inventory dynamics and business cycles what has changed to what extent can information technology led improvements in inventory management account for the apparent moderation of economic fluctuations in the united states since the mid 1980s we argue that changes in inventory dynamics played a reinforcing rather than a leading role in the reduction of output volatility since the mid 1980s inventory dynamics have changed in a manner consistent with a faster resolution of inventory imbalances however these changes appear to be a consequence of changes in the response of industry level sales and aggregate economic activity to monetary policy shocks our results suggest that it is the interaction between the changes in inventory behavior at the industry level and the macroeconomic environment where the latter likely includes changes in the conduct of monetary policy and the responses of the economy to policy disturbances rather than any single factor that has contributed importantly to the observed decline in economic volatility

interpreting the great moderation changes in the volatility of economic activity at the macro and micro levels most advanced economies have experienced a striking decline in the volatility of aggregate economic activity since the early 1980s volatility reductions are evident for output and employment at the aggregate level and across most industrial sectors and expenditure categories inflation and inflation volatility have also declined dramatically previous studies offer several potential explanations for this great moderation we review evidence on the great moderation in conjunction with evidence about volatility trends at the micro level we combine the two types of evidence to develop a tentative story for important components of the aggregate volatility decline and its consequences the key ingredients are declines in firm level volatility and aggregate volatility most dramatically in the durable goods sector surprisingly this has occurred without a decline in household consumption volatility and individual earnings uncertainty our explanation for the aggregate volatility decline stresses improved supply chain management particularly in the durable goods sector and less important a shift in production and employment from goods to services we provide evidence that better inventory control made a substantial contribution to declines in firm level and aggregate volatility consistent with this view if we look past the turbulent 1970s and early 1980s much of the moderation reflects a decline in high frequency short term fluctuations while these developments represent efficiency gains they do not imply nor is there evidence for a reduction in economic uncertainty faced by individuals and households

optimal collusion with internal contracting abstract in this paper two firms play an infinitely repeated bertrand game and each firm has an agent who produces the firm s output and holds private information about production costs the colluding firms fix prices and allocate market shares based on their agents information we develop a model of collusion in which firms use the presence of agents as a strategic opportunity to restrict their incentives to distort private information we show that such firm behavior may expand the scope of optimal collusion whether market allocation schemes are asymmetric or symmetric

executive compensation strategic competition and relative performance evaluation theory and evidence we examine compensation contracts for managers in imperfectly competitive product markets we show that strategic interactions among firms can explain the lack of relative performance based incentives in which compensation decreases with rival firm performance the need to soften product market competition generates an optimal compensation contract that places a positive weight on both own and rival performance firms in more competitive industries place greater weight on rival firm performance relative to own firm performance we find empirical evidence of a positive sensitivity of compensation to rival firm performance that is increasing in the degree of competition in the industry

the comovement in inventories and in sales higher and higher abstract we re examine changes in the cross section correlation pattern of sales and inventories using ng s ng s 2006 testing cross section correlation in panel data using spacings journal of business and economic statistics 24 1 12 23 uniform spacing method which permits the estimation of the number of correlated pairs and focuses on the conditional correlations in contrast to the literature we find that the correlation of shocks across industries increased after the great moderation

inventory behavior with permanent sales shocks abstract empirically adf tests fail to reject the null hypothesis that sales are i 1 we build a model of inventory behavior that incorporates permanent sales shocks analytically the model with i 1 sales implies that the variance ratio of log production to log sales is one in the long run regardless of the strength of production smoothing stockout avoidance or cost shocks but that at business cycle horizons the conditional variance ratio conditional on past production and sales is greater than one we explain analytically using our model and intuitively four traditional inventory puzzles and three puzzles about inventories and monetary policy

legal but costly an analysis of the eu gm regulation in the light of the wto trade dispute between the eu and the usa in this study we investigate the new european union eu regulations in the light of the ruling by the world trade organization wto panel on the trade in genetically modified crops to this end we describe the basic differences in approaches between the eu and the complaining parties with regard to genetically modified crops what the main arguments were of the complaining parties as well as the defence of the eu what the final judgement of the panel was and finally we describe the current eu regulations we then analyse to what extent the arguments and conclusions of the panel still hold regarding the new eu legislation we find that parts of the current eu legislation that is the safety bans as they are currently in place are in breach of the wto commitments moreover the new approval procedures have the potential to also break these rules although whether or not they will depends on how the european commission acts whether or not the eu will be challenged at the wto remains an open question as the decision to fight before the wto may be more costly than working out new bilateral trade agreements

