the phillips curve macroeconomic policy and the welfare of canadians a review of the two competing paradigms explaining inflation and unemployment fluctuations singles out the keynesian phillips curve as the clear empirical winner over its classic competitors reestimation of the canadian phillips curve for 1957 90 identifies a sharp structural shift toward a high degree of unemployment hysteresis after 1972 the recent attempt of macropolicy to flatten the aggregate demand curve and limit supply side shock accommodation which aims at lower and more stable inflation is then shown to make unemployment higher and more unstable on average to an extent that is an increasing function of the degree of hysteresis understanding and reducing hysteresis and developing a consensus based incomes policy that has a chance of alleviating the dismal trade off should therefore to top research and policy priorities

cores of inventory centralization games abstract consider a set of n stores with single item and single period demands assume an option of centralized ordering and inventory with holding and penalty costs only in this case a cooperative inventory centralization game defines allocations of the cost we examine the conditions under which such an inventory centralization game has a nonempty core we prove the existence of nonempty core for demands with symmetric distributions and the existence of nonempty core for joint multivariate normal demand distribution we establish the equivalency of four different nonempty core conditions for the newsboy problem and demonstrate their efficacy for discrete independent and identically distributed iid demands journal of economic literature classification numbers c44 c62 c71

global liquidity through the lens of monetary aggregates this paper examines how the financial activities of non financial corporations nfcs in international markets potentially affects domestic monetary aggregates and financial conditions monetary aggregates reflect in part the activities of nfcs who channel capital market financing into the domestic banking system thereby influencing funding conditions and credit availability periods of capital inflows are also those when the domestic currency is appreciating and such periods of rapid exchange rate appreciation coincide with increases in the central bank s foreign exchange reserves increasing the stock of narrow money the paper examines economic significance of cross country panel data on monetary aggregates and other measures of non core bank liabilities non core liabilities that reflect the activities of nfcs reflect broad credit conditions and predict global trade and growth

a new decision rule for lateral transshipments in inventory systems this paper deals with a single echelon inventory system consisting of a number of parallel local warehouses facing compound poisson demand there are standard holding and backorder costs as well as ordering costs at all warehouses normally the warehouses replenish from an outside supplier however lateral transshipments between the warehouses are also possible such transshipments take no time but incur additional costs when a demand occurs at a warehouse the question is whether the whole demand or part of it should be covered by a lateral transshipment from another warehouse given a set of alternative decisions our decision rule minimizes the expected costs under the assumption that no further transshipments will take place this rule is then used repeatedly as a heuristic a simulation study illustrates how the suggested technique performs under different conditions

stability and endogenous formation of inventory transshipment networks this paper studies a cooperative game of inventory transshipment among multiple firms in this game firms first make their inventory decisions independently and then decide collectively how to transship excess inventories to satisfy unmet demands in modeling transshipment we use networks of firms as the primitive which offer a richer representation of relationships among firms by taking the coalitions used in all previous studies as special cases for any given cooperative network we construct a dual price allocation under which the network is stable for any residual demands and supplies in the sense that no firms find it more profitable to form subnetworks under the allocation based on the marginal contribution of each firm to its network called the mjw value we show that various network structures such as complete hub spoke and chain networks are stable only under certain conditions on residual amounts moreover these conditions differ across network structures implying that a network structure plays an important role in establishing the stability of a decentralized transshipment system finally we consider the case when firms establish networks endogenously and show that pairwise nash stable networks underperform the corresponding networks in centralized systems

is the price level tied to the m2 monetary aggregate in the long run a long run link between money and prices is evident for the united states since the korean war if the m2 measure of money is used and the velocity of m2 v2 is modeled as a mean reverting series this link between m2 and prices is the basis for a dynamic model of inflation that compares favorably in forecasting exercises with phillips curve and more typical monetarist approaches the behavior of v2 is examined from 1870 to the present providing a basis for reconsidering previous findings that v2 follows a random walk copyright 1991 by american economic association

theoretical approaches to monetary disinflation abstract during the 1980s many countries adopted tight monetary policies to reduce high inflation rates which were the legacy of the 1970s as inflation threatens to rise at the beginning of this decade this paper provides a survey of the 1980s literature which sought to provide theoretical understandings of how monetary disinflation is achieved four models are presented monetarist neo keynesian new classical and post keynesian each model s explanation of the recession which accompanies the monetary disinflation is outlined as well as possible policy measures to reduce the extent of the recession and to hasten the return to full employment

collaborative replenishment in the presence of intermediaries in complex supply chains downstream buyers would often replenish individually from intermediaries instead of directly dealing with original manufacturers although collaborative replenishment from intermediaries might generate benefits significant cost reductions could be achieved when direct replenishments from manufacturers are considered this paper constructs a general model to study collaborative replenishment in multi product chains with alternative sources of supply i e manufacturers and intermediaries a collaborative organization determines the optimal choices of replenishment sources on behalf of its members to minimize collective costs we introduce a class of cooperative games associated with these situations and give sufficient conditions for their concavity we investigate the choice of allocation rule and its effect on supply chain efficiency when buyers strategically participate in the collaborative organization we prove that the shapley value coordinates the supply chain i e it makes complete participation the best strategy for buyers even under asymmetric information this setting is compared with an alternative structure where buyers can only collaborate in source specific replenishment organizations that purchase all requested products either from intermediaries or manufacturers although there are always participation strategies that result in minimum collective cost it is impossible to find allocation rules for source specific replenishment organizations that always motivate the buyers to choose such strategies

optimal monitoring design this paper considers a principal agent model with hidden action in which the principal can monitor the agent by acquiring independent signals conditional on effort at a constant marginal cost the principal aims to implement a target effort level at minimal cost the main result of the paper is that the optimal information acquisition strategy is a two threshold policy and consequently the equilibrium contract specifies two possible wages for the agent this result provides a rationale for the frequently observed single bonus wage contracts

