seasonality and the production smoothing model abstract the debate over whether firms smooth production relative to demand continues in this paper we find that results obtained in blinder quarterly journal of economics 101 3 1986 431 453 and blinder and maccini journal of economic surveys 5 4 1991 293 328 indicating that firms do not smooth production are greatly influenced by the seasonal adjustment of the census data for us manufacturing using seasonally adjusted data we find significant evidence of production smoothing in 10 of 14 manufacturing industries for the years 1982 1997 further the prevalence of production smoothing has increased over time which we attribute either to fundamental changes in the collection of the data or to the advent of improved methods of inventory management

cooperative and noncooperative r d in duopoly with spillovers contrary to the usual assumption made in most oligopoly models relations among firms are seldom of a wholly cooperative or noncooperative type in many situations they compete in some fields while they cooperate in others an important example is the case of cooperative research efforts bringing fierce competitors together two types of agreement are observed first r d cooperation can take place at the so called precompetitive stage companies share basic information and efforts in the r d stage but remain rivals in the market place 1 a second type of agreement involves an extended collusion between partners creating common policies at the product level the usual justifications of this extension are the difficulties of protecting intellectual property the idea is then to allow partners who have achieved inventions together to also control together the processes and products which embody the results of their collaboration in order to recuperate jointly their r d investments 2 what could be expected from these types of agreement is a reduction in r d expenditures because of less wasteful duplication and a reduction of total production because of more reprinted from the american economic review 78 5 1133 1137 1988 center for operations research econometrics 1348 louvain la neuve belgium we are grateful to jean

network models and financial stability abstract systemic risk is a key concern for central banks charged with safeguarding overall financial stability in this paper we investigate how systemic risk is affected by the structure of the financial system we construct banking systems that are composed of a number of banks that are connected by interbank linkages we then vary the key parameters that define the structure of the financial system including its level of capitalisation the degree to which banks are connected the size of interbank exposures and the degree of concentration of the system and analyse the influence of these parameters on the likelihood of knock on defaults first we find that the better capitalised banks are the more resilient is the banking system against contagious defaults and this effect is non linear second the effect of the degree of connectivity is non monotonic i e initially a small increase in connectivity increases the contagion effect but after a certain threshold value connectivity improves the ability of a banking system to absorb shocks third the size of interbank liabilities tends to increase the risk of knock on default even if banks hold capital against such exposures fourth more concentrated banking systems are shown to be prone to larger systemic risk all else equal in an extension to the main analysis we study how liquidity effects interact with banking structure to produce a greater chance of systemic breakdown we finally consider how the risk of contagion might depend on the degree of asymmetry tiering inherent in the structure of the banking system a number of our results have important implications for public policy which this paper also draws out

bank networks contagion systemic risk and prudential policy abstract we present a network model of the interbank market in which optimizing risk averse banks lend to each other and invest in non liquid assets market clearing takes place through a t tonnement process which yields the equilibrium price while traded quantities are determined by means of an assortative matching process contagion occurs through liquidity hoarding interbank interlinkages and fire sale externalities the resulting network configuration exhibits a core periphery structure dis assortative behavior and low density within this framework we analyze the effects of a stylized set of prudential policies on the stability efficiency trade off liquidity requirements unequivocally decrease systemic risk but at the cost of lower efficiency measured by aggregate investment in non liquid assets equity requirements also tend to reduce risk hence increase stability though without reducing significantly overall investment on this basis our results provide general support for the basel iii approach based on complementary regulatory metrics

is the european community an optimal currency area optimal taxation versus the cost of multiple currencies the authors propose a view of optimal currency areas that is based on the principles of public finance inflation taxes are distortionary and an optimal spreading of tax distortions may require high inflation in one region and low inflation in another each region would need its own currency to do this on the other hand multiple currencies imply valuation and currency conversion costs which impede trade between regions this tradeoff is explored in the context of the european community s debate over a common currency using a two country variant of robert lucas and nancy stokey s cash in advance model copyright 1990 by american economic association