declining volatility in the u s automobile industry dramatic changes in the volatility of output occurred in the u s auto industry in the early 1980s namely output volatility declined the covariance of inventory investment and sales grew more negative and adjustments to production schedules which in earlier decades stemmed primarily from plants hiring and laying off workers were more often accomplished with changes in average hours per worker after the mid 1980s using a linear quadratic inventory model with intensive and extensive labor adjustments we show how all of these changes could have stemmed from one underlying factor a decline in the persistence of motor vehicle sales jel g31 l25 l62 m11

understanding the inventory cycle abstract careful examination of aggregate data from the u s and other oecd countries reveals that production and inventory behavior exhibit paradoxical features 1 inventory investment is strongly countercyclical at very high frequencies e g 2 3 quarters per cycle it is procyclical only at relatively low cyclical frequencies such as the business cycle frequencies e g 8 40 quarters per cycle 2 production is less volatile than sales around the high frequencies it is more volatile than sales only around business cycle or lower frequencies 3 unlike capital investment or gdp the bulk of the variance of inventory investment is concentrated around high frequencies rather than around business cycle frequencies these features of production and inventory behavior at the low and high frequencies provide a litmus test for inventory theories this paper shows that the stockout avoidance theory kahn j 1987 inventories and the volatility of production american economic review 77 667 679 has much better potential than other competing theories for explaining the seemingly paradoxical features of inventory fluctuations observed at different cyclical frequencies my analysis suggests that demand shocks are the main source of the business cycle

taking stock a critical assessment of recent research on inventories empirical and theoretical aspects of inventory behavior became hot topics in the 1950s and early 1960s no one seemed to notice the tension that was developing between the emerging macroeconomic and microeconomic views of inventories macroeconomists routinely thought of inventories as a destabilizing factor yet the prevailing micro theory viewed inventories as a stabilizing factor it was a fascinating question that was barely explored instead somewhat inexplicably interest in inventories dried up as if inventories were of minor economic significance and little intrinsic interest by the early 1980s then economists once again knew something they had known in the 1950s that inventory investment is of first order importance in business cycles but they were also beginning to realize that the standard production smoothing buffer stock model of inventories was in deep trouble this paper focuses on developments since that realization

hansen and sargent s recursive models of dynamic linear economies a review essay lars peter hansen and thomas j sargent s book recursive models of dynamic linear economies exposits extends and applies methods for solution and analysis of dynamic stochastic linear quadratic models the book which can be used as a monograph or in a graduate course integrates theory econometrics and computation this essay provides a summary and offers some mild complaints about material not included in what is already a remarkably comprehensive book

the anatomy of corporate control directors shareholders and executive remuneration in giant us and uk corporations this paper provides a contemporary comparison of the anatomy of corporate contol in giant u s and u k corporations the comparison draws upon an analysis of share ownership executive remuneration board membership and the patterns of interlocking directorships the results are of significance not only for the managerialist hypothesis but also for the wider issues concerning the control and behavior of these giant corporations the evidence presented leads to some qualifications of the managerialist position furthermore the study identifies the potentially key role played by nonexecutiv e directors particularly where their board membership is associated with significant shareholdings of financial institutions copyright 1987 by oxford university press

how would swiss consumers decide if they had freedom of choice evidence from a field study with organic conventional and gm corn bread in 2005 the swiss expressed their negative attitude towards genetic engineering in agriculture by voting in favor of a ban to use genetically modified gm crops in domestic agriculture at the same time certain gm food products remain approved but are not on offer since retailers assume that consumers would shun labeled gm food in our study we tested this claim by conducting a large scale field study with swiss consumers in our experimental design three clearly labeled types of corn bread were offered at five different market stands across the french and german speaking part of switzerland one made with organic one made with conventional and one made with genetically modified gm corn in addition we tested the consistency between purchasing decision at the market stand and the previous voting decision on gmos in 2005 by means of an ex post questionnaire the results of our discrete choice analysis show that swiss consumers treat gm foods just like any other type of novel food we conclude from our findings that consumers tend to appreciate transparency and freedom of choice even if one of the offered product types is labeled as containing a genetically modified ingredient retailers should allow consumers to make their own choice and accept the fact that not all people appear to be afraid of gm food 2011 elsevier ltd all rights reserved