operations research models for coalition structure in collaborative logistics abstract given a set of players and the cost of each possible coalition the question we address is which coalitions should be formed we formulate mixed integer linear programming models for this problem considering core stability and strong equilibrium the objective function looks for minimizing the total cost allocated among the players concerned about the difficulties of managing large coalitions in practice we also study the effect of a maximum cardinality constraint per coalition we test the models in two applications one is in collaborative forest transportation and the other one in inventory of spare parts for oil operations in these situations collaboration opportunities involving significant savings exist but for several reasons it may be better to group the players in different sub coalitions rather than in the grand coalition the models we propose are thus relevant for deciding how to partition the set of players we also prove that if the strong equilibrium model is feasible its optimal cost is equal to the optimal cost of the core stability model and consequently a coalition structure that solves one problem also solves the other problem we present results that illustrate this property we also present results where the core stability problem is feasible and the strong equilibrium problem is infeasible setting an upper bound on the maximum cardinality of the coalitions allows us to study the marginal savings of enlarging the cardinality of the coalitions we find that the marginal savings of allowing one more player significantly decreases as the bound increases

the cost allocation issue in joint replenishment abstract joint replenishment for several products to achieve a lower inventory logistics cost has been a topic of extensive studies less attention has been paid to the issue of deciding how the joint replenishment costs should be allocated across the individual products ideally when items are ordered together one would require a stable cost allocation such that no subset of products subsidizes another subset when part of each product s ordering cost is product specific and part can be shared with other products like in a 3pl setting of anily and haviv it has been shown that even when a stable allocation exists such an allocation might be difficult to compute in addition usually the components of ordering costs are partially determined using estimates and accounting discretion this paper provides two main insights for determining an appropriate cost allocation it provides the means to test how sensitive a stable cost allocation is to a range of cost parameter values then in a computational study it is shown how to obtain a stable cost allocation without excessive computation

a new test of money income causality this paper investigates the prima facie causal relationship between money and income employing a methodology the multiple rank f test the results of which are invariant to monotonic transformations of all variables and robust over alternative distributions of the errors in contrast to prior functional form dependent parametric analyses evidence of prima facie causality between money and income is found for the 1970 88 time period this evidence is consistent with an elementary theoretical framework in which the direction and strength of causality is dependent upon the definition of money copyright 1992 by ohio state university press

currency substitution financial innovations and money demand a note this note presents some finnish evidence on the importance of currency substitution and financial innovations for money demand it is also shown that conventional demend for money specifications which do not take these factors into account are clearly misspecified and produced unreasonable results the problem is particularly acute for narrow concepts of money

u s fiscal policy and trade deficits a broad perspective the emergence of large government budget deficits and large international trade deficits stands out as the dominant feature of u s macroeconomic behavior since the early 1980s economists trained in the traditional keynesian theory have pointed to the budget deficit as the major cause of the trade deficit according to the mundell fleming model changes in the budget deficit trigger changes in the real interest rate the real exchange rate and the level of real income which in turn alter the trade balance others believing in the real world relevance of the ricardian equivalence proposition have argued that the deficits are not really twins but merely distant cousins if not entirely unrelated if ricardian equivalence holds shifts between taxes and borrowing have no effect on real interest rates or aggregate demand previous studies of the twin deficits have adopted a variety of approaches both theoretical and empirical theoretical treatments run the gamut from the standard mundell fleming model 18 to the ricardian model 7 to the atheoretical 1 2 3 4 12 14 17 empirical approaches range from simple single equation ols 5 6 16 to two stage least squares applied to a system of structural equations 18 to unconstrained var modeling 1 2 12 17 to cointegration 3 14 the variables used to measure the budget and trade deficits vary across studies as does the set of related variables included in the models the form in which the data are utilized e g as a ratio of gnp or as a first difference of levels also differs across studies not surprisingly a variety of results emerges table i provides a brief overview of a number of studies the estimated effects of budget deficits on the trade balance range from the substantial 12 to statistically insignificant 7 abell 1 2 finds the transmission mechanism to be primarily through interest and exchange rates while zietz and pemberton 18 find that channel to be insignificant in comparison to the domestic absorption channel yet some studies do not even include domestic income as a separate variable in their equations making cross study comparisons difficult thus it is impossible to draw with confidence any conclusions about the twin deficits relationship this confusion of results leads us to examine systematically the relationship between the two deficits using a multivariate model in this paper we report the results of a systematic analysis of the link between the deficits using a five variable system for the flexible exchange rate period 1973 1 to 1991 iv we begin with

the newsvendor game has a nonempty core we settle an open conjecture regarding the newsvendor game we prove that its core is always non empty for all possible joint distributions of the random demands we give sufficient conditions under which the core is a singleton or it contains non negative elements

surplus division and investment incentives in supply chains a biform game analysis abstract in this paper we use a biform game approach for analyzing the impact of surplus division in supply chains on investment incentives in the first stage of the game firms decide non cooperatively on investments in the second stage the surplus is shared according to the shapley value we find that all firms have inefficiently low investment incentives which however depend on their position in the supply chain cross subsidies for investment costs can mitigate but not eliminate the underinvestment problem vertical integration between at least some firms yields efficient investments but may nevertheless reduce the aggregated payoff of the firms we show how the size of our effects depends on the structure of the supply chain and the efficiency of the investment technology various extensions demonstrate that our results are qualitatively robust

farsighted coalitional stability abstract i define the largest consistent set a solution concept which applies to situations in which coalitions freely form but cannot make binding contracts act publicly and are fully farsighted in that a coalition considers the possibility that once it acts another coalition might react a third coalition might in turn react and so on without limit i establish weak nonemptiness conditions and apply it to strategic and coalitional form games and majority rule voting i argue that it improves on the von neumann morgenstern stable set as it is usually defined but is consistent with a generalization of the stable set as in the theory of social situations journal of economic literature classification numbers c70 c71

the competitive newsboy we consider a competitive version of the classical newsboy problem in which a firm must choose an inventory or production level for a perishable good with random demand and the optimal solution is a fractile of the demand distribution and investigate the impact of competition upon industry inventory a splitting rule specifies how initial industry demand is allocated among competing firms and how any excess demand is allocated among firms with remaining inventory we examine the relation between equilibrium inventory levels and the splitting rule and provide conditions under which there is a unique equilibrium our most general result is that if all excess demand is reallocated i e there is perfect substitutability then competition never leads to a decrease in industry inventory