a financial portfolio approach to inventory behaviour japan and the uk abstract the paper analyses the determinants of the inventory to assets ratio in panel data sets of japanese and uk firms in the period 1960 1985 the analytical framework sets inventory decisions in the context of decisions by the firm about other assets and liabilities in contrast to traditional models of inventories investment in inventories in japan is found to be particularly related to sector specific inflation rates and expected sales negatively to expected profits and not much affected by interest rates by contrast uk inventories are generally positively related to profit rates and respond to short term interest rates once other variables are taken into account the coefficient on a time trend is positive for japan negative for britain which casts some doubt on the widely held view of japanese innovation in inventory holding

sulfur dioxide control by electric utilities what are the gains from trade title iv of the 1990 clean air act amendments caaa established a market for transferable sulfur dioxide so2 emission allowances among electric utilities this market offers firms facing high marginal abatement costs the opportunity to purchase the right to emit so2 from firms with lower costs and this is expected to yield cost savings compared to a command and control approach to environmental regulation this paper uses econometrically estimated marginal abatement cost functions for power plants affected by title iv of the caaa to evaluate the performance of the so2 allowance market specifically we investigate whether the much heralded fall in the cost of abating so2 compared to original estimates can be attributed to allowance trading we demonstrate that for plants that use low sulfur coal to reduce so2 emissions technical change and the fall in prices of low sulfur coal have lowered marginal abatement cost curves by over 50 percent since 1985 the flexibility to take advantage of these chan

measuring noise in inventory models this paper has two purposes one is to assess different models of inventory behavior in terms of their ability to approximate the realized data we do this initially for the pure production smoothing model and then for a sequence of generalizations our analysis both performs specification tests as well as measures the deviations of the data from each null model through use of a noise ratio statistic a second purpose is to explore whether observed cost shocks in particular raw materials prices help explain inventory movements we find that the production smoothing model of inventories augmented by buffer stock motives stockout avoidance motives and observed cost shocks well approximates monthly data

r d policies trade and process innovation we set up a simple trade model with two countries hosting one firm each the firms invest in cost reducing r d and each government may grant r d subsidies to the domestic firm we show that it is optimal for a government to provide higher r d subsidies the lower the level of trade costs even if the firms are independent monopolies if firms produce imperfect substitutes policy competition may become so fierce that only one of the firms survives international policy harmonization eliminates policy competition and ensures a symmetric outcome however it is shown that harmonization is not necessarily welfare maximizing the optimal coordinated policies may imply an asymmetric outcome with r d subsidies to only one of the firms

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

the cyclical behavior of prices and quantities the case of the automobile market abstract this paper aims at understanding the joint behavior of prices and quantities in a particular market it examines whether we can find decision problems for suppliers and buyers together with a market structure which are consistent with observed price and quantity series because of the homogeneity of the product and the quality of the data we study the automobile market we conclude that the behavior of prices is inconsistent with simple market structures prices appear to be too sticky we then consider potential explanations none appears completely satisfactory in particular costs of changing prices do not explain the joint behavior of prices and quantities

measuring the convexity of the cost function abstract in this paper i argue that as might be expected the initial assumption made about the cost function will influence the empirical results obtained regarding the convexity i show that this expectation is supported empirically by estimating the parameters of two quadratic cost functions the first is that function which has been traditionally used in the literature the second is a simplified version of the quadratic cost function where the cost of changing the level of output is dropped since the evidence in the literature suggest that this variable has no significant effect on cost using physical product monthly data for 24 industries we find that the conclusion reached regarding the convexity of the cost function depends on the assumption we make regarding the cost function i further find that the simplified function is consistent with the observed behavior of production and sales while the traditional cost function is inconsistent with that behavior

strategic trade and industrial policy towards dynamic oligopolies we characterise optimal trade and industrial policy in dynamic oligopolistic markets if governments can commit to future policies optimal first period intervention should diverge from the profit shifting benchmark to an extent which exactly offsets the strategic behaviour implied by fudenberg and tirole s animal spirits taxonomy of business strategies without government commitment there is an additional basis for intervention whose sign depends on the strategic substitutability between future policy and current actions we consider a variety of applications to rd spillovers consumer switching costs etc and also extensions to constrained second best policies

