price and trade effects of exchange rate fluctuations and the design of policy coordination abstract we analyze a two country zone facing a joint inflationary shock and responding with coordinated and uncoordinated monetary and fiscal policies we show that the standard presumption that the absence of coordination results in an excessive exchange rate appreciation of the zone with respect to the rest of the world hinges on a specific assumption within the two countries considered the price effect of exchange rate fluctuations dominates the trade effects relative to the corresponding effects via a vis the rest of the world if the relative hierarchy goes the other way around as we argue is likely for ec countries the standard conclusion is reversed a result of insufficiently active monetary and fiscal policies the paper also considers asymmetric shocks as well as monetary policy coordination

the international telecommunications regime the political roots of regimes for high technology the international telecommunications regime provided a multilateral framework that reinforced domestic monopolies and bilateral cartel arrangements in the global market the regime s epistemic community believed that telecommunications services and equipment were best supplied by national monopolies and that international communications by telephone telegram and telex should be jointly provided by monopolists strong domestic political incentives reinforced this cognitive framework when technological innovation triggered a successful political attack on the domestic regulation of telecommunications in a few key countries the stage was set for a global challenge to the intellectual and political foundations of the regime two paths to reform have emerged their significance can be assessed by looking at changes in the distribution of benefits from the regime changes in the manner in which governments delegate power to the regime and shifts in the epistemic community associated with the regime

retaliation bargaining and the pursuit of free and fair trade that domestic political economic factors are important determinants of a nation s trade barriers has been empirically well established however the question of how effective strategically retaliatory trade barriers are in deterring foreign protectionism has received far less systematic empirical attention in this article we use bilateral nontariff barrier ntb data between the united states and five developed partner countries japan france germany italy and the united kingdom to systematically examine the effectiveness of strategic retaliation we employ a simultaneous tobit model where the home and foreign ntb levels are determined endogenously in a bilateral game the model provides estimates of deterrence coefficients that is the reduction in foreign trade barriers as a result of u s retaliation which we use to characterize the nature of bilateral ntb games our hope is that the empirical results presented here which have realistic though controversial implications will inform u s trade policy

the multinational corporation and global governance modelling global public policy networks globalization has increased the economic power of the multinational corporation mnc engendering calls for greater corporate social responsibility csr from these companies however the current mechanisms of global governance are inadequate to codify and enforce recognized csr standards one method by which companies can impact positively on global governance is through the mechanism of global public policy networks gppn these networks build on the individual strength of mncs domestic governments and non governmental organizations to create expected standards of behaviour in such areas as labour rights environmental standards and working conditions this article models gppn in the issue area of csr the potential benefits of gppn include better overall coordination among industry and government in establishing what social expectations the modern mnc will be expected to fill

fiscal policy in the new open economy macroeconomics and prospects for fiscal policy coordination ceps working documents are published to give an indication of the work within ceps various research programmes and to stimulate reactions from other experts in the field unless otherwise indicated the views expressed are attributable only to the author in a personal capacity and not to any institution with which she is associated

international monetary and fiscal policy cooperation in the presence of wage inflexibilities abstract this paper studies the transmission mechanisms and welfare implications of strategic monetary and fiscal policy in a two country mundell fleming variable supply stochastic model the issue of the counterproductivity of policy cooperation raised by rogoff 1985 is examined and extended to fiscal policy it is established that systematic fiscal policy cooperation is productive for a wide range of parameter values that include those of the simple keynesian model cooperation is always productive for policy that is contingent on the realisation of shocks

production capacity planning for multiple products under uncertain demand conditions abstract this study chiefly deliberates issues regarding capacity allocation for multiple products when producing multiple products a manufacturer needs to allocate a favorable production quantity to each product under conditions of uncertain demand since the excess or shortage of a product will in turn cause the loss of profit the proposed model and the corresponding algorithm in this study are used to find out the optimal capacity allocation under the given probability density function of specific demands and to effectively allocate limited capacity to multiple products with an aim to maximize profit finally the numerical example suggests that the marginal profit the inventory holding cost the shortage cost the loss of excess production and market demands should be considered in an effort to discover an optimal capacity allocation with regard to multiple products

corporate unity in american trade policy a network analysis of corporate dyad political action this essay examines factors that produce political unity among large u s corporations advocating free trade expanding on old debates these data and analyses validate the importance of organizational and class cohesion approaches to corporate political action methodologically the political unity of pairs dyads of firms in trade policy activism is analyzed with quadratic assignment procedure regression shared membership in prominent policy networks and board interlocks positively predict corporate political unity across three areas of trade policy influence from the executive branch to the legislature non network organizational indicators also significantly predicted corporate trade policy activism the findings support business unity accounts of corporate political action and suggest that higher levels of firm embeddedness within intercorporate networks facilitate collective corporate political action

technical note mathematical pitfalls in the one machine multiproduct economic lot scheduling problem we consider a group of products sharing the same piece of production equipment and show that two mathematical problem formulations in the literature are ill posed in both cases the infimum of the cost function occurs at a boundary point that is not feasible

capacitated two stage multi item production inventory model with joint setup costs we analyze a continuous time two stage production inventory system in the first stage a common intermediate product is produced in batches and possibly stored in the second phase the intermediate product is fabricated into n distinct finished products several finished products may be included in a single production batch of limited capacity to exploit economies of scale we propose a planning methodology to address the combined problem of joint setup costs and capacity limits per setup we restrict ourselves to a class of replenishment strategies with the following properties a replenishment strategy specifies a collection of families subsets of items covering all end items if an item belongs to several families a specific fraction of its sales is assigned to each family each time the inventory of one item in a family is replenished the inventories of all other items in the family are replenished as well we derive a simple roughly 0n log n algorithm that results in a strategy whose long run average cost comes within a few percentage points of a lower bound for the minimum achievable cost within the above class of strategies

international coordination in the design of macroeconomic policy rules abstract the paper examines international issues that arise in the design and evaluation of macroeconomic policy rules it begins with a theoretical investigation of the effects of fiscal and monetary policy in a two country rational expectations model with staggered wage and price setting and with perfect capital mobility the results indicate that with the appropriate choice of policies and with flexible exchange rates demand shocks need not give rise to international externalities or coordination issues price shocks however do create an externality and this is the focus of the empirical part of the paper using a simple seven country model consisting of canada france germany italy japan the united kingdom and the united states optimal cooperative and non cooperative nash policy rules to minimize the variance of output and inflation in each country are calculated the cooperative policies are computed using standard dynamic stochastic programming techniques and the non cooperative policies are computed using an algorithm developed by finn kydland the central result is that the cooperative policy rules for these countries are more accommodative to inflation than the non cooperative policy rules