stochastic linear programming games with concave preferences abstract we study stochastic linear programming games a class of stochastic cooperative games whose payoffs under any realization of uncertainty are determined by a specially structured linear program these games can model a variety of settings including inventory centralization and cooperative network fortification we focus on the core of these games under an allocation scheme that determines how payoffs are distributed before the uncertainty is realized and allows for arbitrarily different distributions for each realization of the uncertainty assuming that each player s preferences over random payoffs are represented by a concave monetary utility functional we prove that these games have a nonempty core furthermore by establishing a connection between stochastic linear programming games linear programming games and linear semi infinite programming games we show that an allocation in the core can be computed efficiently under some circumstances

backward looking interest rate rules interest rate smoothing and macroeconomic instability the existing literature on the stabilizing properties of interest rate feedback rules has stressed the perils of linking interest rates to forecasts of future inflation such rules have been found to give rise to aggregate fluctuations due to self fulfilling expectations in response to this concern a growing literature has focused on the stabilizing properties of interest rate rules whereby the central bank responds to a measure of past inflation the consensus view that has emerged is that backward looking rules contribute to protecting the economy from embarking on expectations driven fluctuations a common characteristic of the existing studies that arrive at this conclusion is their focus on local analysis the contribution of this paper is to conduct a more global analysis we find that backward looking interest rate feedback rules do not guarantee uniqueness of equilibrium we present examples in which for plausible parameterizations attracting equilibrium cycles exist the paper also contributes to the quest for policy rules that guarantee macroeconomic stability globally our analysis indicates that policy rules whereby the interest rate is set as a function of the past interest rate and current inflation are likely to ensure global stability provided that the coecient on lagged interest rates is greater than unity

distributed consensus in noncooperative inventory games this paper deals with repeated nonsymmetric congestion games in which the players cannot observe their payoffs at each stage examples of applications come from sharing facilities by multiple users we show that these games present a unique pareto optimal nash equilibrium that dominates all other nash equilibria and consequently it is also the social optimum among all equilibria as it minimizes the sum of all the players costs we assume that the players adopt a best response strategy at each stage they construct their belief concerning others probable behavior and then simultaneously make a decision by optimizing their payoff based on their beliefs within this context we provide a consensus protocol that allows the convergence of the players strategies to the pareto optimal nash equilibrium the protocol allows each player to construct its belief by exchanging only some aggregate but sufficient information with a restricted number of neighbor players such a networked information structure has the advantages of being scalable to systems with a large number of players and of reducing each player s data exposure to the competitors

stochastic programming for decentralized newsvendor with transshipment abstract this paper discusses a family of two stage decentralized inventory problems using a unifying framework taxonomy depicted as a multilevel graph this framework allows us to model and link different problems of competing retailers who independently procure inventory in response to uncertain demand and anticipated inventory decisions of other retailers in this family of problems in the ex post stage the retailers exercise recourse actions in response to the realized demand and competitors chosen procurement levels for example retailers could coordinate inventory transshipment to satisfy shortage with overage based on profit sharing agreements our framework provides a unifying parsimonious view using a single methodological prism for a variety of problems equally importantly as recourse options are laid out our framework clarifies and contributes a modeling connection between problems in a clear taxonomy of models this unifying perspective explicitly links work that appeared in isolation and offers future research directions

cooperation in service systems we consider a number of servers that may improve the efficiency of the system by pooling their service capacities to serve the union of the individual streams of customers this economies of scope phenomenon is due to the reduction in the steady state mean total number of customers in the system the question we pose is how the servers should split among themselves the cost of the pooled system when the individual incoming streams of customers form poisson processes and individual service times are exponential we define a transferable utility cooperative game in which the cost of a coalition is the mean number of customers or jobs in the pooled system we show that despite the characteristic function is neither monotone nor concave the game and its subgames possess nonempty cores in other words for any subset of servers there exist cost sharing allocations under which no partial subset can take advantage by breaking away and forming a separate coalition we give an explicit expression for all infinitely many nonnegative core cost allocations of this game finally we show that except for the case where all individual servers have the same cost there exist infinitely many core allocations with negative entries and we show how to construct a convex subset of the core where at least one server is being paid to join the grand coalition

coalitional aggregation of wind power this paper explores scenarios in which independent wind power producers form willing coalitions to exploit the reduction in aggregate power output variability obtainable through geographic diversity in the setting of a two settlement electricity market we examine the advantage gained through optimal coalitional contract offering strategies for quantity risk reduction we show that a group of independent wind power producers can always improve their expected profit by cooperatively offering their aggregated power using coalitional game theory we identify sharing mechanisms to fairly allocate the profits to coalition members we show that the resulting coalitional game is balanced guaranteeing that the core of the game is necessarily nonempty in addition we propose a profit sharing mechanism that minimizes the worst case dissatisfaction to recover an imputation in the core finally we illustrate our theoretical results with empirical studies using data from five representative wind farms in upstate new york

toward the fair sharing of profit in a supply network formation abstract the design of a supply chain network can be interpreted as a coalition formation problem in a cooperative game theory and formulated as a linear production game lpg the companies that are members of the optimal coalition share their manufacturing assets and resources to produce a set of end products and globally maximize their profits by selling them in a market this paper investigates the possibility of combining the requirement of coalition stability with a fair allocation of profits to the participants it is shown that in general the purely competitive allocation mechanism does not exhibit the property of fairness a technique is proposed to construct a stable and fair allocation system when the core of the game does not exclusively contain a set of competitive allocations

inventory centralization games with price dependent demand and quantity discount consider a distribution system consisting of a set of retailers facing a single period price dependent demand of a single product by taking advantage of the risk pooling effect and the quantity volume discount provided by suppliers or third party carriers the retailers may place joint orders and keep inventory at central warehouses before demand realization and allocate inventory among themselves after demand realization to reduce their operating costs under rather general assumptions we prove that there is a stable allocation of profits among the retailers in the sense that the resulting inventory centralization game has a nonempty core we also show how to compute an allocation in the core