seasonal solow residuals and christmas a case for labor hoarding and increasing returns in aggregate unadjusted data measured solow residuals exhibit large seasonal variations total factor productivity grows rapidly in the fourth quarter at an annual rate of 16 percent and regresses sharply in the first quarter at an annual rate of 24 percent how much of the total seasonal variation in the measured solow residual can be explained by christmas the answer to this question is surprising with increasing returns and time varying labor effort christmas is sufficient to explain the seasonal variation in the solow residual consumption average productivity and output in all four quarters our analysis of seasonally unadjusted data uncovers important roles for labor hoarding and increasing returns that are difficult to identify in adjusted data prescott 1986 has argued that the variability of solow s residual is a reasonable estimate of the variability of exogenous technology shocks when solow s residual is measured using seasonally unadjusted data for the postwar u s economy it exhibits large seasonal variations growing rapidly in the fourth quarter at an annual rate of 16 percent and falling sharply in the first quarter at an annual rate of 24 percent this paper starts from the premise that it is implausible to attribute seasonal variation of this magnitude to changes in the state of technology we present a model in which all seasonal fluctuations arise from a single demand shift christmas this demand shift together with misspecification of the traditional production function leads to large seasonal variation in the solow residual we consider two candidates for misspecification labor hoarding and external increasing returns to scale even when technological growth is aseasonal either candidate in isolation can induce spurious seasonality in the solow residual our general equilibrium analysis indicates that 1 the economy s seasonal patterns in all four quarters may be a response simply to a fourth quarter consumption demand shift and 2 a combination of labor hoarding and external increasing returns is important for replicating these patterns in aggregate quantity variables for the postwar u s economy since our analysis identifies important roles for labor hoarding and increasing returns these results have implications for nonseasonal macroeconomic models indeed our analysis im

a note on the econometric use of constant dollar inventory series abstract one dollar of finished goods inventories does not represent the same amount of physical goods as one dollar of sales when department of commerce constant dollar series are used this can cause seriously biased regression estimates

oil shocks and financial systemic stress international evidence abstract by conducting a structural var analysis on the financial systemic stress in 20 countries this paper provides international evidence that oil structural shocks impact not only stress in individual financial markets but also their connectedness the oil structural shocks explain a large fraction of the variation in the connectedness among various financial markets the effect of oil structural shocks on financial systemic stress is largely dependent on the origins of oil price changes and a country s net oil export position in most oil importing economies financial systemic stress is negatively impacted by supply and aggregate demand shocks and positively impacted by oil market specific demand shocks opposite patterns are detected in oil exporting economies the effects of the spillovers are asymmetrically related with market conditions during normal periods more risks are spilled over from the oil market to financial systems but during financial crises the opposite occurs in periods of financial crises and oil price collapses there is noticeable contagion between the oil market and financial systems

estimating bilateral exposures in the german interbank market is there a danger of contagion abstract credit risk associated with interbank lending may lead to domino effects where the failure of one bank results in the failure of other banks not directly affected by the initial shock recent work in economic theory shows that this risk of contagion depends on the precise pattern of interbank linkages we use balance sheet information to estimate a matrix of bilateral credit relationships for the german banking system and test whether the breakdown of a single bank can lead to contagion we find that in the absence of a safety net there is considerable scope for contagion that could affect a large proportion of the banking system the financial safety net in this case institutional guarantees for saving banks and cooperative banks considerably reduces but does not eliminate the danger of contagion even so the failure of a single bank could lead to the breakdown of up to 15 of the banking system in terms of assets

cooperative r d and strategic trade policy in this paper three different cooperative r d arrangements in a strategic trade policy model are examined a policy game between two governments is analysed where each government chooses a particular cooperative r d policy in order to maximize national welfare allowing cooperation in r d is also compared with the use of r d subsidies it is jointly optimal for both governments to allow their firms to participate in the same type of cooperative r d and allowing cooperation in r d can

imperfect competition and the effects of energy price increases on economic activity the authors show that modifying the standard neoclassical growth model by assuming that competition is imperfect makes it easier to explain the size of the declines in output and real wages that follow increases in the price of oil plausibly parameterized models of this type are able to mimic the response of output and real wages in the united states the responses are particularly consistent with a model of implicit collusion where markups depend positively on the ratio of the expected present value of future profits to the current level of output copyright 1996 by ohio state university press