the value of operational flexibility in the presence of input and output price uncertainties with oil refining applications refining is indispensable to almost every natural resource based commodity industry it involves a series of complex processes that transform inputs with a wide range of quality characteristics into refined finished products sold to end markets in this paper we take the perspective of a profit maximizing refiner that considers upgrading its existing simple refinery to include intermediate conversion flexibility i e the capability of converting heavy intermediate components to light ones we present a stylized two stage stochastic programming model of a petroleum refinery to investigate the value drivers of conversion flexibility and the impact of input and output market conditions on its economic potential conversion flexibility adds value to refineries by either transforming a nonprofitable situation into a profitable one referred to as purchase benefit or improving profitability of an already profitable situation referred to as unit revenue benefit in a real data calibrated numerical study w

foreign direct investment and the demand for protection in the united states over the past decade foreign direct investment fdi in the united states has grown dramatically changing the composition of many u s industries and bringing foreignowned firms into the domestic political process presumably fdi also has affected the politics of protection by both altering the domestic coalitions around protectionist demands and shifting the potential benefits that protectionism is likely to bring to understand this process we create and test a model that examines the level of inward investment and the extent to which this investment either complements or substitutes for existing import levels import complementing investment we suggest will cause a split in protectionist demands with local producers favoring protectionism and foreign investors pushing for free trade import substituting investment by contrast will create convergent interests between local and foreign producers in both cases inward fdi reshuffles traditional alliances and demands for protection challenging many prevailing views about protectionism in the united states

revealed preference of the federal reserve using inverse control theory to interpret the policy equation of a vector autoregression how close is observed federal reserve policy to policy that would be optimal in the control theory sense the question is addressed by using an inverse control methodology federal reserve policy is characterized by a feedback equation for either changes in the interest rate or money stock optimal policy is characterized by solution of the ricatti equation parameters are estimated that characterize the relative importance to the federal reserve of stabilizing output inflation interest rates and money growth the period of study is 1947 through 1992 evidence is uncovered that policy is optimal within distinct regimes

delegation in international monetary policy games abstract in this paper we show that delegation of monetary policy to an independent and more conservative central banker is an optimal policy in a multi country framework with monetary spillovers among countries even in the absence of time inconsistency credibility issues we also study the welfare implications of delegating monetary policy and extend our analysis to the case of coordination of monetary policies

the terms of trade and the international coordination of fiscal policy this paper develops an example of a noncooperative game between fiscal authorities in two countries the key strategic link between countries is the terms of trade an equilibrium without cooperation is characterized by excessive tax rates and public spending levels in each country the outcome is analogous to the nash equilibrium of the static optimal tarif game in trade theory but in this model there is also a dynamic distortion caused by noncooperative behaviour this dynamic distortion depresses capital accumulation and reduces the equilibrium capital stock in each country numerical examples suggest a significant welfare benefit of cooperation

competitive depreciation and the role of distorting taxes in an interdependent economy abstract this paper investigates the manners in which international cooperation in monetary policies affects the rate of inflation in a two country sticky price model within reasonable parameter values international monetary coordination increases the steady state inflation for given tax policies when the tax regime is endogenously chosen however self oriented monetary policies can engage in competitive depreciation and induce a higher average inflation than the first best inflation rate

a multi item newsvendor problem with preseason production and capacitated reactive production abstract given items with short life cycles or seasonal demands one can potentially improve profits by producing during the selling season especially when its production capacity is substantial we develop a two stage multi item model incorporating reactive production that employs a firm s internal capacity production occurs in an uncapacitated preseason stage and a capacitated reactive stage demands occur in the reactive stage reactive capacities are pre allocated to each item in the preseason stage and cannot be changed during the reactive stage reactive production occurs during the selling season with full knowledge of demands the objective is expected profit maximization unsatisfied demand is lost the revenue salvage value and production and lost sales costs are proportional assuming no fixed costs we present a simple algorithm for computing optimal policies for a model with fixed costs for allocating preseason stage production and reactive stage capacity to product families we characterize optimal policies and develop optimal and heuristic algorithms

u s monetary regimes and optimal monetary policy in the euro area monetary policy in the united states has been documented to have switched from reacting weakly to inflation fluctuations during the 1970s to fighting inflation aggressively from the early 1980s onward in this paper i analyze the impact of the u s monetary policy regime switches on the eurozone i construct a new keynesian two country model where foreign u s monetary policy switches regimes over time i estimate the model for the u s and the euro area using quarterly data and find that the united states has switched between those two regimes in line with existing evidence i show that foreign regime switches affect home eurozone inflation and output volatility and their responses to shocks substantially as long as the home central bank commits to a time invariant interest rate rule reacting to domestic conditions only optimal policy in the home country instead requires that the home central bank reacts strongly to domestic producer price inflation and to international variables such as imported goods relative prices in fact i show that currency misalignments and relative prices play a crucial role in the transmission of foreign monetary policy regime switches internationally interestingly i show that only marginal gains arise for the euro area when the european central bank ecb adjusts its policy according to the monetary regime in the united states thus a simple time invariant monetary policy rule with a strong reaction to producer price index ppi inflation and relative prices is enough to counteract the effects of monetary policy switches in the united states

international policy coordination in interdependent monetary economies abstract an optimising equilibrium model of two interdependent monetary economies with no other assets except cash perfect foresight flexible exchange rates and imperfect substitution between home and foreign goods is analysed both non cooperative and cooperative market oriented outcomes are time inconsistent since each government has an incentive to renege and levy a surprise inflation tax international policy coordination without pre commitment can be counterproductive even though there are no tax distortions and the provision of public goods is optimal since it exacerbates the credibility problems perceived by the private sectors and therefore leads to a too low level of real money balances and excessive inflation

firms and tariff regime change explaining the demand for protection although it is commonly argued that there is a connection between tariff levels and business conditions this hypothesis has not been subjected to systematic empirical analysis or given any theoretical basis the author presents two complementary theories of the movement of tariff levels in response to changing business conditions both explain tariff changes in terms of the changing political demands of business firms and both rely on the business cycle to drive these changing demands one theory is a conventional argument about changing opportunities for entry and exit the other treats firms as satisficers the theories yield similar predictions preliminary empirical analysis while consistent with both does not differentiate between them