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

var analysis and the great moderation post world war ii us macroeconomic history is usually divided into two distinct subperiods the former period which extends up to the end of the volcker disinflation is characterized by a significant extent of macroeconomic turbulence with highly volatile inflation and output growth the latter period from the end of the volcker disinflation up to the present day is marked in contrast by significantly smaller volatilities for both inflation and output growth these dramatic changes in the reduced form properties of the us economy over the last several decades char acterize a phenomenon known as the great moderation see in particular chang jin kim and charles nelson 1999 margaret mcconnell and gabriel perez quiros 2000 a vast empirical literature has investigated the source s of the great moderation in an attempt to disentangle the relative contributions of two main explanations good policy and good luck based on time varying or markov switching structural var methods the good luck hypoth esis has been advocated by a number of authors including james h stock and mark w watson 2003 giorgio e primiceri 2005 christopher sims and tao zha 2006 and luca gambetti evi pappa and fabio canova 2008

investigation of production sales and inventory relationships using multicointegration and non symmetric error correction models the accumulated sum of a stationary series is called integrated if a linear combination of some of the integrated series is stationary it is said to be cointegrated this paper presents empirical results on inventories to consider the possibility of a deeper form of cointegration called multicointegration which is introduced in granger and lee 1989 a vector integrated series is multicointegrated if the accumulated sum of its stationary cointegrated linear combination is again cointegrated with itself inventory which is the accumulated sum of production minus sales is probably cointegrated with production and sales the empirical results generally support the presence of multicointegration of production and sales in many u s industries and industrial aggregates the results also favour the non symmetric error correction model providing evidence that the strength of attraction is different on both sides of the attractor a modified s s rule for inventory control is investigated in the context of a non symmetric error correction model and the results generally do not support the s s rule sufficient evidence is found to conclude that multicointegration is a useful concept in the area of inventory determination

stock options and the strategic use of managerial incentives in cournot based oligopoly models there is an incentive for firms to pursue overly aggressive behavior resulting in prices and profits below those of the cournot equilibrium compensating managers in proportion to a combination of profits and sales provides one mechanism through which aggressive behavior emerges however when the profit component of managerial compensation comes in the form of stock options the aggressive behavior is restrained or even eliminated in equilibrium this result relies only on the nonlinearity of the stock option generalizations to other forms of compensation are discussed copyright 1993 by american economic association

board structure and executive pay evidence from the uk we examine the impact of board structure on executive pay for 1 880 uk public firms over the period 1983 2002 using panel data analysis first the proportion of non executive directors tends to decrease the rate of increase in executive pay whereas board size tends to increase it second the proportion of non executives strengthens the relation between the rate of increase in executive pay and changes in performance in particular although for firms in general the pay performance link is much weaker when performance is poor a higher proportion of non executives strengthens this link considerably finally firms that increase the number of nonexecutives in order to comply with the cadbury code of 1992 experience both a decline in the rate of increase in executive pay and an increase in pay performance sensitivity

dynamic duopolistic competition with sticky prices the authors study duopolistic competition in a homogeneous good through time under the assumption that its current desirability is an exponentially weighted function of accumulated past consumption this implies that the current price of the good does not decline by as much to accommodate any given level of current consumption our an alysis is conducted in terms of a differential game it is found that the equilibrium price corresponding to the open loop nash equilibriu m strategies approaches the static cournot equilibrium price while th e equilibrium price corresponding to the closed loop nash equilibrium strategies which are subgame perfect approaches a price below it copyright 1987 by the econometric society