existence of coordinating transshipment prices in a two location inventory model we consider a two location production inventory model where each location makes production decisions and is subject to uncertain capacity each location optimizes its own profits transshipment at a cost is allowed from one location to another we focus on the question of whether one can globally set a pair of coordinating transshipment prices i e payments that each party has to make to the other for the transshipped goods that induce the local decision makers to make inventory and transshipment decisions that are globally optimal a recent paper suggests for a special case of our model that there always exists a unique pair of coordinating transshipment prices we demonstrate through a counterexample that this statement is not correct and derive sufficient and necessary conditions under which it would hold we show that in some conditions coordinating prices may exist for only a narrow range of problem parameters and explore conditions when this can happen finally we study the effects of demand and capacity variability on the magnitude of coordinating transshipment prices

the cost allocation problem for the first order interaction joint replenishment model we consider an infinite horizon deterministic joint replenishment problem with first order interaction under this model the setup transportation reorder cost associated with a group of retailers placing an order at the same time equals some group independent major setup cost plus retailer dependent minor setup costs in addition each retailer is associated with a retailer dependent holding cost rate the structure of optimal replenishment policies is not known thus research has focused on optimal power of two pot policies following this convention we consider the cost allocation problem of an optimal pot policy among the various retailers for this sake we define a characteristic function that assigns to any subset of retailers the average time total cost of an optimal pot policy for replenishing the retailers in the subset under the assumption that these are the only existing retailers we show that the resulting transferable utility cooperative game with this characteristic function is concave in particular it is a totally balanced game namely this game and any of its subgames have nonempty core sets finally we give an example for a core allocation and prove that there are infinitely many core allocations

repeated newsvendor game with transshipments under dual allocations abstract we study a repeated newsvendor game with transshipments in every period n retailers face a stochastic demand for an identical product and independently place their inventory orders before demand realization after observing the actual demand each retailer decides how much of her leftover inventory or unsatisfied demand she wants to share with the other retailers residual inventories are then transshipped in order to meet residual demands and dual allocations are used to distribute residual profit unsold inventories are salvaged at the end of the period while in a single shot game retailers in an equilibrium withhold their residuals we show that it is a subgame perfect nash equilibrium for the retailers to share all of the residuals when the discount factor is large enough and the game is repeated infinitely many times we also study asymptotic behavior of the retailers order quantities and discount factors when n is large finally we provide conditions under which a system optimal solution can be achieved in a game with n retailers and develop a contract for achieving a system optimal outcome when these conditions are not satisfied

friedman s velocity hypothesis abstract the purpose of this note is to report tests of friedman s velocity hypothesis that money growth volatility affects velocity in the case of france the evidence provides some additional support for this hypothesis however the evidence is less clear out than the one found in studies of other industrial countries

stability and monotonicity in newsvendor situations this study considers a supply chain that consists of n retailers each of them facing a newsvendor problem and a supplier groups of retailers might increase their expected joint profit by joint ordering and inventory centralization however we assume that the retailers impose some level of stock that should be dedicated to them in this situation we show that the associated cooperative game has a non empty core afterwards we concentrate on a dynamic situation where several model cost parameters and the retailers dedicated stock levels can change we investigate how the profit division might be affected by these changes we focus on four monotonicity properties we identify several classes of games with retailers where some of the monotonicity properties hold moreover we show that pairs of cooperative games associated with newsvendor situations do not necessarily satisfy these properties in general when changes in dedicated stock levels are in concern

pooling of spare parts between multiple users how to share the benefits companies that maintain capital goods e g airplanes or power plants often face high costs both for holding spare parts and due to downtime of their technical systems these costs can be reduced by pooling common spare parts between multiple companies in the same region but managers may be unsure about how to share the resulting costs or benefits in a fair way that avoids free riders to tackle this problem we study several players each facing a poisson demand process for an expensive low usage item they share a stock point that is controlled by a continuous review base stock policy with full backordering under an optimal base stock level costs consist of penalty costs for backorders and holding costs for on hand stock we propose to allocate the total costs proportional to players demand rates our key result is that this cost allocation rule satisfies many appealing properties it makes all separate participants and subgroups of participants better off it stimulates growth of the pool it can be easily implemented in practice and it induces players to reveal their private information truthfully to obtain these game theoretical results we exploit novel structural properties of the cost function in our s 1 s inventory model

a three stage model for a decentralized distribution system of retailers we present and study a three stage model of a decentralized distribution system consisting ofn retailers each of whom faces a stochastic demand for an identical product in the first stage before the demand is realized each retailer independently orders her initial inventory in the second stage after the demand is realized each retailer decides how much of her residual supply demand she wants to share with the other retailers in the third stage residual inventories are transshipped to meet residual demands and an additional profit is allocated our model is an extension of the two stage model of anupindi et al abz 2001 which implicitly assumes that all residuals enter the transshipment stage we show however that allocation rules in the third stage based on dual solutions which were used in the abz model may induce the retailers to hold back some of their residual supply demand in general we study the effect of implementing various allocations rules in the third stage on the values of the residual supply demand the retailers are willing to share with others in the second stage and the trade off involved in achieving an optimal solution for the corresponding centralized system

capacity allocation and scheduling in supply chains we consider a multiple product supply chain where a manufacturer receives orders from several distributors if the orders cannot all be met from available production capacity then the manufacturer allocates that capacity and a set of resubmittable orders among the distributors the distributors may share their allocated capacity among themselves before submitting revised orders finally the manufacturer schedules the revised orders to minimize its cost we consider three practical coordination issues first we estimate the benefit to the manufacturer from considering scheduling costs and constraints in making capacity and order allocation decisions second we estimate the additional profit that the distributors achieve when they share their allocated capacity third we estimate the value of coordination between the manufacturer and the distributors our work is among the first to consider all three issues simultaneously we model scheduling costs and constraints within the manufacturer s capacity allocation problem we model the distributors capacity sharing problem as a cooperative game that has properties that are unique within cooperative game theory finally we develop optimal algorithms for all the models defined by the three coordination issues our exact evaluation of decisions about the appropriate coordination level improves managers ability to make those decisions

