Variations in risk and fluctuations in demand: A theoretical model

Hassler, John

doi:10.1016/0165-1889(95)00892-6

Cited by 47 publications

(46 citation statements)

References 16 publications

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“…That is, the Cobb-Douglas production function (1) implies that the firm's use of the intermediate factor K is proportional to output Q. Similar to Hassler (1996) we assume that the firm has a target level of intermediates to be held as inventory, denoted by M * , which is proportional to both K and Q. Thus, we can write…”

Section: Inventory and Tradementioning

confidence: 99%

“…Through the proportionality between output and the target level of inventory embedded in equation (3), a shift in q leads to an updated target inventory level m * . Following Hassler (1996) we assume that ε is sufficiently large such that it becomes optimal for the firm to adjust m. 12 That is, a positive shock to output increases m * sufficiently to lead to a negative deviation z that reaches below the lower trigger point s. As a result the firm restocks m. Vice versa, a negative shock reduces m * sufficiently such that z reaches above the upper trigger point and the firm destocks m. 13 Thus, to keep our model tractable we allow the firm to both restock and destock depending on the direction of the shock.…”

Section: Business Conditions With Time-varying Uncertaintymentioning

confidence: 99%

“…We build on Hassler's (1996) In addition, firms face uncertainty over 'business conditions' (in Bloom's terminology), which means they experience unexpected fluctuations in productivity and demand. What's more, the degree of uncertainty varies over time.…”

Section: A Model Of Trade With Uncertainty Shocksmentioning

confidence: 99%

“…9 In our context the target level can be similarly motivated if it is costly for the firm to adjust its level of production up or down. We follow Hassler (1996) in modeling the dynamic inventory problem. In 7 The prices of differentiated manufactured goods in international trade were essentially unchanged during the trade collapse of 2008/09, as documented by Gopinath, Itskhoki, and Neiman (2012).…”

Section: Inventory and Tradementioning

confidence: 99%

“…Following the inventory model with time-varying uncertainty by Hassler (1996), we show that in response to a large uncertainty shock in business conditions, whether to productivity or the demand for final products, firms optimally adjust their inventory policy by cutting their orders of foreign intermediates more strongly than orders for domestic intermediates. In the aggregate, this differential response leads to a bigger contraction and subsequently a stronger recovery in international trade flows than in domestic trade.…”

Section: Introductionmentioning

confidence: 99%

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Trade and Uncertainty

Novy¹,

Taylor²

2014

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We offer a new explanation as to why international trade is so volatile in response to economic shocks. Our approach combines the uncertainty shock idea of Bloom (2009) with a model of international trade, extending the idea to the open economy. Firms import intermediate inputs from home or foreign suppliers, but with higher costs in the latter case. Due to fixed costs of ordering firms hold an inventory of intermediates. We show that in response to an uncertainty shock firms optimally adjust their inventory policy by cutting their orders of foreign intermediates disproportionately strongly. In the aggregate, this response leads to a bigger contraction in international trade flows than in domestic economic activity. We confront the model with newly-compiled monthly aggregate U.S. import data and industrial production data going back to 1962, and also with disaggregated data back to 1989. Our results suggest a tight link between uncertainty and the cyclical behavior of international trade.

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Section: Inventory and Tradementioning

confidence: 99%

Section: Business Conditions With Time-varying Uncertaintymentioning

confidence: 99%

Section: A Model Of Trade With Uncertainty Shocksmentioning

confidence: 99%

Section: Inventory and Tradementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Trade and Uncertainty

Novy¹,

Taylor²

2014

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Anomalies in agricultural trade: A Bayesian classifier approach

Khadka

Gopinath

Batarseh

2023

J of Agr & App Econ Assoc

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This study examines the uncertainty‐agricultural trade nexus. Uncertainty effects on macroeconomic indicators such as consumption and investment have been well studied. However, less is known about the relationship between uncertainty and international trade, particularly the heterogeneity of that linkage across sectors. Application of a novel data‐driven methodology—anomaly detection and classification via a Naïve Bayesian Classifier—to monthly data at the HS‐4 level finds that agricultural imports are reduced when economic policy uncertainty is high. The effects of policy‐related uncertainty are more persistent than that of supply‐side fluctuations. Anticipatory stock‐piling occurred when uncertainty is specific to trade policy.

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New insights into an old issue: modelling the U.S. food prices

Kırıkkaleli

Darbaz

2022

Lett Spat Resour Sci

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The study attempts to add significant outcomes to the U.S. food prices literature by performing a dynamic regression model and a frequency domain causality test to explore the causality and relationships between U.S. food prices, energy prices, economic policy uncertainty, and the value of the U.S. dollar. It is shown that dollar price negatively affects the food price index at both high and low volatility periods. Furthermore, it is presented that there is a permanent long-run causal relationship running from the dollar index to the food price index. The results indicated that there is a significant positive relationship between the energy price index and the food price index. Moreover, energy is found to be a long-run and permanent cause of the food price index. The effect of uncertainty has not been sufficiently explored in the food pricing field, the outcome of this study reveals that uncertainty increases the food price index at high volatility times. Besides, uncertainty is shown to be the long-run and permanent cause of the food price index.

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Variations in risk and fluctuations in demand: A theoretical model

Cited by 47 publications

References 16 publications

Trade and Uncertainty

Trade and Uncertainty

Anomalies in agricultural trade: A Bayesian classifier approach

New insights into an old issue: modelling the U.S. food prices

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