stock related compensation and product market competition this dissertation consists of four self contained essays primarily concerned with incorporating the objectives of real world top managers as revealed by the available empirical evidence in supergame theoretic analyses of long term competition between oligopolistic firms the first essay ownership control and collusion considers how the separation between ownership and control affects firms competitive attitudes when top managers have the preference for smooth profit streams revealed by the evidence on income smoothing and when managerial compensation has the low pay performance sensitivity found in many empirical studies in a similar fashion the second essay stock related compensation and product market competition deals with the effects of the apparently more aggressive managerial incentives linked to stock price e g stock options which have become increasingly common in the u s on long term oligopolistic competition in the third paper debt as a credible collusive device shareholders commitments to reduce conflicts with debtholders by choosing a top manager with a highly valuable reputation or with conservative incentives are considered these forms of commitment have been shown to reduce the agency cost of debt finance this paper characterizes their effects on the relation between firms capital structure and product market competition the fourth paper multimarket contact concavity and collusion addresses the relation between multimarket contact and firms ability to sustain collusive behavior in repeated oligopolies it explores how this relation is affected by the strict concavity of firms objective function induced by managerial objectives and by other features of reality discusses the effects of conglomeration and horizontal mergers and extends the results to non oligopolistic supergames

executive compensation and principal agent theory the empirical literature on executive compensation generally fails to specify a model of executive pay on which to base and test hypotheses regarding its determinants in contrast this paper analy

what explains the rise in ceo pay in germany a panel data analysis for 1977 2009 the compensation of executive board members in germany has become a highly controversial topic since vodafone s hostile takeover of mannesmann in 2000 and it is again in the spotlight since the outbreak of the financial crisis of 2009 based on unique panel data evidence of the 500 largest firms in germany in the period 1977 2009 we test two prominent hypothesis in the literature on executive pay the manager power hypothesis and the efficient pay hypothesis we find support for the manager power hypothesis for germany as executives tend to be rewarded when the sector is doing well rather than the firm they work for we reject however the efficient pay hypothesis as ceo pay and the demand for managers increases in germany in difficult times when the typical firm size shrinks we find further that domestic and global competition for managers has contributed to the rise in executive pay in germany lastly we show that ceos in the banking sector are provided with incentives for performance and that the great recession of 2009 acted as a disciplining devise on ceo pay in germany

consumer benefits of labels and bans on gm foods choice experiments with swedish consumers the european union has been relatively cautious about using biotechnology in food production a label regime combined with the right of individual member states to ban introduction of new genetically modified gm strains means that gm food products in effect are banned in many countries we show how it is possible to empirically test whether a ban can be motivated by reference to potential negative externalities this is followed up by results from a choice experiment we cannot reject the hypothesis of equal wtp for a ban and a labeling scheme

retail contracting theory and practice we summarize a number of regularities that arise in the empirical literature on contractual relationships between manufacturers and their exclusive resellers we do this using studies of traditional and business format franchise relationships as well as studies of salesforce integration decisions some of the patterns that we uncover are consistent with a standard incentive cum insurance theory of organization while others are not we brie y review some theoretical extensions that seem promising in terms of reconciling seeming con icts between theory and practice i introduction manufacturers of retail products must decide whether to sell their products to consumers themselves vertical integration or to sell via independent retailers vertical separation when manufacturers do not perform the sales function internally but want exclusive retailers they usually choose some form of franchising 1 many theories attempt to explain the choice of retail organizational form moreover a considerable body of empirical evidence concerning this choice is accumulating we attempt to evaluate this econometric evidence and relate it to the theories to accomplish this task we assess studies of franchising arrangements as well as studies of sales force organization in industrial settings the paper is organized as follows in the next section we highlight a number of regularities that arise in the empirical literature on retail contracting in particular we nd that i risk is positively related to the use of high powered incentives vertical separation ii the importance of the agent s eiort in production is positively related to the use of high powered incentives

high growth recoveries inventories and the great moderation we develop a dynamic factor model to compute short term forecasts of the spanish gdp growth in real time with this model we compute a business cycle index which works well as an indicator of the business cycle conditions in spain to examine its real time forecasting accuracy we use real time data vintages from 2008 02 through 2009 01 we conclude that the model exhibits good forecasting performance in anticipating the recent and sudden downturn

the strategic choice of managerial incentives do firms with separate owners and managers maximize profits we address this question for an oligopoly where managers compete in quantities or prices as in the cournot or bertrand models and owners choose their managers incentives we find that there is a strategic aspect in the problem of selecting incentives and that profit maximizing behavior does not result in particular in the oligopoly we study the behavior of firms competing in quantity price more closely resembles perfectly competitive collusive behavior than cournot bertrand behavior

