycle fluctuations our results point primarily towards disturbances in the bargaining process as a significant contributor to inflation and output fluctuations in sum the paper supports current central bank practice which appears to put considerable effort into monitoring euro area wage dynamics and which appears to treat some of the other labor market information as less important for monetary policy

a non walrasian labor market in a monetary model of the business cycle abstract this paper investigates to what extent a new keynesian monetary model with the addition of a microfounded non walrasian labor market solely based on union bargaining is able to replicate key aspects of the business cycle the presence of a representative union offers an explanation for two features of the cycle first it generates an endogenous mechanism which produces persistent responses to both supply and demand shocks second labor unionization reduces the elasticity of marginal costs to output this leads to lower inflation volatility model simulations show that the unionized framework can better reproduce european business cycle data than can a model with a competitive labor market

downward wage rigidities and optimal monetary policy in a monetary union this paper analyses the implications of heterogeneity in the type of downward wage rigidity nominal or real for optimal monetary policy in a monetary union with asymmetric wage adjustment costs indexation in one region of the union reduces optimal grease inflation in the presence of common productivity shocks large common shocks may have sizeable and persistent effects on the intra union terms of trade whereby the region characterized by downward real wage rigidity adjusts with a persistent loss of competitiveness in response to asymmetric productivity shocks there is no role for grease inflation because relative price changes facilitating the real wage changes dominate the adjustment mechanism

comparing shocks and frictions in us and euro area business cycles a bayesian dsge approach this paper estimates a dsge model with many types of shocks and frictions for both the us and the euro area economy over a common sample period 1974 2002 the structural estimation methodology allows us to investigate whether differences in business cycle behaviour are due to differences in the type of shocks that affect the two economies differences in the propagation mechanism of those shocks or differences in the way the central bank responds to those economic developments our main conclusion is that each of these characteristics is remarkably similar across both currency areas copyright 2005 john wiley sons ltd

crossing the river a comparative perspective on italian employment dynamics crossing the river a comparative perspective on italian employment dynamics this paper studies the unprecedented job destruction which occurred throughout europe during the recession of the early 1990s it raises the question whether changes in the institutional structure of various countries labour markets may have deepened the normal effects of the recession institutional legal and sociopolitical safety nets were used to protect many european employees from technological and demand shocks throughout the 1970s and early 1980s important steps have since been taken to deregulate industrial relations european labour markets may currently be in the middle of the river they already experience the negative employment aspects of an american labour market without yet enjoying its benefits based on a study of several countries the article concludes that the social costs of deregulation will be smallest if the intended destination of the transition is reached credibly and without hesitation policy makers must point decisively towards a well defined riverbank rather than leaving the labour market in the middle of the stream giuseppe bertola and andrea ichino

the empirical content of the job search model labor mobility and wage distributions in europe and the us abstract job search models of the labor market hypothesize a very tight correspondence between the determinants of labor turnover and individual wage dynamics on one hand and the determinants of wage dispersion on the other this paper offers a systematic examination of whether this correspondence is present in the data by estimating a rudimentary partial equilibrium job search model on a three year panel of individual worker data covering 10 european countries and the u s we find that our basic job search model fits the data surprisingly well this also allows us to point at a number of interesting empirical regularities about wage distributions our results suggest that cross sectional data on individual wages contain the basic information needed to obtain a reliable measure of the magnitude of labor market frictions as measured by a parameter of the canonical job search model finally we use our results in a cross country comparison of the intensity and nature of job to job turnover we arrange countries into two different groups according to their turnover intensity we further show that the nature of job to job turnover is very different between those two groups turnover is predominantly voluntary in low turnover countries whereas it is to a large extent involuntary in high turnover countries

the age specific burdens of short run fluctuations in government spending abstract we study the impact of government spending shocks on the distribution of income and wealth between cohorts and the associated welfare effects in a dynamic stochastic overlapping generations model with two types of households ricardian households and rule of thumb consumers we demonstrate that an unexpected increase in government spending decreases income and wealth inequality in contrast to the conventional wisdom that the financing of government expenditures by debt rather than taxes especially burdens young generations we find that debt financing also harms ricardian households during retirement the crucial element in our analysis is a wealth effect that results from the decline in the price of capital due to higher government debt

a master production scheduling procedure for stochastic demand and rolling planning horizons abstract the problem of interest is a one product uncapacitated master production schedule mps in which decisions are made under rolling planning horizons demand is stochastic and time varying and effectiveness is measured by inventory holding production setup and backorder costs typically in both the research literature and the business practice the stochastic nature of the problem is modeled in an ad hoc fashion the stochastic mps problem is usually solved by adding safety stock to production quantities obtained from a deterministic lot sizing algorithm here the stochastic nature of the problem is explicitly considered as an optimal algorithm for solving the static probabilistic dynamic lot sizing problem is adapted to rolling planning horizons the resulting algorithm is found to dominate traditional approaches over a wide variety of experimental factors reducing total costs by an average of 16 over traditional methods

job finding and separation rates in the oecd abstract we provide a set of comparable estimates of average monthly job finding and separation rates for over 20 oecd countries that can be used for the cross country analysis of labor markets