THE INFLATION AND SUPPLY SIDE CONSEQUENCES OF DEMAND SIDE SHOCKS*

This paper outlines a small general equilibrium model derived under the assumptions of imperfect competition and non-constant returns to scale Cobb-Douglas technology. The model is used to simulate the short-run supply side effects of a demand shock. The simulation results reveal that demand shocks lower prices and result in positive supply side effects, which in turn strengthen the positive demand side effects on unemployment.     

Sectoral Changes in Employment: An eclectic perspective on ‘good’ jobs and ‘poor’ jobs

The linkage Keynes established between the volume of employment that business firms require to make a particular number of jobs available provides an operational perspective about the way in which labor markets work. The aggregate supply or Z function is, in fact, a job offer curve. The most significant insight to derive from this curve is that job offers are inseparable from the economy's aggregate expenditure (or demand) level. This interdependency of aggregate supply and aggregate demand is necessary to understand the functioning of labor markets in the real world. This paper argues that a disaggregated model which encapsulates the economy's price-taking and price-making sectors offers a promising analytical tool to gain perspective about ‘good jobs’ and ‘poor jobs’ in post-Fordist economies. It is maintained that the sectoral deployment of workers reflects whether employing firms, as price-makers, can capture the increasing returns inherent in modern technology.     

Chinese overseas M&A performance and the Go Global policy1

It is well known that government plays an important role in the business activities of Chinese firms. Less certain is the effect this influence has on the wealth of those firms’ shareholders. We contribute to the literature by analysing stock market reactions to announcements by Chinese firms of overseas mergers and acquisitions (OMAs). OMAs are of particular interest because there can exist a conflict between the interests of the public sector in acquiring overseas assets, and the interests of the private sector in maximizing shareholder wealth. Our main dataset consists of 213 observations of 157 OMA events that occurred between 1994 and 2009, using share market returns from the Shanghai, Shenzhen, Hong Kong and US markets. The aggregation of share price data across multiple markets, and the listing of firms in multiple exchanges, raise econometric issues for the standard event‐study methodology. To address these, we use a new, feasible generalized least squares (GLS) procedure developed by Gu and Reed (2012) . On the basis of an analysis using both aggregated and disaggregated samples, and of daily and cumulative abnormal returns, we find consistent evidence that (i) Chinese OMAs have not lowered the wealth of shareholders of Chinese acquiring firms, and (ii) shareholders of Chinese acquiring firms have not fared worse under under China's ‘Go Global’ policy of encouraging outward investment by Chinese firms.     

A model of technological breakthrough in the renewable energy sector

Models with induced technological change in the energy sector often predict a gradual expansion of renewable energies, and a substantial share of fossil fuels remaining in the energy mix through the end of our century. However, there are historical examples where new products or technologies expanded rapidly and achieved a high output in a relatively short period of time. This paper explores the possibility of a ‘technological breakthrough’ in the renewable energy sector, using a partial equilibrium model of energy generation with endogenous R&D. Our results indicate, that due to increasing returns-to-scale, a multiplicity of equilibria can arise. In the model, two stable states can coexist, one characterized by a lower and one by higher supply of renewable energy. The transition from the low-output to the high-output equilibrium is characterized by a discontinuous rise in R&D activity and capacity investments in the renewable energy sector. The transition can be triggered by a rise in world energy demand, by a drop in the supply of fossil fuels, or by policy intervention. Under market conditions, the transition occurs later than in the social optimum. Hence, we identify a market failure related to path-dependence and technological lock-in, that can justify a strong policy intervention initially. Paradoxically, well-intended energy-saving policies can actually lead to higher emissions, as they reduce the incentives to invest in renewable energies by having a cushioning effect on the energy price. Hence, these policies should be supplemented by other instruments that restore the incentives to invest in renewable energies. Finally, we discuss the influence of monopoly power in the market for innovations. We show that market power can alleviate the problem of technological lock-in, but creates a new market failure that reduces static efficiency.     