total board remuneration and company performance using a hitherto neglected source of data this paper combines executive emoluments with executive options to construct a broader measure of executive pay than has been possible in earlier british studies the result of including the long term share option component of pay along with the more commonly utilized short term component of emoluments is to reveal executive pay as being significantly more sensitive to company performance than has previously been thought to be the case the paper questions the current policy stance of british institutional investors and of the greenbury committee with respect to executive share options copyright 1996 by royal economic society

financing constraints and inventory investment a comparative study with high frequency panel data this study provides new evidence of the importance of financing constraints for explaining the dramatic cycles in inventory investment we compare the empirical performance of different financial variables coverage ratio cash stocks and cash flow used in previous research to test for the presence of financing constraints the comparison is undertaken in a common framework with an identical sample and high frequency quarterly firm panel data cash flow is much more successful than cash stocks or coverage in explaining the facts about inventory investment across firm size different inventory cycles and different manufacturing sectors

the sources of fluctuations in aggregate inventories and gnp a simple real linear quadratic inventory model is used to determine how cost and demand shocks interacted to cause fluctuations in aggregate inventories and gnp in the united states 1947 1986 cost shocks appear to be the predominant source of fluctuations in inventories and are largely though not exclusively responsible for the fact that gnp is more variable than final sales cost and demand shocks are of roughly equal importance for gnp these estimates however are imprecise with different but plausible values for a certain target inventory sales ratio cost shocks are less important than demand shocks for gnp fluctuations

vertical coordination antitrust law and international trade this paper demonstrates that vertically aligned private or public organizations are capable of generating strategic trade advantage similar to that acquired through direct government export subsidization the model considers two forms of vertical coordination that lead to advantageous trade positions in international markets upstream vertical restraint and downstream equity sharing such practices are commonly employed both by state trading agencies and by private firms in nations with lenient antitrust laws the finding has important implications under new world trade organization wto rules intended to reduce government intervention in international transactions recent reforms in the wto favor nations that sanction highly refined vertical linkages between firms while nations with stringent antitrust legislation have an incentive to negotiate for greater harmonization of international laws

corporate performance and managerial remuneration an empirical analysis abstract economic theories of efficient compensation predict a positive relationship between executive pay and corporate performance and yet efforts to document this relationship have been largely unsuccessful in this paper we argue that previous cross sectional studies have omitted important variables which seriously bias their results using data that focus on individual executives over time we find that executive compensation is strongly positively related to corporate performance as measured by shareholder return and growth in firm sales the results are robust to the stock market performance measure utilized

equilibrium warrant pricing models and accounting for executive stock options under apb opinion no 25 compensation expense arising from executive stock options consists of the excess of the market value of the stock over the exercise price of the options on their grant dates if the exercise price equals the market value of the stock on the grant date which is typically the case no compensation expense is recognized this accounting treatment has been frequently criticized for its bias toward underestimating the cost of an option to the issuing firm and a number of alternative valuation models have been suggested in the accounting literature by and large these valuation models have been borrowed from the finance literature where they were developed to explain the pricing of warrants and traded options the purpose of this paper is to assess empirically how well two of these valuation models perform in providing estimates of the value of traded securities warrants that are similar in many respects to executive stock options 2 this evidence should help calibrate the magnitude of the errors

profit sharing with workers facilitates collusion among firms we show how profit sharing by firms with workers facilitates collusion among firms in a dynamic oligopoly environment with uncertain demand we first show that firm profits can always be increased by tying wages to market conditions the optimal agreement takes the form of an option and features partial sharing because increased sharing raises the expected price wage differential but reduces price wage variability we then show that given any cartel there exist market conditions such that simply giving some expected profit to workers raises expected firm profits via the transfer s impact on the incentive to cheat on the cartel

risk aversion performance pay and the principal agent problem this paper calculates numerical solutions to the principal agent problem and compares the results to the stylized facts of ceo compensation the numerical predictions come from parameterizing the models of grossman and hart and of holmstrom and milgrom while the correct incentives for a ceo can greatly enhance a firm s performance providing such incentives need not be expensive for many parameter values ceo compensation need increase only by about 10 for every 1 000 of additional shareholder value for some values the amount is 0 003 cents