u s corporate interests and the political economy of trade policy this paper examines the behavior of american corporations with respect to international trade policy initiatives during the 1970s using survey generated data on revealed corporate trade policy interests and firmand industry level data on company characteristics direct or proxy variables were developed and applied in linear regression equations using an ordered probit specification and in an alternative approach using factor analysis to construct a composite dependent variable hypothesized relationships were verified between corporate positions on trade liberalization and the intensity of competition from imports the benefits from improved access to foreign markets and internal risk pooling capabilities of firms firms exposed to the international competitive environment inevitably have a stake in national trade policy this paper explores the revealed behavior of u s corporations on matters of trade policy in the 1970s it develops a set of hypotheses linking corporate trade policy positions to a series of company and industry attributes these hypotheses are tested using survey generated information regarding corporate behavior on trade policy matters beginning with the protectionist burke hartke initiatives of the early 1970s through the post tokyo round period at the end of the decade studies of the political economy of protection typically begin with the proposition that import barriers create rents that can be appropriated by the protected industry the size of the rents to be obtained and their probable division among the various participants in the industry partly determine the intensity of protection seeking behavior lobbying undertaken by participants in the industry brock and magee 1978 the intensity is also influenced by the degree of success expected in the political arena and by imperfections in the lobbying process for instance the incentive to be a free rider on the lobbying efforts of others walter and jones 1981 the actual outcome of protection seeking activity is conditioned by a variety of political considerations as well for instance politicians may be constrained by the possibility of repercussions from groups adversely affected by protection including consumers and export oriented industries foreign competitors are also affected so that issues concerning foreign relations enter into the decision process in addition politicians may be influenced more generally by ideology party platforms or attitudes toward equity a number of researchers including ball 1967 fieleke 1976 clark 1980 and ray 1981a 1981b have verified that a significant positive correlation exists between nominal tariff rates or effective rates of protection across manufacturing industries and low skilled labor intensity taken to be an indicator of the intensity of import competition and thus related to the size of the rents that could be obtained by protection cheh 1974 and bale 1977 analyzed the determinants of the percentage reductions in rates of duty resulting from the kennedy round tariff cuts concluding that the cuts were determined in such a way as to minimize labor adjustment costs see also allen lewis and tower 1980 marvel and ray 1983 also explored the determinants of kennedy round tariff cuts finding the size of tariff cuts tended to be smaller if an industry was more concentrated or sold a larger fraction of its output to household consumers and larger if the industry was more intensive in research and development r d or more highly unionized the result for r d presumably represents the desire at the industry level for improved access to export markets achievable through larger reciprocal reductions in protection on the part of foreign countries along somewhat different lines baldwin 1976 analyzed several key congressional votes on the received for publication november 21 1983 revision accepted for publication december 14 1984 new york university the authors are grateful to robert lipsey robert j levenson j peter jarrett and james green for providing data that contributed to this study to jang ro lee ashok chatterjee and monica kaufmann for research assistance and to bill greene for providing advice on the estimation technique and computer program used to perform the statistical analysis thomas a pugel is also grateful for the support of an esmee fairbaim research fellowship at the university of reading 1 in both studies ray also explores nontariff barriers ntbs across u s manufacturing industries aside from finding a positive relationship between tariff rates and ntbs the results are not easily interpreted however there is some inferential evidence in walter 1971 which finds a significant positive relationship between ntb incidence and presumably relatively low skill intensive developing country exports

exchange intervention policy in a multiple country world abstract intervention policy is examined in a three country model employment and output in each country depend upon the domestic currency value of a natural basket of currencies called the sally each country will find it desirable to intervene to stabilize its sally rate if capital movements are more volatile than trade flows this is a natural generalization of well known small country results however in this general equilibrium setting it is clear that such a policy can destabilize employment in another country and lead to retaliation currency unions are also examined and found to have similar spillover problems

the role of a fixed exchange rate system when central bankers are independent abstract in a symmetric model a fixed exchange rate system allows us to reach the cooperative solution in the game between central bankers however as cooperation can be counterproductive such a property may not be beneficial here we reconsider this issue by introducing independent central bankers who need not share the social preferences we show that when countries choose their central bankers cooperatively cooperation between central bankers is neither productive nor counterproductive making fixed and flexible rates equivalent however when central bankers are chosen non cooperatively a fixed rate is better central bankers being too conservative under a flexible rate

capacity decisions for high tech products with obsolescence abstract modern high tech products experience rapid obsolescence capacity investments must be recouped during the brief product lifecycle during which prices fall continuously we employ a multiplicative demand model that incorporates price declines due to both market heterogeneity and product obsolescence and study a monopolistic firm s capacity decision we investigate profit concavity and characterize the structure of the optimal capacity solution moreover for products with negligible variable costs we identify two distinct strategies for capacity choice demarcated by an obsolescence rate threshold that relates both to market factors and capacity costs finally we empirically test the demand model by analyzing shipping and pricing data from the pc microprocessor market

ideology interests and the american executive toward a theory of foreign competition and manufacturing trade policy faced with a formidable competitiveness problem the american government chief executive appeared to offer a series of ad hoc responses in the 1980s contrarily this article suggests that executive responses to foreign economic challenges follow a predictable pattern pointing to the interactive effects of ideology and interest this article argues that both the degree and type of executive response be it in the form of market opening strategies of temporary or permanent forms of protectionism or of adopting a laissez faire approach can be predicted based on two factors whether a sector is characterized as high tech and whether it is considered to be competitive a major implication of this argument is that the u s chief executive has used trade policy as a surrogate for industrial policy but in so doing the strategic considerations associated with industrial policies have been bypassed the major effect is that the executive fails to intervene only in the realm of an infant industry policy the area most likely to generate a dynamic economy the product of this combiantion of protectionist policies is a stagnant economy that we term compromise protectionism

inflation starts in latin america and the caribbean high rates of inflation are a perennial problem in latin american and caribbean lac countries this article attempts to identify the factors that initiate these inflationary episodes using observations on 31 lac countries between 1970 and 2006 the study finds that the key determinants of inflation starts in the region are demand pressures oil price shocks elections transitions to less repressive political regimes and foreign inflation