some empirical evidence on the production level and production cost smoothing models of inventory investment the production smoothing model of inventories has long been the basic paradigm within which empirical research on inventories has been conducted the basic hypothesis embedded in this model is that inventories of finished goods serve primarily to smooth production levels in the face of fluctuating demand and convex cost functions however once we allow for shocks to technology and the costs of producing output firms will also use inventories to shift production from periods in which production costs are relatively high to periods in which production costs are relatively low in this sense inventories can serve to smooth production costs rather production levels in this paper we examine the empirical plausibility of the production level and production cost smoothing models of inventories our basic strategy is to derive and contrast a set of unconditional moment restrictions implied by these models in a way that minimizes the role of auxiliary assumptions regarding market structure and industry demand we find overwhelming evidence against the production level smoothing model and very little evidence against the production cost smoothing mode1 we conclude that the variance of production exceeds the variance of sales in most manufacturing industries because the production cost smoothing role of inventories is quantitatively more important than the production level smoothing role of inventories this abstract was borrowed from another version of this item

when micro prudence increases macro risk the destabilizing effects of financial innovation leverage and diversification by exploiting basic common practice accounting and risk management rules we propose a simple analytical dynamical model to investigate the effects of microprudential changes on macroprudential outcomes specifically we study the consequence of the introduction of a financial innovation that allows reducing the cost of portfolio diversification in a financial system populated by financial institutions having capital requirements in the form of value at risk var constraint and following standard mark to market and risk management rules we provide a full analytical quantification of the multivariate feedback effects between investment prices and bank behavior induced by portfolio rebalancing in presence of asset illiquidity and show how changes in the constraints of the bank portfolio optimization endogenously drive the dynamics of the balance sheet aggregate of financial institutions and thereby the availability of bank liquidity to the economic system and systemic risk the model shows that when fin

the production and inventory behavior of the american automobile industry understanding inventory movements is central to an understanding of business cycles this paper presents an empirical study of the behavior of inventories in the automobile industry it finds that inventory behavior is well explained by the assumption of intertemporal optimization with rational expectations the underlying cost structure appears to have substantial costs of changing production as well as substantial costs of being away from target inventory thelatter being a function of current sales given this cost structure whether inventory behavior is stabilizing or destabilizing depends on the characteristics of the demand process in the automobile industry inventory behavior is destabilizing the variance of production is larger than the variance of sales

stability of the world trade web over time an extinction analysis abstract the world trade web wtw is a weighted network whose nodes correspond to countries while edge weights reflecting the value of imports and or exports between countries in this paper we introduce to this macroeconomic system the notion of extinction analysis a technique often used in the analysis of ecosystems for the purpose of investigating the robustness of this network in particular we subject the wtw to a principled set of in silico knockout experiments akin to those carried out in the investigation of food webs but suitably adapted to this macroeconomic network informed by results in network theory as well as studies of contagion in economic networks we seek to understand the role of connectance in the robustness of the system we interpret increasing connectance as one aspect of a move towards globalization and liberalized trade policy broadly our experiments confirm two conjectures first that the wtws are robust yet fragile networks robust to random failures but fragile under targeted attack second that growing connectance has both positive and negative impacts on robustness more specifically we find that increasing connectance corresponds to increasing robustness for small shocks but to decreasing robustness in the face of large cascading shocks up to the system this yields evidence in support of the view that globalization as witnessed by increasing connectance increases the ability of a system to absorb shock up until a certain size whereupon the shock overwhelms the system and sparks a broader contagion we anticipate that experiments and measures like these can play an important role in the evaluation of the stability of economic systems

a network analysis of the italian overnight money market the objective of this paper is to analyse the network topology of the italian segment of the european overnight money market through methods of statistical mechanics applied to complex networks we investigate differences in the activities of banks of different sizes and the evolution of their connectivity structure over the maintenance period the main purpose of the analysis is to establish the potential implications of the current institutional arrangements on the stability of the banking system and to assess the efficiency of the interbank market in terms of absence of speculative and preferential trading relationships