why do real and nominal inventory sales ratios have different trends this note explains the diverging trends between real and nominal aggregate inventory sales ratios the combined effect of two features of the data explains the divergence first while aggregate sales include both goods and services inventories include only goods second there has been a strong secular decrease in the relative price of goods the combination of these two factors causes the real and nominal aggregate inventory sales ratios to have different trends

the decline in u s output volatility explanations for the decline in u s output volatility since the mid 1980s include better policy good luck and technological change our multiple break estimates suggest that reductions in volatility since the mid 1980s extend not only to manufacturing inventories but also to sales this finding along with a concentration of the reduction in the volatility of inventories in materials and supplies and the lack of a significant break in the inventory sales covariance imply that new inventory technology cannot account for most of the decline in output volatility

on the interpretation of cointegration in the linear quadratic inventory model abstract the traditional formulation of the linear quadratic inventory model with unit roots predicts cointegration between inventories and sales that formulation implies that marginal production costs and the marginal benefits of inventories are both tending to and the cointegrating coefficient reflects the optimal trade off between these competing factors this paper suggests a reformulation of the problem in which marginal production costs and marginal inventory benefits are both stationary and in which the cointegrating coefficient is the same as the value that characterizes the target inventory level in the cost function

were there regime switches in u s monetary policy working paper 2004 14 june 2004 abstract a multivariate model identifying monetary policy and allowing for simultaneity and regime switching in coefficients and variances is confronted with u s data since 1959 the best fit is with a model that allows time variation in structural disturbance variances only among models that also allow for changes in equation coefficients the best fit is for a model that allows coefficients to change only in the monetary policy rule that model allows switching among three main regimes and one rarely and briefly occurring regime the three main regimes correspond roughly to periods when most observers believe that monetary policy actually differed and the differences in policy behavior are substantively interesting though statistically ill determined the estimates imply monetary targeting was central in the early 80s but was also important sporadically in the 70s the changes in regime were essential neither to the rise in inflation in the 70s nor to its decline in the 80s jel classification e52 e47 c53 key words counterfactuals lucas critique policy rule monetary targeting simultaneity volatility model comparison i the debate over monetary policy change in an influential paper clarida gali and gertler 2000 cgg presented evidence that us monetary policy changed between the 1970 s and the 1980 s indeed that in the 70 s it was drastically worse they found that the policy rule apparently followed in the 70 s was one that when embedded in most stochastic general equilibrium models would imply non uniqueness of the equilibrium and hence vulnerability of the economy to sunspot fluctuations of arbitrarily large size their estimated policy rule for the later period on the other hand eliminated this indeterminacy these results are a possible explanation of the volatile and rising inflation of the 70 s and of its subsequent decline the cgg analysis has two important weaknesses one is that it fails to account for stochastic volatility us macroeconomic variables and particularly the federal funds rate have gone through periods of tranquility and of agitation with forecast error variances varying greatly from period to period ignoring such variation does not lead to inconsistent estimates of model parameters when the forecasting equations themselves are constant but it strongly biases toward a finding of changed parameters tests of the stability of the forecasting equations the other weakness is that the cgg analysis rests on powerful and implausible identifying assumptions they require that we accept that the response of the monetary authority to expected future inflation and output does not depend on the recent history of inflation money growth or output it is hard to understand why this should be so especially in the 70 s when monetarism was a prominent theme in policy debates congress was requiring reports from the fed of projected time paths of monetary aggregates and financial markets were reacting sensitively to weekly money supply numbers the requirement for existence and uniqueness of equilibrium in dynamic models is that the monetary policy rule show a more than unit response of interest rates to the sum of the logs of all nominal variables that appear on the right hand side of the reaction function if we force a particular measure of expected future inflation to proxy for all the nominal variables that actually appear independently in the reaction function we are bound to get distorted conclusions on the one hand because expected future inflation will be a noisy measure of the full set of nominal influences on policy we might get downward bias in our estimates from the usual errorsin variables effect on the other hand to the extent that expected future inflation like most expected future values shows less variation than current nominal variables we could find a mistaken scaling up of coefficients