Competition,Innovation And Increasing Returns ∗

When firms enjoy increasing returns in presence of a high rate of innovation, competition may obtain due to the continuous changes in demand and cost conditions even when there is no differentiation and the products of competing firms are essentially homogeneous. In this paper we intend to provide theoretical structure to this conjecture, and to confirm it by carrying out a simulation analysis in the case of two firms competing on the market.     

DYNAMIC ENTRY WITH DEMAND AND SUPPLY SIDE SPILLOVERS

Supply side spillovers have been used to explain firms' entry behavior in the pharmaceutical industry. In contrast, demand side spillovers have received less attention. This paper identifies supply and demand spillovers using a dynamic model of strategic interaction. The results indicate that demand side spillovers are more significant than the supply side spillovers to generic drug firms, and the demand side spillovers increase a firm's market share by 3%–4% on average in subsequent market entry. In addition, with supply side spillovers alone, lowering entry barriers can increase future entry rates, while in the case of demand side spillovers, lowering entry barriers will have the opposite effect. (JEL L110, L130, D220)     

The Macroeconomic Consequences of Financing Health Insurance

Employer-financed health insurance systems like those used in the United States distort firms’ labor demand and adversely affect the economy. Since such costs vary with employment rather than hours worked, firms have an incentive to increase output by increasing worker hours rather than employment. Given that the returns to employment exceed the returns to hours worked, this results in lower levels of employment and output. In this paper, we construct a heterogeneous agent general equilibrium model where individuals differ with respect to their productivity and employment opportunities. Calibrating the model to the U.S. economy, we generate steady state results for several alternative models for financing health insurance: one in which health insurance is financed primarily through employer contributions that vary with employment, a second where insurance is funded through a non-distortionary, lump-sum tax, and a third where insurance is funded by a payroll tax. We measure the effects of each of the alternatives on output, employment, hours worked, and wages.     

Contracts, search, and organizational diversity

In this paper we develop a search model that allows for Pareto-ranked multiple equilibria and investigate its implications on organizational diversity. The novel feature of the model is that multiple equilibria are obtained by the self-contained feedback mechanism between optimal contracting choices and the reservation value, which is in sharp contrast to existing literature that emphasizes the increasing returns to scale in the matching function. Our results provide some new insights on why there may exist significant differences in the internal organization of firms across countries, and even in the same country and industry.     

Competition among techniques in the presence of increasing returns to scale

A model of technology diffusion and growth originally proposed by Batten (1987), taking into account the interaction of the supply of and demand for a new product, is modified so as to admit a production technology with increasing returns to scale and the possibility of a competition between two techniques. On the opposite to the case where the production technology of the new technique exhibits decreasing returns, the presence of increasing returns to scale prevent the splitting of the market between two new techniques, and the monopoly position of one technique must obtain. The winning technique may not be the most efficient in terms of its market expansion potential, the outcome of competition depends on initial conditions on production capacity and diffusion.The author wishes to thank Robert Boyer for his helpful advice and remains the sole responsible for all remaining errors and omissions.     

Intertemporal production and intertemporal substitution in output supply and input demand

This article presents an intertemporal model of production with multiple inputs to investigate substitution opportunities facing firms over time. The firm’s intertemporal profit maximization problem is characterized with the familiar cost function, and various intertemporal substitution elasticities are delineated for output supply and input demand. The absence of intertemporal substitution in production can imply production smoothing, and allowance for intertemporal substitution in labour demand reinforces the prediction of the real business cycle model. For aggregate US manufacturing, we find substantial substitution in output supply and labour demand over time due to intertemporal changes in output price and wage rates.     