who benefits from transshipment exogenous vs endogenous wholesale prices this paper studies how transshipments affect manufacturers and retailers considering both exogenous and endogenous wholesale prices for a distribution system where a single manufacturer sells to multiple identical cost retailers we consider both the manufacturer being a price taker and the manufacturer being a price setter in a single period setup under multivariate normal demand distribution in the case of the manufacturer being a price taker we provide several analytical results regarding the effects of key parameters on order quantities and profits in the case of the manufacturer being a price setter we characterize the stackelberg game that arises and provide several insights into how the game dynamics are affected by transshipments specifically we find that risk pooling makes retailers order quantities less sensitive to the wholesale price set by the manufacturer hence in general the manufacturer benefits from retailers transshipments by charging a higher wholesale price while retailers are often worse off the paper captures the effect of demand correlation and the effect of the number of retailers throughout and it illustrates the findings by a numerical example we also provide an interactive web page for numerical experiments

the search for a stable money demand function a survey of the post 1973 literature phe question of whether the demnand function for money is stable is one of the most important recurring issues in the theory and application of macroeconomic policy what is being sought in a stable demand function is a set of necessary conditions for money to exert a predictable influence on the economy so that the central bank s control of the money supply can be a useful instrument of economic policy as such the notion of a stable demand function appears to involve three key elements e g john t boorman 1976 p 317 and david e w laidler 1977 pp 34 35 first the demand for money relation should be highly predictable in a statistical sense as measured by the usual goodness of fit statistics precision of estimated coefficients and presumably its ability to forecast accurately out of sample second a stable demand function for money has relatively few arguments a relationship that requires knowledge about a large number of variables in order to pin it down is in effect not predictable finally the variables that appear as arguments in the function should represent significant links to spending and economic activity in the real sector in sum a stable demand function for money means that the quantity of money is predictably related to a small set of key variables linking money to the real sector of the economy the importance of a stable money demand function for monetary policy can be illustrated with the standard is lm model in which interest rates and gnp are the endogenous variables in this context a stable demand function for money translates into a well defined relationship between money interest rates and gnp

strategic investments trading and pricing under forecast updating this paper considers two independent firms that invest in resources such as capacity or inventory based on imperfect market forecasts as time progresses and new information becomes available the firms update their forecasts and have the option to trade their resources the trade contract is determined as the bargaining equilibrium or alternatively as the price equilibrium assuming a fairly general form of the profit functions we characterize the nash equilibrium investment levels which are first best under the price equilibrium trade contract but not under the bargaining equilibrium trade contract to gain additional insights we then focus on firms that face stochastic demand functions with constant price elasticity and have contingent pricing power assuming a general forecast evolution process we characterize the impact of the option to trade and the firms cooperation on equilibrium investments expected prices profits and consumer surplus finally to study the main driving forces of trading we employ a well established and empirically tested forecast updating model in which the forecast evolution process follows a two dimensional geometric brownian motion under this model we prove that the equilibrium investments expected prices profits and consumer surplus are nondecreasing in the quality and timing of forecast revisions in market variability and in foreign exchange volatility but are nonincreasing in market correlation

large newsvendor games we consider a game called newsvendor game where several retailers who face a random demand can pool their resources and build a centralized inventory that stocks a single item on their behalf profits have to be allocated in a way that is advantageous to all the retailers a game in characteristic form is obtained by assigning to each coalition its optimal expected profit we consider newsvendor games with possibly an infinite number of newsvendors we prove in great generality results about balancedness of the game and we show that in a game with a continuum of players under a nonatomic condition on the demand the core is a singleton for a particular class of demands we show how the core shrinks to a singleton when the number of players increases

the impact of federal deposit insurance on savings and loan failures this study empirically investigates the hypothesis that a higher real ceiling on federal deposit insurance leads to an increased failure rate for savings and loans s ls after providing a history of federal deposit insurance a formal model is developed the empirical analysis thereof examines both the percentage of federally insured s ls that failed and the number thereof that failed the results were consistent for both sets of estimates among other things the time series estimates reveal that the s l failure rate over the 1965 1989 study period were a decreasing function of the real price of imported crude oil the mortgage portfolio yield and the average capital asset ratio in addition the s l failure rate was found to be an increasing function of the cost of deposits the volatility of the mortgage portfolio yield recession and finally the real ceiling per account on federal deposit insurance

optimal monitoring policies in agencies this article considers a principal agent problem in which the principal has access to a costly monitoring technology that can be used to acquire additional information about the agent s actions subsequent to observing the agent s output although randomized monitoring policies are feasible we show that in a variety of contexts optimal monitoring policies are deterministic and lower tailed that is there exists some critical level of output such that further investigation of the agent s actions occurs if and only if output falls below this critical level

modeling cooperation on a class of distribution problems in this paper we study models of cooperation between the nodes of a network that represents a distribution problem the distribution problem we propose arises when over a graph a group of nodes offers certain commodity some other nodes require it and a third group of nodes neither need this material nor offer it but they are strategically relevant to the distribution plan the delivery of one unit of material to a demand node generates a fixed profit and the shipping of the material through the arcs has an associated cost we show that in such a framework cooperation is beneficial for the different parties we prove that the cooperative situation arising from this distribution problem is totally balanced by finding a set of stable allocations in the core of an associated cooperative game in order to overcome certain fairness problems of these solutions we introduce two new solution concepts and study their properties