when international policy coordination matters an empirical analysis the interdependence of national economies implies externalities in policy making and these externalities lead to inefficient outcomes when policy makers are decentralized and independent these externalities have been well documented from a theoretical point of view this paper reports our attempts to discover when and if policy coordination matters using the liverpool world model which exhibits strong spillover effects for monetary policy and would therefore we thought yield very different results from those of earlier researchers however strong spillover effects do not guarantee that cooperative policies will differ much from the uncooperative other aspects of the game s structure can be equally important indeed we found many plausible game situations in which the uncooperative and cooperative solutions are so close together as to be operationally indistinguishable given the precision with which central banks seem to be able to control their money supplies we also found situations in which c

firms governments and wto adjudication japan s selection of wto disputes what explains the selection of cases for wto adjudication this article explores the business conditions under which industries lobby their home government to use the wto adjudication process and the political factors that influence government decisions it explains the industry pattern of selection for international trade disputes as a function of the velocity of the business environment while wto adjudication is seen as costly and slow a positive ruling brings broad benefits in terms of deterrence against future discrimination firms in static industries will invest in wto dispute settlement to achieve these benefits but firms in industries shaped by dynamic competition have high opportunity costs that make them less willing to pursue adjudication this argument accounts for why there are fewer wto cases about electronics industry issues than there are likely incidences of protectionist measures since japan is a leading exporter and provides a government report with unique data on potential wto disputes it was chosen to test the argument in greater depth interviews with japanese business officials and statistical analysis of an original data set provide support for the argument the authors conclude that the passive attitude toward wto adjudication by japan s largest export industry electronics and the sensitivity of japan s diplomatic relations with china have constrained the cases that japan files these findings suggest that the effectiveness of the wto for dispute settlement is conditional upon the time horizon of the industry and the political relations among members

monetary accommodation of supply shocks under rational expectations in dealing with the expectationists arguments i will divide them somewhat artificially into two groups arguments in the first group which i call present disaster arguments allege that econometric models err by understating the reaction of inflationary expectations for example it is claimed that a policy of monetary accommodation would increase inflationary expectations shift the short run phillips curve upward and defeat the purpose of the expansionary policy arguments in the second group which i call future disaster arguments are more subtle but also more elusive the idea is that by informing private agents that it will accommodate supply shocks in the future the monetary authority would exacerbate the downward rigidity of wages and prices thus making it more difficult to deal with future supply shocks such arguments are cases of the lucas 12 econometric policy critique since they suggest that policy changes will cause parameter shifts neither of these arguments is implausible on its face the problem is that it is hard to know how to evaluate them until they are formalized in theoretical models and then tested empirically this paper takes one small step in that direction by augmenting two popular macro models with rational expectations so that they are capable of dealing with supply shocks and then examining both the present and future disaster arguments in the context of each this abstract was borrowed from another version of this item

economic interests and regional trading arrangements the case of nafta this article examines lobbying in the united states on the north american free trade agreement nafta i argue that economies of scale and production sharing across borders create incentives for firms to seek regional trade liberalization statistical analysis demonstrates that sectors with these characteristics were more likely to lobby for free trade in north america these sectors were also exposed to free trade more rapidly under the tariff phasing schedule in the nafta treaty however corporate restructuring to rescale production for the regional market and to increase offshore assembly presented adjustment costs for u s workers which created divisions between labor unions and their employers i conclude that regional arrangements are an attractive mechanism to liberalize trade for firms in need of larger than national markets to take advantage of economies of scale or to develop production sharing networks

optimal ordering quantities for multi products with stochastic demand return cvar model abstract multi product ordering problem with stochastic demand is often optimized by the expected cost reduction or the expected profit improvement in most of previous works moreover risk preference of decision maker is often ignored evidently this approach is impracticable when the corresponding volatility is larger based on the outstanding characteristics of conditional value at risk cvar as a risk measure the paper proposes an optimal order model for multi product with cvar constraints also the model is finally formulated as a linear programming problem the model is simulated for the case of a newsvendor to analyze to what degree it succeeds the solution in fact is bound consistent fully with the decision maker s intuition on return risk decision making finally results of return cvar model and the classical model are compared and shows that return cvar model is more flexible than the classical model

economic lot scheduling with uncontrolled co production the aim of this paper is to analyze the effects of uncontrolled co production on the production planning and lot scheduling of multiple products co production occurs when a proportion of a certain production comes out as another product this is typical in the process industry where quality and process specifications can lead to diversified products we assume that there is no demand substitution and each product has its own market furthermore we assume that co production cannot be controlled due to technical and or cost considerations we introduce two models that extend the common cycle economic lot scheduling elsp setting to include uncontrolled co production in the first model we do not allow for shortages and derive the optimal cycle time expression in the second model we allow for planned backorders and characterize the optimal solution in closed form we provide a numerical study to gain insight about co production it seems that the cycle time increases with co production rate and utilization of the system the effect of co production on long term average cost does not exhibit a certain characteristic

single item inventory control under periodic review and a minimum order quantity in this paper we study a periodic review single item single stage inventory system with stochastic demand in each time period the system must order none or at least as much as a minimum order quantity qmin since the optimal structure of an ordering policy with a minimum order quantity is complicated we propose an easy to use policy which we call r s qmin policy assuming linear holding and backorder costs we determine the optimal numerical value of the level s using a markov chain approach in addition we derive simple news vendor type inequalities for near optimal policy parameters which can easily be implemented within spreadsheet applications in a numerical study we compare our policy with others and test the performance of the approximation for three different demand distributions poisson negative binomial and a discretized version of the gamma distribution given the simplicity of the policy and its cost performance as well as the excellent performance of the approximation we advocate the application of the r s qmin policy in practice

designing targeting rules for international monetary policy cooperation this study analyzes a two country dynamic general equilibrium model with nominal rigidities monopolistic competition and producer currency pricing a quadratic approximation to the utility of the consumers is derived and assumed as the policy objective function of the policymakers it is shown that only under special conditions there are no gains from cooperation and moreover that the paths of the exchange rate and prices in the constrained efficient solution depend on the kind of disturbance that affects the economy it might be the case either for fixed or floating exchange rates despite this result simple targeting rules that involve only targets for the growth of output and for both domestic gdp and cpi inflation rates can replicate the cooperative allocation

