estimating the lead time demand distribution when the daily demand is non normal and autocorrelated hon shiang lau abstract this paper develops convenient formulas for estimating the probability distribution of lead time demand when the inventory item s daily demand follows a probability distribution of any arbitrary shape and when simple univariate models can be found for the autocorrelated daily demand series numerical examples are presented to illustrate the use of these formulas the numerical results also indicate that significant error may be incurred when inventory decisions are made without proper consideration of the autocorrelations or the arbitrary distribution shapes of daily demands

central bank announcements of asset purchases and the impact on global financial and commodity markets abstract we present evidence on the effects of large scale asset purchases by the federal reserve and the bank of england since 2008 we show that announcements about these purchases led to lower long term interest rates and depreciations of the u s dollar and the british pound on announcement days while commodity prices generally declined despite this more stimulative financial environment we suggest that lsap announcements likely involved signaling effects about future growth that led investors to downgrade their u s growth forecasts lowering long term us yields depreciating the value of the u s dollar and triggering a decline in commodity prices moreover our analysis illustrates the importance of controlling for market expectations when assessing these effects we find that positive u s monetary surprises led to declines in commodity prices even as long term interest rates fell and the u s dollar depreciated in contrast on days of negative u s monetary surprises i e when markets evidently believed that monetary policy was less stimulatory than expected long term yields the value of the dollar and commodity prices all tended to increase

level slope curvature of the sovereign yield curve and fiscal behaviour abstract we study fiscal behaviour and the sovereign yield curve in the us and germany we obtain the latent factors level slope and curvature with the kalman filter and use them in a var with macro fiscal and financial stress variables in the us fiscal shocks generate an immediate response of the short end of the yield curve associated with monetary policy lasting 6 8 quarters followed by a response of the whole yield curve lasting 3 years with an implied elasticity of long term yields of 80 for the government debt shock and 48 for the budget balance shock in germany fiscal shocks have entailed no significant reactions of the yield curve shape and no response of the monetary policy interest rate notably after 1999 only in the case of debt shocks there is a short lived decrease in the medium end of the yield curve in the following 2nd and 3rd quarters

the impact of oil price shocks on the term structure of interest rates in a structural var framework we study the impact of oil price shocks in the global crude oil market on the dynamics of the entire yield curve in four industrialised countries with different positions on the oil market the us canada norway and south korea responses of the term structure factors to oil market shocks are shown to differ contingent on the underlying sources that drive oil price shocks and the country s dependence on oil oil market specific demand shocks result in increases in the level factor in oil importing countries but have no such effect in oil exporting countries oil supply disruptions have short lived negative responses of the slope factors in the us and canada associated with loosening monetary policy whilst demand side shocks tend to lead to increases the slope in all countries overall oil supply and demand shocks jointly account for a considerable amount of the observed variation in the term structure of interest rates

monetary policy shifts and the term structure we estimate the effect of shifts in monetary policy using the term structure of interest rates in our no arbitrage model the short rate follows a version of the taylor s 1993 discretion versus policy rules in practice carnegie rochester conference series on public policy 39 195 214 rule where the coefficients on the output gap and inflation vary over time the monetary policy loading on the output gap has averaged around 0 4 and has not changed very much over time the overall response of the yield curve to output gap components is relatively small in contrast the inflation loading has changed substantially over the last 50 years and ranges from close to zero in 2003 to a high of 2 4 in 1983 long term bonds are sensitive to inflation policy shifts with increases in inflation loadings leading to higher short rates and widening yield spreads

comment sequential moment restrictions in panel data 1992 comment sequential moment restrictions in panel data journal of business economic statistics vol 10 no 1 pp 20 26

new keynesian macroeconomics and the term structure this article complements the structural new keynesian macro framework with a no arbitrage affine term structure model whereas our methodology is general we focus on an extended macro model with an unobservable time varying inflation target and the natural rate of output which are filtered from macro and term structure data we obtain large and significant estimates of the phillips curve and real interest rate response parameters our model also delivers strong contemporaneous responses of the entire term structure to various macroeconomic shocks the inflation target dominates the variation in the level factor whereas the monetary policy shocks dominate the variation in the slope and curvature factors