The co-evolution of innovation,demand and growth

In order to explain long-run economic development, we analyse in this paper the interplay between supply-side and demand-side processes. On the supply side, three different innovation processes are observed and interact: (i) growing productive efficiency, (ii) the emergence of new sectors and (iii) the increasing quality and differentiation of existing products. On the demand side, we analyse the meaning of disposable income and varying preference systems. The analysis is undertaken with the help of a numerical model of economic growth by the emergence of new industries. Our results show that the time path of economic development which we observe could not have been generated by taking into account a supply-side-based view on innovations alone. Without making reference to the formation of an adequate demand, development processes cannot be explained. The three processes need to be combined because each one individually would not suffice to generate long-run economic development. However, only with the formation of an adequate demand long-run economic development becomes sustainable.     

Firm credit in the euro area: a tale of three crises

Using survey data from 2009 to 2011, we analyse the effects of the recent euro area economic, financial and private debt crisis on the supply of and demand for bank finance for small and medium enterprises (SMEs). At the country level, we identify three distinct aspects of the recent crisis in the euro area affecting firm credit through different channels. Controlling for country fixed effects, the impact of a weak real economy on firm credit operates both by reducing firms’ demand for bank financing and by lenders increasing loan rejections and tightening terms and conditions on credit allocated. On the other hand, financial conditions have no significant effect on demand, but they do affect credit supply as we find that financial tensions worsen the chances of obtaining credit and its terms and conditions. We interpret this as evidence of a bank balance sheet channel negatively impacting credit provision. We find that private sector indebtedness has important effects on SMEs’ credit access and its terms and conditions.     

Price stickiness and the contractionary effect of technology shocks

We derive a measure of technological change from a dynamic cost minimization model that controls for imperfect competition, increasing returns and unobserved factor utilization. We estimate this measure using highly detailed panel data of a representative sample of Italian manufacturing firms for the period 1984-1997. Our key finding is that technological improvements result in a contraction of labor input on impact. In principle, this result can be reconciled with the transmission mechanism of flexible-price models by resorting to reorganization and reallocation effects. On the other hand, however, it is consistent with the predictions of a sticky-price model. Using survey information on the frequency of price revisions, we corroborate the latter interpretation, by showing that the contractionary effect of technology shocks is much stronger for firms with stickier prices.     

数据交易市场双边匹配模型与决策方法研究

针对平台视角下的数据交易供需双边匹配问题,基于双边匹配理论,提出了考虑模糊语言评价信息、区间数评价信息和0-1评价信息的混合型多属性匹配决策方法并定义了属性匹配满意度函数。以供需主体最大匹配满意度为目标,构建了数据交易供需双边匹配的多目标优化模型,并设计模型求解算法,将多目标化模型转化为单目标线性规划模型进行求解,以获取匹配结果。结果表明,通过对供需双方需求信息的详细分析,双边匹配结果能在最大程度上满足双方需求,同时,优化模型具有合理性及有效性。     

Macroeconomic coordination failure under oligempory

Summary. Each sector of a multi-sector overlapping generations model is an oligempory with a given number of firms, oligopsonists in the sectoral (spatially differentiated) labour market and oligopolists in the sectoral (homogeneous) output market. When there is aggregate unemployment, and a firm raises wages beyond the local full employment level acquiring labour from neighbours, sectoral output supply becomes constant and the firm faces a flat output demand curve under constant returns to labour (upward sloping under decreasing returns). Multiple temporary equilibria and Pareto-ranked steady-state equilibria emerge; the associated sunspot equilibria exhibit counter-cyclical markups, inter alia. Received: February 28, 2000; revised version: March 16, 2001     

Bottom‐up world climate policies: Preserving fossil fuel deposits vs. capping fuel consumption

The policy of purchasing fossil fuel deposits for preservation is an alternative to the demand‐side climate policies that predominate in practice and in professional studies. This paper analyzes the deposit purchase approach and compares it to the standard demand‐side policy in a model with international trade and non‐cooperative governments that account for the effects of their policies on equilibrium prices. We investigate how the two regimes differ with respect to their equilibrium allocations and, in particular, with respect to the countries’ mitigation effort and welfare. If countries are symmetric, mitigation is stronger in the demand‐side than in the supply‐side regime and the transition from the latter to the former is welfare enhancing for all countries. If countries have different endowments of deposits in a two‐country economy, the country with higher extraction costs does not purchase deposits for preservation, and the country with lower extraction costs is better off with the supply‐side than with the demand‐side policy. Finally, we consider the case of combined policies and find surprisingly that no equilibrium in pure strategies exists, when heterogeneous countries apply both policy instruments.     