a classification of the literature on the planning of substitutable products abstract a company s assortment of products and corresponding inventory levels are constrained by available resources such as production capacity storage space and capital to acquire the inventory thus customers may not always be able to find a most preferred product at the time of purchase this unsatisfied demand is often substituted with an alternative in the extant literature there have been an increasing number of studies that consider product substitution when planning product assortment inventory and capacity in conjunction with pricing in this paper we classify the literature on the planning of substitutable products published in the major om and marketing journals during the past thirty years 1974 2013 and present a comprehensive taxonomy of the literature one criterion is adopted to discuss modeling objectives and three major criteria are provided to define the nature of product substitution including substitution mechanism substitution decision maker and direction of substitutability we also identify research gaps to provide guidance for related research in the future

international cooperation and exchange rate stabilization abstract we show that exchange rate stabilization can be viewed as a public good consequently when countries do not coordinate their economic policies the exchange rate fluctuates more than in the case of international cooperation we consider a quite standard two country model where the policymakers of each country have at their disposal one policy instrument the money stock and want to reduce the fluctuations of both the domestic output and the domestic price level then we compare the non cooperative nash equilibrium to the set of pareto optima our analysis provides a formal argument for some exchange rate stabilization

the effect of commonality on safety stock in a simple inventory model we examine the effects of component commonality on optimal safety stock levels in a two product two level inventory model the criterion is to minimize system safety stock subject to a service level constraint although our model is specialized its analysis provides insights not available in other multilevel inventory models

strategic monetary policy in interdependent economies gains from coordination reconsidered abstract there is a wide acceptance that gains to international monetary policy coordination are small at best and that the need of policy coordination is questionable this conclusion however follows from the underlying presumption that monetary policy is concerned with the stabilization of macroeconomic fluctuations only this paper presents a general short run monetary policy analysis within a familiar two country new open economy macroeconomics noem framework where national monetary policy involves the choice of a deterministic growth trend of money supply average inflation rate and stochastic state dependent deviations of actual money supply from the deterministic trend stabilization strategic beggar thy neighbor considerations induce the deviation of both policy choices from their socially optimal values the gains from international coordination of the average inflation rate are of first order and hence larger than the gains from the coordination of the stabilization policies which are of second order

what starts inflation evidence from the oecd countries we use a pooled cross country time series framework to study the factors associated with the start of 73 inflation episodes in oecd countries since 1960 we find that policy makers pursuit of high real growthtargets and national elections were important factors in initiating inflation episodes u s inflation turns out to be a triggering event for simultaneous outbreaks of inflation across countries several other explanations for inflation starts including increases in the natural rate of unemployment oil price shocks changes in the political orientation of governments and government debt policy are not supported by the data

monetary policy games with broad money targets a linear quadratic control analysis of the u s and japan abstract this paper compares the different outcomes from noncooperative and cooperative equilibria when the federal reserve and the bank of japan follow monetary policies based on broad money supply targets the analysis is an application of stochastic linear quadratic control methods and combines vector autoregressive models with forward looking efficient market models for asset prices the results indicate that the use of broad money targets bring significant welfare gains to both countries in terms of reduced volatility of nominal income broad money exchange rates and asset prices however there appears to be little difference between cooperative and noncooperative monetary policy arrangements

integrating long term and short term contracting in beef supply chains this paper analyzes the optimal procurement processing and production decisions of a meat processing company hereafter a packer in a beef supply chain the packer processes fed cattle to produce two beef products program premium boxed beef and commodity boxed beef in fixed proportions but with downward substitution of the premium product for the commodity product the packer can source input fed cattle from a contract market where long term contracts are signed in advance of the required delivery time and from a spot market on the spot day contract prices are taken to be of a general window form linear in the spot price but capped by upper and lower limits on realized contract price our analysis provides managerial insights on the interaction of window contract terms with processing options we show that the packer benefits from a low correlation between the spot price and product market uncertainties and this is independent of the form of the window contract although the expected revenues from processing increase in spot price variability the overall impact on profitability depends on the parameters of the window contract using a calibration based on the report by the gipsa grain inspection packers and stockyards administration 2007 gipsa livestock and meat marketing study vol 3 fed cattle and beef industries report u s department of agriculture washington dc this paper elucidates for the first time the value of long term contracting as a complement to spot sourcing in the beef supply chain our comparative statics results provide some rules of thumb for the packer for the strategic management of the procurement portfolio in particular we show that higher variability higher spot price variability product market variability and correlation increases the profits of the packer but decreases the reliance on the contract market relative to the spot market this paper was accepted by yossi aviv operations management

the need for international policy coordination what s old what s new what s yet to come the first generation of policy coordination models was introduced some 25 years ago it provided a rationale for policy coordination but the gains from coordination were generally thought to be small now a new generation of policy coordination models is emerging incorporating monopolistic competition and nominal inertia here we examine macroeconomic interdependence and the scope for policy coordination in a tractable second generation model with two countries and multiple sectors initial calibration of the model suggests that second generation models may have more scope for policy coordination than did the first d 2004 elsevier b v all rights reserved

analysis of batch ordering inventory models with setup cost and capacity constraint abstract stochastic periodic review batch ordering inventory problems appear in many industrial settings however few literature deals with the optimal ordering polices for such problems no mention to the inclusion of the fixed ordering cost and the production capacity in this paper we consider a single item periodic review batch ordering inventory system with the consideration of the setup cost and the capacity constraint for each order over a finite planning horizon by proposing several new convex notions we show that a batch based s s policy is optimal for the unlimited ordering capacity case while for the limited ordering capacity case a modified r q policy is optimal for the setting with zero ordering setup cost and a batch based x y band policy for the setting with positive ordering setup cost moreover we analytically study the sensitivity of the policy parameters with respect to the capacity and batch order size and derive the bounds on the optimal policy parameters we further extend our analysis to the infinite horizon setting and show that the structure of the optimal policy remains similar finally the numerical experiments provide some insights into the impact of model parameters on the benefit of reducing the batch size and increasing the ordering capacity and indicate that ignoring batch requirement may lead to a significant cost increment

the role of financial market structure and the trade elasticity for monetary policy in open economies the degree of international risk sharing matters for how monetary policy should optimally be conducted in an open economy this is because risk sharing afiects the way in which monetary policy is afiected by terms of trade considerations in a standard twocountry model with monopolistic competition and nominal rigidities i consider difierent assumptions on international flnancial markets complete markets flnancial autarky and a bond economy and a large region for the crucial parameter of the trade elasticity there are three main results one the prescription of producer price stability as the optimal policy is obtained only as a special case while in general it is optimal to deviate from a strictly zero in ation rate two while gains from international policy coordination are generally small they do become substantial when international risk sharing is poor and wealth efiects from shocks across countries are large and three when international flnancial markets are incomplete there are also sometimes considerable gains over the exible price allocation achievable