note the newsvendor model with endogenous demand this paper considers a firm s price and inventory policy when it faces uncertain demand that depends on both price and inventory level the authors extend the classic newsvendor model by assuming that expected utility maximizing consumers choose between visiting the firm and consuming an exogenous outside option the outside option represents the utility the consumer forgoes when she chooses to visit the firm before knowing whether or not the product will be available the authors investigate both the case in which the firm s price is exogenous and the case in which price is chosen optimally the paper makes two contributions first the authors show that the firm holds more inventories provides a higher fill rate attracts more customers and earns higher profits when it internalizes the effect of its inventory on demand second the authors show that in the endogenous price case the firm s two dimensional decision problem can be reduced to two sequential single variable optimizations as a result the endogenous price case is as easy to solve as the exogenous price case

a single item inventory model for expected inventory order crossovers abstract expected inventory order crossovers occur if at the moment of ordering it is expected that orders will not arrive in the sequence they are ordered recent research has shown that a expected inventory order crossovers will be encountered more frequently in future and that b use of a myopic order up to policy based on a stochastic dynamic programming approach leads to improved performance compared to the classical approach in this paper we show that the improved policy is still heuristic in nature as it neglects several control options that are available on the various ordering moments and makes some restrictive assumptions with respect to the separability i e decomposability of the stochastic dynamic programming problem we propose further improvements in the policy for situations where a quadratic cost function is appropriate

co determination and innovation this paper examines the effect of the german co determination law of 1976 mitbestg on the innovative activity of german firms co determination applies to firms with 2 000 employees or more data from 1971 1976 and 1981 1990 on 148 firms are used to compare the number of patents granted to co determined firms before and after the introduction of the law several control variables are applied and in particular in order to avoid a possible bias from specific effects of firm size we compare the co determined firms with others before and after 1976 the results do not support the view that co determination slows down technological progress and reduces innovativity

a periodic review model with serially correlated inventory level dependent demand abstract it has been established that the demand rates of many consumer products are serially correlated and are dependent on the amount of inventory displayed to the customer a periodic review model is developed that considers both of these effects an adaptive base stock policy based on the critical fractile is presented and a solution methodology is developed the effect of this demand pattern on the safety stock requirement is investigated

some insights regarding the optimal reorder period in periodic review inventory systems abstract the periodic review inventory system is not only pervasive but also has an extensive literature dealing with various aspects from its theoretical underpinnings through to its performance however the selection of the best review period and its behaviour with respect to basic inventory parameters such as demand and supply variability appears to be poorly understood in this paper we treat the normal and gamma distributions which are probably the two most commonly used distributions of demand over the key protection time interval in a periodic review system we show that the total cost function is not necessarily well behaved as a function of the review period in particular it can be non convex which complicates the determination of the best value of the review interval also we demonstrate and explain how the best review period changes as the values of various parameters are modified some of these changes are initially counterintuitive in nature managerially oriented interpretations should also be helpful to organisations seeking improvement in inventory system performance

management of a periodic review inventory system using bayesian model averaging when new marketing efforts are made abstract many companies invest in various marketing efforts such as price promotion and advertising in order to attract new customers and build customer loyalty this paper examines the problem of setting efficient inventory levels when new marketing efforts are made and product demand is autocorrelated we assume that the inventory manager operates with a base stock policy based on a critical fractile if marketing has a temporary effect the underlying demand tends to revert to a long term equilibrium trend and the inventory manager needs to use a stationary demand model e g autoregressive model to determine the required inventory level in contrast if the effect is permanent demand shocks contain an element that represents a permanent departure from previous levels and a non stationary demand model e g random walk needs to be used instead we show that the required inventory behaves much differently for the case of using a stationary demand model as opposed to a non stationary model but it is difficult in practice to identify a correct demand model in the absence of a long sampling span in this paper we propose an inventory model that explicitly acknowledges uncertainty over stationary and non stationary demand models in response to new marketing efforts the proposed model averages the inventory policies of the two demand models weighted by each model s posterior probability this is an extension of bayesian model averaging simulation results demonstrate that the bayesian model averaging inventory model improves the inventory system

estimation of fractional dependent variables in dynamic panel data models with an application to firm dividend policy fractional dependent variables and models with state dependence arise in many economic applications however estimating models with fractional dependent variables is complicated by the presence of two corner solution outcomes when coupled with a dynamic panel data setting estimating quantities of interest can be quite complex or computationally difficult this article demonstrates a method for estimating fractional response variables which is easy to implement and presents an application of the technique to the determination of firm dividend policy the estimation demonstrates that neglecting dynamics unobserved heterogeneity or the doubly censored nature of the dependent variable can generate misleading conclusions