joint production quasi fixed factors of production and investment in finished goods inventories inventory investment has long been an important area of inquiry for empirical work in macroeconomics this is due in large measure to the fact that inventory investment is a major source of fluctuations in aggregate output empirical work on inventories however has been dominated by the use of simple univariate flexible accelerators 1 the major objective of this paper is to propose and test a multivariate flexible accelerator model for inventory investment the model is tested with data on finished goods inventories from the manufacturing sector of the u s economy there are two reasons for undertaking such a task first at a theoretical level a univariate flexible accelerator model asserts that investment in say finished goods inventories is proportional to the gap between the desired and actual stocks of finished goods such a model presumes that decisions by firms on finished goods inventories are made independently of decisions on other stocks but theory suggests that when firms make simultaneous decisions on a variety of stocks which includes not only finished goods but also goods in process inventories the size of the work force etc decisions on finished goods will interact with decisions on

imaginary money against sticky relative prices abstract this paper considers price setting in pure units of account linked to the means of payment through managed parities if prices are sticky in the units in which they are set parity changes may facilitate equilibrium adjustment of relative prices the paper derives simultaneously the optimal choice of unit of account by each price setter and the optimal parity policy the gains from having multiple units of account are computed for a simple calibrated economy

production smoothing in the japanese vehicle industry abstract physical data from the japanese vehicle industry covering monthly observations from 1985 1 to 1994 12 are investigated across nine goods ranging from bicycles to large buses smaller variance of production is found relative to sales across all goods for unadjusted data and in 17 out of 18 cases for seasonally adjusted data such evidence in favor of the production smoothing model psm is confirmed by full information maximum likelihood employed jointly on inventories and sales equations the estimates suggest the industry operates in the range of increasing marginal costs in six out of nine goods positive costs of being away from targeted inventory are also present in six out of these nine goods which make the psm a good description of this industry

production planning horizon production smoothing and convexity of the cost functions abstract one of the productions planning models economists have used for the past four decades is the production smoothing model the model s conclusion is simple if cost functions are convex under certain conditions firm s production plans may show smaller variability than the firm s sales this is a result of the first order condition for cost minimization over the production planning horizon in a 1986 paper blinder raised doubts regarding the ability of the production smoothing model to explain the observed data some researchers e g ramey journal of political economy 99 2 1991 306 explained the inconsistency between the theory and the data by providing evidence that the cost functions are non convex in this paper i point out that the shapes of the cost functions depend on the length of the time horizon under consideration it is possible that while short run cost functions are upward sloping long run cost functions may be downward sloping because the planning horizon for firms facing seasonal demand has been shown to be one seasonal cycle the short run cost function whose shape determines the firm s production plan over the horizon need to be estimated using single planning horizon data i e a single seasonal cycle researchers who use long time series data are in effect estimating long run cost functions the slopes of which may be non positive i show further that convexity of the production cost function is neither necessary nor sufficient condition for production smoothing to be an optimal plan

foreign technology spillovers and r d policy the authors study the appropriate domestic r d policy in an asymmetric duopoly with r d rivalry and technological spillovers from the more advanced firm a foreign and a home firm compete over two periods on r d and output initial foreign r d lowers the cost of home s subsequent r d improvements the optimal policy balances the strategic incentive to reduce initial foreign r d with the spillover incentive to increase it if discounted home profits increase decrease with higher initial foreign r d the spillover strategic effect dominates a tax subsidy to first period home r d is appropriate copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

nonconvex costs and the behavior of inventories this paper explores one possible explanation for the apparent excess volatility of production relative to sales nonconvexities in the technology facing firms it is shown that if firms operate in a region of declining marginal costs then small shifts in demand can cause production to jump substantially estimates for six production to stock industries as well as the automobile industry suggest that all these industries behave as if they were operating in the region of nonconvex costs the results have important implications not only for inventory investment but also for the cyclical behavior of productivity and prices

overlapping portfolios contagion and financial stability abstract we study the problem of interacting channels of contagion in financial networks the first channel of contagion is counterparty failure risk this is captured empirically using data for the austrian interbank network the second channel of contagion is overlapping portfolio exposures this is studied using a stylized model we perform stress tests according to different protocols for the parameters we study neither channel of contagion results in large effects on its own in contrast when both channels are active at once bankruptcies are much more common and have large systemic effects