key currency status an exorbitant privilege and an extraordinary risk abstract what are the costs and benefits of the dollar s status as the key currency in the international monetary system here we present a calibrated two country model in which all exports are invoiced in the key currency and government bonds denominated in the key currency are held internationally to facilitate trade and as official reserve assets we show that the exorbitant privilege accruing to the key currency country comes from three sources 1 a bond seigniorage that we estimate to be worth about a half a percent of consumption per period to the united states 2 asymmetric responses to exogenous shocks that are worth an additional quarter of a percent of consumption per period and 3 a macroeconomic hegemony in monetary and fiscal policy reflecting the fact that the key currency s policy instruments are more potent but there is also an exorbitant risk to being the key currency country we show that the costs of a potential dumping of key currency bonds are also substantial moreover there appear to be no obvious monetary or fiscal policy responses that would lower the costs significantly

yield and allocation management in a continuous make to stock system with demand upgrade substitution abstract yield management is crucial for high tech industries to reduce over production however it is very challenging for a manufacturer to make a yield decision under the circumstance of uncertain demand and stochastic product quality for example in semiconductor manufacturing industry products are produced in batches within certain production cycle time even if the same raw material is put into the production system the product qualities measured by performance usually are not identical due to random yield in the manufacturing process since products have overlapped performance specifications products of the same batch are classified into different classes according to their qualities at the allocation stage products with higher performance can substitute for demand for products with lower performance this type of production and allocation system can be specified as a make to stock system with single material multi products multi periods upward demand substitution under random yield and uncertain demands in order to maximize profit the manufacturer needs to decide on the optimal input material quantity and the optimal allocation policy the problem is formulated as a stochastic dynamic programming model because manufacturer s profit is affected by the allocation policies atp r allocation policy is proposed to help manufacturer make real time allocation decisions a numerical experiment shows that atp r allocation policy performs better than the traditional myopic allocation policy to reduce the computation burden involved in atp r allocation policy we further propose a simplified algorithm and our experimental studies provide proof of the effectiveness of the proposed simple algorithm

capacity selection under uncertainty with ratio objectives abstract capacity choice or expansion whether organic or via mergers and acquisitions creates firms of widely varying scales the ex post profitability of such a transformed firm relative to its original size will typically be evaluated on ratio rate measures like earnings per share or profits to asset ratio as such are the only meaningful ways to compare profitability of firms of substantially different sizes it thus seems desirable that ex ante capacity selection decisions will also be guided by a ratio objective we explore capacity choice decisions under demand uncertainty through the ratio measures 1 expected newsvendor i e single period costs per unit capacity 2 expected newsvendor profit per unit of capacity 3 expected profit per costs of acquiring capacity 4 a weighted average of a ratio and non ratio objectives we allow the capacity acquisition costs and capacity s production capability to be general non linear functions cost and profit objectives cease to be equivalent when ratio objectives are involved we show that cost ratio optimizers will select a larger capacity than absolute cost optimizers while profit ratio optimizers will select smaller capacities than absolute counterpart we provide examples which show that the difference in optimal capacities and the associated difference in objective value can be substantial we also perform comparative statics analyses of the effect of change in item s shortage cost and of stochastic shifts in demand

the gains from fiscal cooperation in the two commodity real trade model abstract this paper analyzes the gains from fiscal cooperation within the context of the standard two commodity real trade model it shows how the adjustment in the terms of trade is the critical factor in determining the effects of moving from a noncooperative equilibrium in general a noncooperative equilibrium leads to an overexpansion of government expenditure on the import good relative to a cooperative equilibrium the specific example of a logarithmic economy is also considered the paper discusses further the welfare effects resulting from the formation of a coalition of two countries among three

monetary policy interactions under managed exchange rates this paper studies a two country monetary system where one country sets its money stock but gives up control of the exchange rate and the other country gives up control of its own money stock but can set the exchange rate independently cournot nash equilibria under managed rates differ significantly from those under fixed or floating rates the country that controls the exchange rate can effectively offset inflationary shocks by changing the exchange rate at the expense of the foreign country and as a result can be better off than the foreign country this result provides an example of a successful disinflation through an exchange rate appreciation in a two country world and it indicates that managed exchange rate regimes tend to be unstable since both countries find it desirable to affect the exchange rate managed exchange rates however are a stable outcome when the center country is so much larger than its partner that changes in the real exchange rate do not affect its output and real income copyright 1989 by the london school of economics and political science

international policy design and the sustainability of policy bargains events of the past decade and the persistence of the worldwide recession have underlined the interdependence of the major economics competitive devaluations first illustrated the dangers of unilateral decisions and politicians have regularly called for concerted policies since the bonn economic summit in 1978 economic theory has shown that coordinated policies can bring gains but the question of whether those gains will be significant and how they will be distributed remains unanswered remarkably few empirical results on how interdependence should affect policy design or even on the signs of spillovers between economies have been produced this paper estimates the costs of uncoordinated policies to the us and eec economies and also the potential gains and risks in cooperation it focuses particularly on the process of determining rational policy bargains and whether in an international context such bargains are likely to be sustainable

free trade fair trade strategic trade and protectionism in the u s congress 1987 88 what conditions led the one hundredth congress of the united states to enact fair trade and strategic trade policies into law during 1987 88 political partisanship is an important force with democrats supporting and republicans opposing all types of trade intervention otherwise the coalitions of support for and opposition to the various trade policies differ particularly in the senate in that body international business is associated with support for fair trade policies and with opposition to classical protectionism while domestic u s business is associated with support for classical protectionism liberalism is strongly associated with support for fair and strategic trade policies but is not associated with classical protectionism in the house of representatives the long standing protectionist coalition remains an influence few forces in support of free trade remain in u s politics changing international market conditions rapidly affect the making of u s trade policy