futures prices as risk adjusted forecasts of monetary policy many researchers have used federal funds futures rates as measures of financial markets expectations of future monetary policy however to the extent that federal funds futures reflect risk premia these measures require some adjustment in this paper we document that excess returns on federal funds futures have been positive on average and strongly countercyclical in particular excess returns are surprisingly well predicted by macroeconomic indicators such as employment growth and financial business cycle indicators such as treasury yield spreads and corporate bond spreads excess returns on eurodollar futures display similar patterns we document that simply ignoring these risk premia significantly biases forecasts of the future path of monetary policy we also show that risk premia matter for some futures based measures of monetary policy shocks used in the literature

entry and patenting in the software industry to what extent are firms kept out of a market by patents covering related technologies do patents held by potential entrants make it easier to enter markets we estimate the empirical relationship between market entry and patents for 27 narrowly defined categories of software products during the period 1990 2004 controlling for demand market structure average patent quality and other factors we find that a 10 increase in the number of patents relevant to market reduces the rate of entry by 3 8 and this relationship intensified following expansions in the patentability of software in the mid 1990s however potential entrants with patent applications relevant to a market are more likely to enter it finally patents appear to substitute for complementary assets in the entry process because patents have both greater entry deterring and entry promoting effects for firms without prior experience in other markets this paper was accepted by bruno cassiman business strategy

an inventory model with deteriorating items under inflation when a delay in payment is permissible abstract this study develops an inventory model for initial stock dependent consumption rate when a delay in payment is permissible in the inventory model shortages are not allowed the effect of the inflation rate deterioration rate initial stock dependent consumption rate and delay in payment are discussed in the study mathematical models are also derived under two different circumstances i e case i the credit period is less than or equal to the cycle time for settling the account and case ii the credit period is greater than the cycle time for settling the account besides expressions for an inventory system s total cost are derived for these two cases moreover a computational procedure and gino lasdon et al acm transactions mathematical software 4 1978 34 50 are proposed to obtain the optimal order size and cycle time the results can help managers determine the optimal total cost finally a numerical example demonstrates the applicability of the proposed model

scarf s state reduction method flexibility and a dependent demand inventory model we consider a finite horizon inventory model with linear holding shortage and ordering costs the demand random variables are dependent and average demand is described by an exponential smoothing formula this model can be formulated as a two state variable inventory level weighted past demands dynamic program using a procedure first developed by scarf for a bayesian inventory model we are able to reformulate the model as a one state variable dynamic program resulting in a considerable computational saving over the two state variable formulation we also show that this dependent demand model orders less than or equal the amount ordered by a comparable independent demand model we establish this result under the assumption that demand represents failures that are repaired by the beginning of the next period

macro factors and the term structure of interest rates this paper presents an essentially affine model of the term structure of interest rates making use of macroeconomic factors and their long run expectations the model extends the approach pioneered by kozicki and tinsley 2001 by modeling consistently long run inflation expectations simultaneously with the term structure application to the u s economy shows the importance of long run inflation expectations in the modeling of long term bond yields the paper also provides a macroeconomic interpretation for the latent factors found in standard finance models of the yield curve the level factor represents the long run inflation expectation of agents the slope factor captures business cycle conditions and the curvature factor expresses a clear independent monetary policy factor

do central bank liquidity facilities affect interbank lending rates in response to the global financial crisis that started in august 2007 central banks provided extraordinary amounts of liquidity to the financial system to investigate the effect of central bank liquidity facilities on term interbank lending rates near the start of the crisis we estimate a six factor arbitrage free model of u s treasury yields financial corporate bond yields and term interbank rates this model can account for fluctuations in the term structure of credit and liquidity spreads observed in the data a significant shift in model estimates after the announcement of the liquidity facilities suggests that these central bank actions did help lower the liquidity premium in term interbank rates

macroeconomic models and the yield curve an assessment of the fit abstract many have questioned the empirical relevance of the calvo yun model this paper adds a term structure to three widely studied macroeconomic models calvo yun hybrid and svensson we back out from observations on the yield curve the underlying macroeconomic model that most closely matches the level slope and curvature of the yield curve with each model we trace the response of the yield curve to macroeconomic shocks we assess the fit of each model against the observed behaviour of interest rates and find limited support for the calvo yun model in terms of fit with the observed yield curve we find some support for the hybrid model but the svensson model performs best

a model for optimizing retail space allocations the allocation of scarce shelf space among competing products is a central problem in retailing space allocation affects store profitability through both the demand function where both main and cross space elasticities have to be considered and through the cost function procurement carrying and out of stock costs a model is developed which uniquely incorporates both effects a case study is used to estimate the parameters and the problem is solved within a geometrical programming framework an extensive comparison with alternative procedures suggests this general model leads to significantly different allocation rules and superior profit performance