rational expectations and the smoothing properties of inventories of finished goods abstract this paper formulates and estimates a dynamic rational expectations equilibrium model of inventories of finished goods and employment of labor the view that the primary role of inventories of finished goods is to act as a buffer stock in the face of fluctuating demand is examined both the model and estimation results indicate that this is the case because of differences in the costs involved for firms in changing their inventory stocks and labor force in addition to providing some new evidence on the behavior of inventories of finished goods and employment the paper illustrates a technology for maximum likelihood estimation of structural parameters under the hypothesis of rational expectations

stability analysis of financial contagion due to overlapping portfolios abstract common asset holdings are widely believed to have been the primary vector of contagion in the recent financial crisis we develop a network approach to the amplification of financial contagion due to the combination of overlapping portfolios and leverage and we show how it can be understood in terms of a generalized branching process this can be used to compute the stability for any particular configuration of portfolios by studying a stylized model we estimate the circumstances under which systemic instabilities are likely to occur as a function of parameters such as leverage market crowding diversification and market impact although diversification may be good for individual institutions it can create dangerous systemic effects and as a result financial contagion gets worse with too much diversification there is a critical threshold for leverage below it financial networks are always stable and above it the unstable region grows as leverage increases note that our model assumes passive portfolio management during a crisis however we show that dynamic deleveraging during a crisis can amplify instabilities the financial system exhibits robust yet fragile behavior with regions of the parameter space where contagion is rare but catastrophic whenever it occurs our model and methods of analysis can be calibrated to real data and provide simple yet powerful tools for macroprudential stress testing

the effect of the interbank network structure on contagion and common shocks abstract this paper proposes a dynamic multi agent model of a banking system with central bank banks optimize a portfolio of risky investments and riskless excess reserves according to their risk return and liquidity preferences they are linked via interbank loans and face stochastic deposit supply comparing different interbank network structures it is shown that money centre networks are more stable than random networks evidence is provided that the central bank stabilizes interbank markets in the short run only systemic risk via contagion is compared with common shocks and it is shown that both forms of systemic risk require different optimal policy responses

the relation between price and marginal cost in u s industry an examination of data on output and labor input reveals that some u s industries have marginal cost well below price the conclusion rests on the finding that cyclical variations in labor input are small compared with variations in output in booms firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs the paper documents the disparity between price and marginal cost where marginal cost is estimated from annual variations in cost it considers a variety of explanations of the findings that are consistent with competition but none is found to be completely plausible

beat em or join em export subsidies versus international research joint ventures in oligopolistic markets this paper compares adversarial with cooperative industrial and trade policies in a dynamic oligopoly game in which a home and foreign firm compete in r d and output and because of spillovers each firm benefits from the other s r d when the government can commit to an export subsidy such a policy raises welfare relative to cooperation except when r d is highly effective and spillovers are near complete without commitment however subsidisation may yield welfare levels much lower than cooperation and lower even than free trade though qualifications to the dangers from no commitment are noted

are statistical reporting agencies getting it right data rationality and business cycle asymmetry this article provides new evidence on the rationality of early releases of industrial production ip and producer price index ppi data rather than following the usual practice of examining only first available and fully revised data we examine the entire revision history for each variable thus we are able to assess for example whether earlier releases of data are in any sense less rational than later releases and when data become rational our findings suggest that seasonally unadjusted ip and ppi become rational after approximately 3 4 months whereas seasonally adjusted versions of these series remain irrational for at least 6 12 months after initial release for all variables examined we find evidence that the remaining revision is predictable from its own past or from publicly available information in other economic and financial variables in addition we find a clear increase in the volatility of revisions during recessions suggesting that early data releases are less reliable in toughe

basel iii capital surcharges for g sibs are far less effective in managing systemic risk in comparison to network based systemic risk dependent financial transaction taxes in addition to constraining bilateral exposures of financial institutions there exist essentially two options for future financial regulation of systemic risk first regulation could attempt to reduce the financial fragility of global or domestic systemically important financial institutions g sibs or d sibs as for instance proposed by basel iii second it could focus on strengthening the financial system as a whole by reducing the probability of large scale cascading events this can be achieved by re shaping the topology of financial networks we use an agent based model of a financial system and the real economy to study and compare the consequences of these two options by conducting three computer experiments with the agent based model we find that re shaping financial networks is more effective and efficient than reducing financial fragility capital surcharges for g sibs could reduce systemic risk but they would have to be substantially larger than those specified in the current basel iii proposal in order to have a measurable impact this would cause a loss of efficiency