managerial incentives and collusive behavior abstract i characterize the effects of empirically observed managerial incentives on long run oligopolistic competition when managers have a preference for smooth time paths of profits as revealed by the empirical literature on income smoothing manager led firms can sustain collusive agreements at lower discount factors capped bonus plans and incumbency rents with termination threats make collusion supportable at any discount factor independent of contracts duration when managers have these preferences incentives and demand fluctuates price wars during booms need not occur the most collusive price may then be pro cyclical

inventory shocks and the great moderation why did the volatility of u s real gdp decline by more than the volatility of final sales with the great moderation in the mid 1980s one explanation is that firms shifted their inventory behavior towards a greater emphasis on production smoothing we investigate the role of inventories in the great moderation by estimating an unobserved components model that identifies inventory and sales shocks and their propagation in the aggregate data our estimates provide no support for increased production smoothing instead smaller transitory inventory shocks are responsible for the excess volatility reduction in output compared to sales these shocks behave like informational errors related to production that must be set in advance and their reduction also helps explain the changed forecasting role of inventories since the mid 1980s our findings provide an optimistic prognosis for a continuation of the great moderation despite the dramatic movements in output during the recent economic crisis

the relationships between permanent and transitory movements in u s output and the unemployment rate this paper estimates the permanent and transitory movements in u s output and the unemployment rate and the relationships between them the results suggest that permanent movements in u s output and the unemployment rate are important for explaining overall fluctuations further the correlation between changes in these series arises in large part due to the relationship between their permanent components

bayesian counterfactual analysis of the sources of the great moderation we use counterfactual experiments to investigate the sources of the large volatility reduction in us real gdp growth in the 1980s contrary to an existing literature that conducts counterfactual experiments based on classical estimation and point estimates we consider bayesian analysis that provides a straightforward measure of estimation uncertainty for the counterfactual quantity of interest using blanchard and quah s 1989 structural var model of output growth and the unemployment rate we find strong statistical support for the idea that a counterfactual change in the size of structural shocks alone with no corresponding change in the propagation of these shocks would have produced the same overall volatility reduction as what actually occurred looking deeper we find evidence that a counterfactual change in the size of aggregate supply shocks alone would have generated a larger volatility reduction than a counterfactual change in the size of aggregate demand shocks alone we show that these results are consistent with a standard monetary var for which counterfactual analysis also suggests the importance of shocks in generating the volatility reduction but with the counterfactual change in monetary shocks alone generating a small reduction in volatility copyright 2007 john wiley sons ltd

divisionalization and strategic managerial incentives in oligopoly under uncertainty abstract this paper argues that divisionalization and incentive contracting are complementary rent shifting tools in the presence of demand uncertainty the role for divisionalization arises if managers know the state of demand prior to making output decisions and if incentive contracts are linear and non state contingent in this context incentive contracts achieve expected stackelberg outcomes but have no impact on the firm s responsiveness to demand shocks divisionalization on the other hand has the strategically beneficial effect of making the firm more responsive to demand shocks

reward design and ceo succession in the uk previous research has shown that top executives often rise to the peak of their organizations after a long term employment relationship and that internal promotion to the top is reflected in enhanced baseline salaries using data from a representative sample of uk companies the links between the fixed and variable elements of the chief executive officer s compensation package are examined and whether the appointment has been promoted internally or recruited from outside of the company from this analysis it is concluded that the positive impact on basic pay of elevation to the top job from within the company is not present in total compensation or the structure of pay it also emerges that although tenure does not significantly impact on the structure of pay it does alter total reward through its impact on the value of options granted longer company tenure reduces both the award of share options and the total value of the remuneration package job tenure on the other hand raises the executive s rew

tenure promotion and executive remuneration commentators frequently remark on the need to pay high levels of chief executive officer remuneration to attract motivate and retain the best executives for britain s leading companies this paper presents the results of an empirical investigation into tenure promotion and executive remuneration the remuneration of the chief executive officers at some of britain s largest businesses is examined in the majority of cases the ceo had not been lured away from rivals but had risen through the internal labour market often after a long term employment relationship moreover long job tenure and internal promotion were associated with higher levels of pay it is concluded that understanding of this controversial issue will be improved if it is recognized that a part of current executive pay may be a reward for previous successful performance