optimal monetary policies and policy interdependence in the world economy the literature on strategic policy interactions has focused on the implications of alternative strategic policy interactions cooperative versus noncooperative for equilibrium macroeconomic policies given the state of the world economy this paper asks how changes in world economic conditions alter equilibrium policies given the nature of policy interdependence among nations the paper considers a world economy comprised of two countries operating under a system of flexible exchange rates both governments act noncooperatively and choose the rate of growth of their money supply so as to maximize the utility of their country s residents given the rate of growth of the other country s money supply the resulting nash equilibrium rates of growth of the home and foreign money supplies are determined and the dependence of international differences in money growth and inflation rates on international differences in technology jel e52 e60 f41 f42 the international transmission of monetary and fiscal policies has been studied a great deal by economists however policy interdependence how one country s policies depend on the policies enacted by other countries has only recently begun to be explored hamada s 1976 paper was one of the first major contributions in this regard hamada considered a world economy comprised of n countries operating under a fixed exchange rate system in which policymakers set domestic credit growth so as to maximize an objective function depending on inflation and the rate of accumulation of international reserves using this framework hamada demonstrated that in equilibrium optimal domestic credit policies are generally not pareto efficient when they are chosen noncooperatively but are pareto efficient when they are set cooperatively in subsequent work hamada 1979 1985 has elaborated on this and various other aspects of cooperative and noncooperative monetary policies under both fixed and flexible exchange rates many others have followed hamada s lead by comparing the properties of cooperative and noncooperative monetary policies eichengreen 1985 for instance considers discount rates as the instrument of monetary policy and examines issues of leadership and cooperation during the interwar years under the gold standard oudiz and sachs 1985 have used simulation methods to

alternative time patterns of decisions and dynamic strategic interactions this paper offers a simple approach to study steady state markov perfect equilibria arising in dynamic games when players are obliged to commit their actions for several periods it highlights the importance of spillovers and dynamic strategic interactions when assessing the various time patterns conceivable in such games the obtained results are then applied to various either micro or macroeconomic issues where time patterns of decisions matter

on the imperfect substitutability of policy regimes exchange rate targetting vs policy coordination abstract exchange rate targetting is always an imperfect substitute for explicit policy coordination but succeeds when economies are either structurally dissimilar with symmetric shocks or structurally symmetric with dissimilar shocks a joint commitment then generates economies of scale in interventions

externalities trade and dynamics with expanding global trade countries around the world are becoming increasingly interdependent the necessity for the governments to devise economic policies strategically with respect to the world is therefore becoming more important however at the same time there are various sectors of economies that are competitive and thus not strategic since they are in a competitive environment agents in these sectors do not perceive the influence of their decisions on the world economy and act nonstrategically of course government policies affect all sectors hence economies are mixed having both strategic and nonstrategic components it is worthwhile to point out some examples of this type of mixed economy in western capitalist countries interest rates and exchange rates are determined in a competitive market while monetary and fiscal policies an integral part of the determination of these rates are controlled by governments the government decides on the amount of aggregate resources to be allocated for education and research and development research is often carried out by individuals or firms and there is a competitive market for the products generated by it another example can be found in the fishing industry government policies dictate the maximum amount of fish that can be extracted from the ocean while there is a conmpetitive market in fish along with the dual nature of decision making the above examples have another feature in common there are externalities between the policy makers decisions these externalities imply that there are interdependences among the countries so that the decisions of each of the countries have effects on the outcome of the competitive market the competitive outcome in turn affects the decisions of the policy makers in the various countries in the example of the monetary sector money supply in one country affects the rate of interest in the domestic country as well as abroad to properly

conservative central bankers in a two country world abstract in a closed economy framework rogoff has developed the argument that it can be beneficial for society to appoint a conservative central banker we extend this analysis to a two country world in order to take into account the game between the monetary authorities of the two countries we show that conservative central bankers may now deteriorate the situations of both countries and that the distinction between symmetric and asymmetric shocks becomes crucial while symmetric shocks weaken the case for conservative central bankers asymmetric shocks strengthen it the paper also considers the case where central bankers are nominated noncooperatively by the countries

the newsvendor problem review and directions for future research in this paper we review the contributions to date for analyzing the newsvendor problem our focus is on examining the specific extensions for analyzing this problem in the context of modeling customer demand supplier costs and the buyer risk profile more specifically we analyze the impact of market price marketing effort and stocking quantity on customer demand how supplier prices can serve as a coordination mechanism in a supply chain setting integrating alternative supplier pricing policies within the newsvendor framework and how the buyer s risk profile moderates the newsvendor order quantity decision for each of these areas we summarize the current literature and develop extensions finally we also propose directions for future research

international macroeconomic policy coordination when policymakers do not agree on the true model the authors relax the assumption of the literature on international coordination that policymakers know the true model t wo countries will still be able to agree on a cooperative policy pack age that each believes will improve the objective function relative t o the nash noncooperative solution however the bargaining solution may move the target variables in the wrong direction these points ar e illustrated with monetary and fiscal multipliers taken from simulat ions of ten leading econometric models out of 1 000 possible combina tions of models that could represent u s beliefs non u s beliefs and the true model monetary coordination improves u s welfare in on ly 546 cases copyright 1988 by american economic association

robust multi item newsboy models with a budget constraint abstract in this paper we present robust newsboy models with uncertain demand the traditional approach to describing uncertainty is by means of probability density functions in this paper we present an alternative approach using deterministic optimization models we describe uncertainty using two types of demand scenarios namely interval and discrete scenarios for interval demand scenarios we only require a lower and an upper bound for the uncertain demand of each item while for discrete demand scenarios we require a set of likely demand outcomes for each item using the above scenarios to describe demand uncertainty we develop several minimax regret formulations for the multi item newsboy problem with a budget constraint for the problems involving interval demand scenarios we develop linear time optimal algorithms we show that the corresponding models with discrete demand scenarios are np hard and that they are solvable by dynamic programming finally we extend the above results to the case of mixed scenarios where the demand of some of the items is described by interval scenarios and the demand of the remaining items is described by discrete scenarios

national sovereignty and international monetary order abstract the choice of exchange rate regime is examined in a three country model in which the regime chosen by one country affects other countries opportunities it is shown that the interaction of different countries choices of exchange rate regime may be characterized by either strategic complementarity or strategic substitution as a result if each country pursues its national interest independently either nonexistence or nonuniqueness of equilibrium among different countries regime choices is possible the model therefore provides an alternative rationale for international policy coordination