on the stability of supply chains this paper examines the stability of decentralized multistage supply chains under arbitrary demand conditions it looks for intrinsic properties of the inventory replenishment policies that hold for all customer demand processes and for policies with desirable properties it is found that the overall conditions experienced by suppliers several stages removed from the final customer e g the variances of the orders they receive and the inventories they keep depend on the policy much more than on the demand process a policy specific but demand independent upper bound for the order variance amplification factor of any decentralized policy is shown to exist and its formula is presented the bound is always tight for the suppliers at the end of a long chain so that a policy exhibits the bullwhip effect if and only if its bound is greater than 1 a simple necessary condition for bullwhip avoidance is also identified in terms of a policy s gain gain is the marginal change in average inventory induced by a policy when there is a small but sustained change in the demand rate it is shown thatall policies with positive gain produce the bullwhip effect if they do not use future order commitments because manufacturers can reduce costs by operating with positive gain this explains the prevalence of the bullwhip effect a family of commitment based policies that can dynamically maintain any desired inventory level for any demand rate e g achieve positive gain without the bullwhip effect is also presented the family includes just in time strategies as a special case simulation results are used as an illustration

disadvantageous oil tariffs and dynamic consistency a large importer who places relatively greater weight on future than current oil consumption will import less oil in the future than if it were able to commit itself in advance to future tariffs and may find itself worse off than if it were unable to impose tariffs at all futures markets and storage modify these adverse effects and may avoid the problem of dynamic inconsistency copyright 1990 by american economic association

measuring network systemic risk contributions a leave one out approach abstract the aim of this paper is to propose a new network measure of systemic risk contributions that combines the pair wise granger causality approach with the leave one out concept this measure is based on a conditional granger causality test and consists of measuring how far the proportion of statistically significant connections in the system breaks down when a given financial institution is excluded we analyse the performance of our measure of systemic risk by considering a sample of the largest banks worldwide over the 2003 2018 period we obtain three important results first we show that our measure is able to identify a large number of banks classified as global systemically important banks g sibs by the financial stability board fsb second we find that our measure is a robust and statistically significant early warning indicator of downside returns during the last financial crisis finally we investigate the potential determinants of our measure of systemic risk and find similar results to the existing literature in particular our empirical results suggest that the size and the business model of banks are significant drivers of systemic risk

what is the minimal systemic risk in financial exposure networks abstract we quantify how much systemic risk can be eliminated in financial contract networks by rearranging their network topology by using mixed integer linear programming financial linkages are optimally organized whereas the overall economic conditions of banks such as capital buffers total interbank assets and liabilities and average risk weighted exposure remain unchanged we apply the new optimization procedure to 10 snapshots of the austrian interbank market where we focus on the largest 70 banks covering 71 of the market volume the optimization reduces systemic risk measured in debtrank by about 70 showing the huge potential that changing the network structure has on the mitigation of financial contagion existing capital levels would need to be scaled up by a factor of 3 3 to obtain similar levels of debtrank these findings underline the importance of macro prudential rules that focus on the structure of financial networks the new optimization procedure allows us to benchmark actual networks to networks with minimal systemic risk we find that simple topological measures like link density degree assortativity or clustering coefficient fail to explain the large differences in systemic risk between actual and optimal networks we find that if the most systemically relevant banks are tightly connected overall systemic risk is higher than if they are unconnected

dynamic factor demands under rational expectations we model the industrial demands for structures equipment and blue and white collar labor in a manner consistent with rational expectations and stochastic dynamic optimization in the presence of adjustment costs but allowing generality of functional form we represent the technology by a translog input requirement function that specifies the amount of blue collar labor needed to produce an output level given quantities of three quasi fixed factors nonproduction workers equipment and structures a complete description of the production structure is obtained by simultaneously estimating the input requirement function and three stochastic euler equations we find adjustment costs are small in total but large on the margin and differ considerably across factors