optimal joint inventory and transshipment control under uncertain capacity in this paper we address the optimal joint control of inventory and transshipment for a firm that produces in two locations and faces capacity uncertainty capacity uncertainty e g due to downtime quality problems yield etc is a common feature of many production systems but its effects have not been explored in the context of a firm that has multiple production facilities we first characterize the optimal production and transshipment policies and show that uncertain capacity leads the firm to ration the inventory that is available for transshipment to the other location and characterize the structure of this rationing policy then we characterize the optimal production policies at both locations which are defined by state dependent produce up to thresholds we also describe sensitivity of the optimal production and transshipment policies to problem parameters and in particular explain how uncertain capacity can lead to counterintuitive behavior such as produce up to limits decreasing for locations that face stochastically higher demand we finally explore through a numerical study when the optimal policy is most likely to yield significant benefits compared to simple policies

is there a role for commodity prices in the design of monetary policy some empirical the consumer price index in the united states follows a non trend stationary stochastic process that describes the index as drifting randomly upward without bound monetarists have long pointed to similar properties in the time series of monetary aggregates as the source of this incipient inflation their solution to this problem is close adherence by the central bank to targets for a monetary or reserve aggregate that correspond to slow and steady monetary growth with any periods of excessive monetary growth subsequently offset this would produce monetary series that are trend stationary if the demand for money is reasonably stable price series would also become trend stationary and for properly chosen targets the price level would be bounded with a mean inflation rate of zero

short run money demand abstract the conventional wisdom holds that the short run demand for money is unstable this paper challenges the conventional view by finding a stable demand for m1 in u s data from 1959 through 1993 the approach follows previous work in interpreting long run money demand as a cointegrating relation and it uses goldfeld s partial adjustment model to interpret short run dynamics the key innovation is the choice of the interest rate in the money demand function most previous work uses a short term market rate but this paper uses the average return on near monies the savings accounts and money market mutual funds that are close substitutes for m1 this choice helps rationalize the behavior of money demand in particular the increase in the volatility of velocity after 1980 is explained by increased volatility in the returns on near monies

coalition formation as a dynamic process abstract we study coalition formation as an ongoing dynamic process with payoffs generated as coalitions form disintegrate or regroup a process of coalition formation pcf is an equilibrium if a coalitional move to some other state can be justified by the expectation of higher future value compared to inaction this future value in turn is endogenous it depends on coalitional movements at each node we study existence of equilibrium pcfs we connect deterministic equilibrium pcfs with unique absorbing state to the core and equilibrium pcfs with multiple absorbing states to the largest consistent set in addition we study cyclical as well as stochastic equilibrium pcfs

sell the plant the impact of contract manufacturing on innovation capacity and profitability in the electronics industry and others original equipment manufacturers oems are selling their production facilities to contract manufacturers cms the cms achieve high capacity utilization through pooling supplying many different oems meanwhile the oems focus on innovation research and development product design and marketing we examine how this change in industry structure affects investment in innovation and capacity and thus profitability in particular innovation is noncontractible so oems will invest less in innovation than is ideal for the industry as a whole hence although contract manufacturing improves capacity utilization it may reduce the profitability of the industry as a whole by weakening the incentives for innovation contract manufacturing is not the only means to achieve capacity pooling alternatively the oems can pool capacity with one another through supply contracts or a joint venture this may result in underinvestment or overinvestment in innovation and capacity but always increases profitability we find that the sale of production facilities to a cm improves profitability for the industry as a whole if and only if oems are subsequently in a strong bargaining position vis a vis the cm if the oems are indeed very strong the gain from pooling capacity via contract manufacturing is maximized in industries with moderate cost of capacity

cooperation between multiple news vendors with transshipments we study a situation with n retailers each of them facing a news vendor problem i e selling to customers over a finite period of time product with a short life cycle such as fashion groups of retailers might improve their expected joint profit by coordinating their orders followed by transshipments after demand realization is known we analyze these situations by defining a cooperative game called a general news vendor game for such a situation with n retailers we concentrate on whether it makes sense to cooperate by studying properties of general news vendor games our main result states that general news vendor games have non empty cores

transshipment and its impact on supply chain members performance this note extends some of the key results of dong and rudi 2004 to general demand distributions this generalization is achieved in two steps first we build on the analysis of dong and rudi to demonstrate that an inventory problem with transshipment is equivalent to a newsvendor problem with an adjusted demand then we study the impact of transshipment by comparing the adjusted demand with the original demand in addition to extending the results in the existing literature this note presents a novel approach for analyzing the impact of risk pooling

production inventory games a new class of totally balanced combinatorial optimization games in this paper we introduce a new class of cooperative games that arise from production inventory problems several agents have to cover their demand over a finite time horizon and shortages are allowed each agent has its own unit production inventory holding and backlogging cost cooperation among agents is given by sharing production processes and warehouse facilities agents in a coalition produce with the cheapest production cost and store with the cheapest inventory cost we prove that the resulting cooperative game is totally balanced and the owen set reduces to a singleton the owen point based on this type of allocation we find a population monotonic allocation scheme for this class of games finally we point out the relationship of the owen point with other well known allocation rules such as the nucleolus and the shapley value

stable farsighted coalitions in competitive markets in this paper we study dynamic alliance formation among agents in competitive markets we look at n agents selling substitutable products competing in a market in this setting we examine models with deterministic and stochastic demand and we use a two stage approach in stage 1 agents form alliances coalitions and in stage 2 coalitions make decisions price and inventory and compete against one another to analyze the stability of coalition structures in stage 1 we use two notions from cooperative games the largest consistent set lcs and the equilibrium process of coalition formation epcf which allow players to be farsighted thus in forming alliances players consider two key phenomena first players trade off the size of the total profit of the system versus their allocation of this total pie and second they weigh the possibility that an immediate beneficial defection can trigger further counter defections that in the end may prove to be worse than the status quo in particular one such example is that of the grand coalition which we show to be stable in the farsighted sense even though players benefit myopically by defecting from it we also provide conditions under which a situation of a few lone players competing against a large coalition is stable we examine the impact of the size of the market n the degree of competition the effect of cost parameters and the variability of the demand process on the prices inventory levels and structure of the market we discuss the possible strategic implications of our results to firms in a competitive market and for new entrants