Mass media and preferences for redistribution

This paper investigates how mass media potentially act on preferences for redistribution. Our hypothesis is that media contribute to shaping the value system of a person, which affects support for redistribution. A theoretical model is proposed which combines demand- and supply-driven media bias. On the demand side, the model considers two types of individuals: non-partisan, whose values are influenced by the media, and partisan, who have strong opinions not affected by the media. We assume that although partisan individuals prefer unbiased information, they hold beliefs that they like to be confirmed; therefore, they tend to consume media with an ideological position similar to theirs. On the supply side, we focus on interest groups’ pressure on media coverage. Our results suggest that the anti-equality lobby is willing to pay more than the competing lobby. Moreover, we show that media bias is a decreasing function of the advertising revenues and an increasing function of the relative weight of ideology vs pluralism in individuals’ demand for media. Adding a second media outlet reduces the likelihood of media bias but not its extent. Finally, if both lobbies are active, the two outlets’ ideological positions are polarised.     

Exchange rates of oil exporting countries and global oil price shocks: a nonlinear smooth-transition approach

This paper models logistic and exponential smooth transition adjustments of real exchange rates for six major oil-exporting countries in response to different shocks affecting oil prices. The logistic form captures asymmetric and the exponential form symmetric adjustments in regards to positive and negative oil price shocks. We chose oil-exporting countries that do not peg their exchange rates. For most countries, we detect no statistically significant non-linearities for the adjustment process of real exchange rate returns, be they asymmetric or symmetric, in response to oil supply shocks, idiosyncratic oil-market-specific shocks, and speculative oil-market shocks. Exceptions are oil supply shocks in the UK and possibly Brazil, where exchange rates respond nonlinearly, though the effects are symmetric for both countries. On the other hand, global aggregate demand shocks, which are shocks not originating directly in the oil market, have nonlinear asymmetric effects on real exchange rate returns for Canada, Mexico, Norway and Russia, and nonlinear symmetric effects for Brazil and the UK.     

Macroeconomic shocks and stock market returns: the case of Korea

This study examines the effects of macroeconomic shocks on key macro variables, including stock market returns in Korea, using the structural vector autoregression (SVAR) model. We suggest a three-variable SVAR model incorporating inflation, output growth and stock returns. We adopt a nonzero z-ratio restriction for the long-run identifying assumption to allow for economically meaningful relationships among variables. While our results support the negative (positive) relation of demand (supply) shocks to stock returns, we also find that demand shocks influence stock market variance more significantly than supply shocks do. The sub-period analysis finds that global market fluctuations during the global financial crisis have relatively little effect on Korean stock market performance. We also examine a generalized five-variable model that includes the foreign exchange rate and interest rate, confirming the results from the three-variable case.     

Asymmetries in price and quantity adjustments by the competitive firm

Focusing on the crucial role of inventory carry-overs in the production and sales decision, we describe the profit maximizing behavior of a dynamic competitive firm facing random prices. Each firm's behavior is incorporated into a stochastic equilibrium model of the competitive industry with uncertain demand. The industry model exhibits asymmetric cyclical fluctuations of the “Keynesian” sort: when demand is weak, output contracts while price holds at a fixed floor; when demand is strong, price increases as output is constrained by a ceiling. Even in a pure world of constant returns, without increasing costs, the inability to instantaneously coordinate production and sales along with the existence of inventories is sufficient to yield a “backward L” shaped supply curve for the short run.