applying a macro finance yield curve to uk quantitative easing we estimate a macro finance yield curve model for both the nominal and real forward curve for the uk from 1993 to 2008 our model is able to accommodate a number of key macroeconomic variables and allows us to estimate the instantaneous response of the yield curve and so gauge the impact of quantitative easing on forward rates we find that 10 year nominal interest rates on average are lower by 46 basis points which can largely be explained by three main channels portfolio balance liquidity premium and signalling but there is no sizeable impact on real interest rates

a macro finance model of the term structure monetary policy and the economy this paper develops and estimates a macro finance model that combines a canonical affine no arbitrage finance specification of the term structure with standard macroeconomic aggregate relationships for output and inflation from this new empirical formulation we obtain several interesting results 1 the latent term structure factors from finance no arbitrage models appear to have important macroeconomic and monetary policy underpinnings 2 there is no evidence of monetary policy inertia or a slow partial adjustment of the policy interest rate by the federal reserve and 3 both forward looking and backward looking elements play important roles in macroeconomic dynamics

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

modeling bond yields in finance and macroeconomics from a macroeconomic perspective the short term interest rate is a policy instrument under the direct control of the central bank from a finance perspective long rates are risk adjusted averages of expected future short rates thus as illustrated by much recent research a joint macro finance modeling strategy will provide the most comprehensive understanding of the term structure of interest rates we discuss various questions that arise in this research and we also present a new examination of the relationship between two prominent dynamic latent factor models in this literature the nelson siegel and affine no arbitrage term structure models

the financial market impact of uk quantitative easing after outlining some of the monetary developments associated with quantitative easing qe we measure the impact of the uk s initial 2009 10 qe programme on bonds and other assets first we use a macro nance yield curve both to create a counterfactual path for bond yields and to estimate the impact of qe directly second we analyse the impact of individual qe operations on a range of asset prices we nd that qe signi cantly lowered government bond yields through the portfolio balance

the federal reserve s large scale asset purchase programmes rationale and effects we provide empirical estimates of the effect of large scale asset purchases lsaps on longer term us treasury yields within a framework that allows for several transmission channels including the scarcity channel associated with the preferred habitat literature and the duration channel associated with interest rate risk we also clarify lsaps role in the broader context of historical monetary policy strategy results indicate that lsap style operations mainly impact longer term rates via the nominal term premium within that premium the response is predominantly embodied in the real term premium the scarcity and duration channels both seem to be of considerable importance

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

market based measures of monetary policy expectations a number of recent articles have used different financial market instruments to measure near term expectations of the federal funds rate and the high frequency changes in these instruments around federal open market committee announcements to measure monetary policy shocks this article evaluates the empirical success of a variety of financial market instruments in predicting the future path of monetary policy all of the instruments we consider provide forecasts that are clearly superior to those of standard time series models at all of the horizons considered among financial market instruments we find that federal funds futures dominate all the other securities in forecasting monetary policy at horizons out to six months for longer horizons the predictive power of many of the instruments we consider is very similar in addition we present evidence that monetary policy shocks computed using the current month federal funds futures contract are influenced by changes in the timing of policy actions tha

explorations into factors explaining money market returns in this article we measure and interpret the common factors that describe money market returns results are presented for both three and four factor models we find that the three factor model explains on average 86 percent of the total variation in most money market returns while the four factor model explains on average 90 percent of this variation using mimicking portfolios we provide an interpretation of the systematic risks represented by these factors in this article we attempt to measure and interpret the common factors that describe money market returns the factor approach we employ assumes that the covariance matrix of a set of random variables in this case excess returns can be decomposed into common or systematic components and idiosyncratic or nonsystematic components this decomposition into systematic and nonsystematic components is based on an assumption of a linear relationship between the returns of each security and a set of common factors this is the assumption of linear return generating models which form an integral part of the structure of many asset pricing theories for example arbitrage pricing theory apt as developed by ross 1976 the interpretation is that the common factors represent sources of systematic or nondiversifiable risk and the idiosyncratic component of returns represents diversifiable risks our focus here is not on testing a particular asset pricing model per se but on developing empirical evidence for the existence of stylized facts regarding money market returns the stylized facts take the form of the existence measurement and interpretation of the common factors that are found in money markets our attempt to measure and interpret these sources of systematic risk may eventually lead to the construction of observable eco