implications of breach remedy and renegotiation design for innovation and capacity amanufacturer writes supply contracts with n buyers then the buyers invest in innovation and the manufacturer builds capacity finally demand is realized and the firms renegotiate the supply contracts to achieve an efficient allocation of capacity among the buyers the court remedy for breach of contract specific performance versus expectation damages affects how the firms share the gain from renegotiation and hence how the firms make investments ex ante the firms may also engage in renegotiation design inserting simple clauses into the supply contract to shape the outcome of renegotiation for example when a buyer grants a financial hostage to the manufacturer or is charged a per diem penalty for delay in bargaining the manufacturer captures the gain from renegotiation tradable options which grant buyers the right to trade capacity without intervention from the manufacturer return the gain from renegotiation to the buyers this paper proves that under surprisingly general conditions the firms can coordinate their investments with the simplest of supply contracts fixed quantity contracts this may require renegotiation design and certainly requires that the firms understand the breach remedy and set their contract parameters accordingly

vertical integration with endogenous contract leadership stability and fair profit allocation abstract this paper studies vertical integration in serial supply chains with a wholesale price contract we consider a business environment where the contracting leader may be endogenously changed before and after forming the integration a cooperative game is formulated to normatively analyze the stable and fair profit allocations under the grand coalition in such an environment our main result demonstrates that vertical integration is stable when all members are pessimistic in the sense that they are sure that they will not become the contracting leader if they deviate from the grand coalition we find that in this case the grand coalition s profit must be allocated more to the retailer and the members with higher costs nevertheless we also show the conditions under which the upstream manufacturer can have strong power as in traditional supply chains

shipment consolidation who pays for it and how much this paper examines the subject of cost allocation in a multiple product inventory system allowing for consolidation of shipments if we order multiple items using an economic order quantity eoq policy and consolidate shipments part of the ordering cost is shared and part is specific to each item we want to find the consolidation choice with optimal total cost and divide the cost fairly among the individual items such a fair division is central to a costing system in which no group of items subsidizes the others there are no free riders we use a cooperative inventory game to determine when this can be done this game is usually not concave so we want to know what consolidation combinations determine when this cost can be fairly divided using the core of the game we prove that consolidation of all the items is cheaper exactly if there are fair cost allocations core of the game is not empty which happens when the portion of the ordering cost common to all items is not too small we further show how sensitive the nonempty core result is to adjustments in the cost parameters and show how to determine a threshold value for the shared ordering cost which assures the existence of a fair cost allocation

formation of alliances in internet based supply exchanges in different industries such as automobiles chemicals or retailing competitors are joining forces in establishing electronic marketplaces to reduce inefficiencies in the purchasing process and cut costs by combining their buying power joining such an alliance leads to reduced costs including those of possible rivals because members share the development and operating costs a company that joins an alliance agrees to share its suppliers with others which may lead to more intense competition among the increased number of suppliers and it may further benefit an alliance member at the expense of companies left outside the alliance natural questions that could arise then are when would a firm prefer to take part in an electronic marketplace joint venture when would it prefer that other firms possibly rivals join the venture and what are the financial consequences of either joining an alliance or remaining independent in an attempt to gain a better understanding of the issues we have developed a model of three retailers whose products may have a certain degree of substitutability we provide some conditions in terms of product substitutability and compatibility of retailers that would lead to the formation of a three member alliance or a two member alliance or no alliance at all we also study the effect of alliance structure and compatibility of retailers on the profit of a company

the stability of long run money demand in five industrial countries abstract this study provides strong evidence for the stability of long run demand functions for narrowly defined money m1 in five industrial countries u s japan canada u k and west germany using post war quarterly data evidence of stability is examined using two different estimation techniques and through a formal test of parameter constancy designed specifically for cointegrating vectors in the majority of these countries the key to stability is the imposition of a unitary long run income elasticity that is rarely rejected by the data

breaks in money demand during the last twenty years beginning with the provocative paper by goldfeld 5 that revealed the case of the missing money the question of whether money demand the relationship between money income and an interest rate is stable has been intensively investigated using a variety of econometric techniques currently the most popular framework for examining the behavior of money demand is the cointegration framework in this framework the stationarity of money demand instead of the stability of money demand is evaluated earlier tests of the stability of money demand typically centered on whether the coefficient estimates were stable i e not subject to a structural break these tests did not consider the underlying time series aspects of the variables in money demand or the time series properties of their joint relationship prior to estimation as is now common given the seminal work of engle and granger 1 since then newer tests have focussed on the time series properties of the money demand variables and whether the joint relationship between the variables is stationary i e whether the variables are cointegrated engle and granger 1 and johansen and juselius 10 offer cointegration estimation procedures that have been applied by numerous researchers to the money incomeinterest rate relationship the pervasive finding is that money demand is non stationary see section ii below structural stability has not typically been a facet of investigation however the issues of stationarity and stability should not necessarily be treated independently failure to take account of structural change may bias the results in favor of non stationarity as shown in perron 16 1 history suggests that the economic environment and monetary institutions regulations and operating procedures have changed over time in the early 1970s the fixed exchange rate system collapsed when the gold exchange standard was abandoned and the u s dollar became a fiat currency during that same time the u s suffered an oil price shock that produced accelerating inflation and stagnant gdp growth an outcome that had never before been experienced in

capacity sharing between competitors market competition may lead to mismatch between supply and demand that is overpricing may give rise to underselling and underpricing may yield stockout capacity sharing is a common practice to

inventory games with permissible delay in payments abstract meca et al 2004 studied a class of inventory games which arise when a group of retailers who observe demand for a common item decide to cooperate and make joint orders with the eoq policy in this paper we extend their model to the situation where retailer s delay in payments is permitted by the supplier we introduce the corresponding inventory game with permissible delay in payments and prove that its core is nonempty then a core allocation rule is proposed which can be reached through population monotonic allocation scheme under this allocation rule the grand coalition is shown to be stable from a farsighted point of view

causal relationships among economic aggregates in china using china s macro data from 1952 to 1989 the stationarity and causality tests to two types of economic aggregates are applied the first type relates to the conventional money income and consumption relationship and the other is associated with the interest rate money and investment income relationship as embodied in a financial repression model stationarity test results show that a different direction of causality exists when different measurement of price is used a causal relationship between interest rate money and investment income is also found