public policy towards r d in oligopolistic industries the importance of determining optimal policy towards r d cannot be exaggerated given the worldwide interest in fostering r d and given the significant differences between european and u s policies towards interfirm cooperation on r d moreover the problem is an inherently difficult one because of the complex nature of the r d process since r d is a component of fixed costs industries where it is important tend to be concentrated hence r d policy must go hand in hand with competition policy at the same time r d is like any form of investment in that it precedes the production stage hence issues of time consistency and strategic commitment inevitably arise in considering the choice of r d policy finally r d by one firm typically leads to spillovers wbich benefit other firms so that r d exhibits many of the character department of economics university college dublin belfield dublin 4 ireiatid for helpful discussions and comments we are grateful to two anonymous referees to pedro bartos steve martin massimo motta and damien neven and to participants at seminars in birmingham st andrew s and warwick at a cepr workshop on r d spillovers in lausanne at erwit 94 in caslel gandolfo eea 95 in prague the 1996 conference on industrial economics at universidad carlos iii de madrid and a meeting of the dublin economics workshop this paper was produced as part of the international economic performance programme of the centre for economic performance london school of economics supported by the u k esrc an earlier version was circulated as cepr discussion paper no 1243 see alexis jacquemin 1988 and stephen martin 1996 istics of a public good albeit one that is mostly privately produced tbe degree to which such spillovers occur and can be internalized is another crucial influence on the desirable pattem of intervention

the optimal rate of inflation with trending relative prices relative price trends mean that monetary policy cannot stabilize the nominal prices of all consumption categories if prices are sticky monetary policy must then trade off distortions within different categories more weight should be placed on stabilizing prices for which adjustment entails greater distortions with exogenous price stickiness a simple model calibrated to u s data implies that slight deflation is optimal even absent money demand considerations if price stickiness is endogenous because of fixed costs of adjustment small inflation or small deflation can be optimal depending on whether demand conditions or price adjustment costs vary across sectors

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

can the production smoothing model of inventory behavior be saved the production smoothing model of inventory behavior has a long and venerable history and theoretical foundations that seem very strong yet certain overwhelming facts seem not only to defy explanation within the production smoothing framework but actually to argue that the basic idea of production smoothing is all wrong most prominent among these is the fact that the variance of detrended production exceeds the variance of detrended sales this paper first documents the stylized facts then it derives the production smoothing model rigorously and explains how the model can be amended to make it consistent with the facts finally it reviews the theoretical and empirical evidence and tries to draw some tentative conclusions

non convex costs and capital utilization a study of production scheduling at automobile assembly plants i study detailed data from eleven automobile assembly plants these data display considerable cross plant heterogeneity in production scheduling to explain the observed heterogeneity i solve a dynamic programming model when desired production is below the plant s minimum e cient scale non convexities induce production bunching the plant uses less than full capital utilization on average and production is more volatile than sales when desired production is above the plant s minimum e cient scale the plant operates in a convex region of the cost curve in this case it uses high levels of capital utilization and production is less volatile than sales 2000 elsevier science b v all rights reserved jel classixcation e23 d21 l23

production and inventory control at the general motors corporation during the 1920 s and 1930 s this paper analyzes dynamics of production and inventories at the general motors corporation during the 1920s and 1930s the authors begin by examining anecdotal evidence on the nature of the production control system in force during that period motivated by that evidence they then extend the conventional linear quadratic model of production behavior to take account of annual shutdown finally the authors apply the modified model to newly available data on monthly unit production sales and inventories during 1924 40 general motors appears to have been aiming to maintain a targeted level of inventory relative to expected sales and secondarily to smooth production copyright 1993 by american economic association

financing constraints and inventories abstract this paper investigates the impact of financing constraints on firms inventory and cash management in particular it examines the extent to which the presence of such constraints may account for certain empirical regularities these include e g the excess variance of production vis a vis that of sales as well as the counter cyclicality and persistence of the inventory sales ratio we model the intertemporal decision making on production cash retention and dividends of a firm that is exposed to stochastic demand shocks in every period and faces constrained access to external sources of finance it is found that the presence of financing constraints can explain the excess variance of production in a model which otherwise would not deliver this result moreover as long as demand is positively serially correlated they also contribute to the counter cyclicality and persistence of the inventory sales ratio the paper suggests that financing constraints should not be discarded as a factor driving the cyclical behaviour of inventories