the welfare case for the european monetary system abstract this paper argues that the european monetary system can be interpreted as a cooperative game yielding benefits to its members a simple model is set up in which it is shown that the ems solution is superior to nash if the menber countries differ this superiority to nash may require an occasional realignment it will also then require that there be no sterilization of foreign exchange interventions since otherwise the system would collpase the ems is interpreted in this paper as an arrangement manner and not o bretton woods type of arrangement when there is a leader follower relationship inside

between free trade and protectionism strategic trade policy and a theory of corporate trade demands conventional theories of the political economy of trade argue that industries in import competing businesses favor protectionism while multinational firms and export dependent corporations advocate unconditional free trade however many multinational industries have recently advocated strategic trade policies that is they are willing to support free trade at home only if foreign markets are opened or foreign governments reduce subsidies to their firms if demands for strategic trade policy were adopted by the united states they could represent a threat to the general agreement on tariffs and trade gatt and the multilateral trading system this article seeks to explain the emergence of these new corporate trade demands and thereby broaden theories of the political economy of trade the article begins with the widely supported position that multinational and export oriented firms prefer unconditional free trade building on concepts from theories of industrial organization and international trade the article then hypothesizes that rising economies of scale and steep learning curves will necessitate that these firms have access to global markets via exports if growing dependence on world markets is combined with foreign government subsidies or protection the trade preferences of firms will shift from unconditional free trade to demands that openness at home be contingent on openness overseas the manner in which firm demands then get translated into industry demands will vary with the industry s structure if the industry consists of firms with symmetric strategies it will seek strategic trade policy but if the industry is highly segmented it will turn toward protectionism the article concludes with a preliminary test of these hypotheses in four brief studies of the politics of trade in the semiconductor commercial aircraft telecommunications equipment and machine tool industries

the origins of financial openness a study of current and capital account liberalization theory we assess the determinants of the national regulation of international finance or the comparative degree of national financial openness or closure hypotheses partisanship interacts with a nation s factor endowments to account in part for different international financial policies by governments of the same partisan hue methods we offer a quantitative measure of international financial openness or current and capital account regulation for 21 member countries of the organization for economic cooperation and development for 1950 88 we use regression analysis employing panel corrected standard errors to discover the determinants of financial openness results our main finding is that political partisanship substantially explains openness but does so in complex ways differences in both political institutional arrangements and types of political economy also account for part of the differences in international financial regulation

the dynamics of negotiated protectionism r ecent protectionism by the united states has principally taken the form of negotiated barriers to trade such as voluntary export restraints these barriers tend to evolve over time and to display three patterns which we label institutionalized temporary and sporadic protectionism cartel theory and studies of the politics of protection suggest that the dynamics of negotiated protectionism will depend on three variables the barriers to entry into an industry the size of the domestic industry and the exit barriers for domestic firms low barriers to entry will lead to institutionalized protectionism when the domestic industry is large and exit difficult temporary protectionism results when the domestic industry is small and exit easy and sporadic protectionism is likely when barriers to entry are high brief studies of u s protectionism in textiles and apparel steel footwear televisions and automobiles illustrate the value of this framework t rade protectionism has often been thought of as a unilateral act by a sovereign state yet much protectionism during the 1970s and 1980s has been negotiated rather than unilaterally imposed voluntary export restraints vers and similar arrangements have become the preferred means by which the united states has sought to cartelize industrial sectors threatened by imports such negotiated protectionism has been particularly evident in five industries in the united states during part or all of the last quarter century in textiles and apparel steel footwear television sets and autos the united states has negotiated trade restrictions with numerous foreign exporters while the u s government has occasionally provided unilateral measures of protection for small industries all u s administrations since world war ii have been reluctant to countenance general schemes of protection for major industries yet beginning with the eisenhower administration s negotiations in textiles in 1956 virtually every u s president has actively sought vers for economically and politically sensitive industrial sectors

co production processes with random yields in the semiconductor industry a wide variety of manufacturing operations can be characterized as co production with substitutable demand that is there are many situations in which the availability of two or more items are related and because of randomness in either supply or demand it can be advantageous to substitute one of these items for another our research was motivated by the semiconductor industry where chips are produced in large batches because of the presence of randomness in the process individual chips in a given batch can perform differently because some customers have stricter specifications than others chips within the same batch can be classified and sold as different products according to their measurable performance we model the production and inventory problem as a stochastic dynamic program in which the objective is to minimize the costs of meeting contractual obligations after developing heuristic methods of solving the problem in practice we validate them against a lower bound on the cost of an optim

political transfer and trading up transatlantic trade in genetically modified food and u s politics although there is a popular perception that trade liberalization undermines domestic regulation under certain circumstances international trade can provide a catalyst for making domestic regulations more stringent this article makes a case extending the applicability of the so called trading up thesis by finding evidence of change within the united states in response to the transatlantic trade dispute over genetically modified food in particular it argues that political transfer the transfer of political concern from one jurisdiction to political mobilization in another can prompt policy change even in the absence of the adoption of foreign standards by domestic firms

international r d rivalry and industrial strategy this paper presents a theory of government intervention which provides an explanation for industrial strategy policies such as r d or export subsidies in imperfectly competitive international markets domestic net welfare is improved by the capture of a greater share of the output of rent earning industries although the subsidy ridden noncooperative international equilibrium is jointly suboptimal behaviour of governments and firms is modelled as a three stage subgame perfect nash equilibrium the assumption that the government is the first player in this game allows it to influence equilibrium outcomes by altering the set of credible actions open to firms

pricing and operational recourse in coproduction systems coproduction systems in which multiple products are produced simultaneously in a single production run are prevalent in many industries such systems typically produce a random quantity of vertically differentiated products this product hierarchy enables the firm to fill demand for a lower quality product by converting a higher quality product in addition to the challenges presented by random yields and multiple products coproduction systems often serve multiple customer classes that differ in their product valuations furthermore the sizes of these classes are uncertain employing a utility maximizing customer model we investigate the production pricing downconversion and allocation decisions in a two class stochastic demand stochastic yield coproduction system for the single class case we establish that downconversion will not occur if prices are set optimally in contrast we show that downconversion can be optimal in the two class case even if prices are set optimally we consider the benefit of postponing certain operational decisions e g the pricing or allocation rule decisions until after uncertainties are resolved we use the term recourse to denote actions taken after uncertainties have been resolved we find that recourse pricing benefits the firm much more than either downconversion or recourse allocation do implying that recourse demand management is more valuable than recourse supply management special cases of our model include the single class and two class random yield newsvendor models