computing core allocations in cooperative games with an application to cooperative procurement abstract cooperative game theory defines several concepts for distributing outcome shares in a cooperative game with transferable utilities one of the most famous solution concepts is the core which defines a set of outcome allocations that are stable such that no coalition has an incentive to leave the grand coalition in this paper we propose a general procedure to compute a core element or to detect that no core allocation exists which is based on mathematical programming techniques the procedure proposed in this paper can be applied to a wide class of cooperative games where the characteristic function is given by the optimum objective function value of a complex optimization problem for cooperative procurement which is an example from the field of supply chain management where some literature on the core concept already exists we prove the applicability and provide computational results to demonstrate that games with 150 players can be handled

moral hazard with bounded payments we study the moral hazard problem with general constraints on how little or much the agent can be paid as a function of output we provide a characterization and existence result using only very simple methods in the dual problem of minimizing costs for a given effort level a constraint that harms the principal will always result in a contract that pays according to the constraint on some range of outcomes for the case of a simple fixed minimum feasible payment the resultant contract will be option like we show how the strike price and intensity of incentives once the strike price is exceeded vary in the minimum payment and the outside option of the agent when the principal can also choose the effort to induce then even if the constraint harms the principal he may optimally choose a contract that never pays the minimum or maximum we show that this can only occur if the problem without the payment constraints fails a form of concavity

setting the right incentives for global planning and operations we study incentive issues seen in a firm performing global planning and manufacturing and local demand management the stochastic demands in local markets are best observed by the regional business units and the firm relies on the business units forecasts for planning of global manufacturing operations we propose a class of performance evaluation schemes that induce the business units to reveal their private demand information truthfully by turning the business units demand revelation game into a potential game with truth telling being a potential maximizer an appealing refinement of nash equilibrium moreover these cooperative performance evaluation schemes satisfy several essential fairness notions after analyzing the characteristics of several performance evaluation schemes in this class we extend our analysis to include the impact of effort on demand

lessons on monetary policy from the 1980s t he half decade running from mid 1982 to mid 1987 was a pretty good era for u s monetary policy as these things go a sharp easing of policy beginning some time around midyear 1982 helped set in motion a recovery from the most severe business downturn the united states had experienced since the 1930s a downturn that tight monetary policy earlier on had deliberately brought about in order to slow the alarming acceleration of prices the recovery that ensued developed into a sustained expansion that continued without interruption through the end of 1987 thereby setting a new record for the longest recorded business expansion in u s peacetime experience a fiscal policy based on unprecedentedly large and continually growing structural budget deficits was a major factor underlying this record length expansion but at least monetary policy did not stand in the way just as importantly the severe 1981 82 recession served its intended purpose of substantially restoring price stability and even after five years of expansion inflation remained modest by recent historical standards at least as judged by these outcomes for the standard objectives of macroeconomic policy u s monetary policy was a distinct success during these years economists hoping to say something useful about monetary policy have had a tougher time the quantitative relationships connecting income and price movements to the growth of familiar monetary aggregates including especially the m1 measure of the money stock that had been the chief focus of monetary policy during 1979 82 utterly fell apart during this period moreover the collapse of these long standing

inventory sharing and rationing in decentralized dealer networks an increasing number of manufacturers have started to pursue a strategy that promotes inventory sharing among the dealers in their distribution network in this paper we analyze a decentralized dealer network in which each independent dealer is given the flexibility to share his inventory we model inventory sharing as a multiple demand classes problem in which each dealer faces his own customer demand with high priority and inventory sharing requests from other dealers with low priority assuming that each dealer uses a base stock and threshold rationing policy for his inventory stocking and inventory sharing decisions we explicitly model the interactions between the dealers through inventory sharing and obtain aclosed form cost function for each dealer based on the steady state distribution of the inventory levels at the two dealers we then provide a detailed supermodularity analysis of the inventory sharing and inventory rationing game in which each dealer has a two dimensional strategy set stocking level and rationing level we show that the full sharing game in which dealers precommit to sharing all of their on hand inventory and the fixed sharing level game in which dealers precommit to sharing a portion of their on hand inventory are supermodular and thus a pure strategy nash equilibrium is guaranteed to exist for the rationing game in which dealers precommit to their stocking levels we show that there exists a dominant strategy equilibrium on the dealers sharing rationing levels finally a comprehensive computational study is conducted to highlight the impact of the manufacturer s incentives subsidies and or transshipment fees on the dealers sharing behavior

treasury bill rates in the 1970s and 1980s as is widely recognized real interest rates in the early 1980s were at peaks not witnessed since the late 1920s less well perceived is the sharp decline in real interest rates in the middle 1980s to their average levels of the previous quarter century this paper seeks to identify the underlying determinants of the major movements in real six month treasury bill rates the primary innovation is the development of a new monetary policy proxy that explains much of the real rate movement in the 1980s copyright 1992 by ohio state university press

transshipment of inventories among retailers myopic vs farsighted stability the author considers a model of a decentralized distribution system consisting of n retailers selling an identical product retailers face a stochastic demand and must order their initial inventory before this demand is realized after demand realization retailers decide how much of their unsold inventory or unsatisfied demand they want to share with other retailers this is followed by a transshipment of leftover inventories and distribution of the additional profit generated through inventory sharing the author addresses the following issue suppose that the retailers distribute the profit from inventory sharing according to an allocation rule that induces retailers to share their residuals in a way that maximizes the additional profit such as the shapley value but may not belong to the core is it likely that in this framework all retailers will jointly share their residuals and not form subcoalitions previous research has looked at this problem from a myopic viewpoint and concluded that the grand coalition is not stable unlike the prior work the author looks at stability in a farsighted sense that is retailers do not consider only their immediate payoffs but are also concerned with reactions of other retailers to their actions in a symmetric setting with identical additional unit revenues from transshipments generated by all retailers farsighted retailers always maximize their allocations by not defecting from the grand coalition the author also provides conditions when the same is true for nonidentical additional unit revenues