Short- and Long-Term Reaction of European Airlines to Exogenous Demand Shifts

Estimation of negative production impacts of food aid rests heavily on measurement of resulting price changes. Previous studies have assumed an exogenous shift in supply resulting from distribution of the imported commodities but have ignored the income effect on demand. Distribution of food aid commodities to consumers at concessional prices provides an increase in real income and corresponding shift in demand for food. The shift in demand compensates for part of the exogenous shift in supply, reducing the potential impact on domestic prices. Based on market differentiation, the production impact in India is estimated at one tenth of previous estimates.

Australian broadacre agriculture is typified by strong cross-commodity relationships, where sheep and cattle grazing enterprises compete for pasture and both compete with wheat and other crops for land. Further, some commodities produced by multi-product farms are also used in the production of final products that are substitutes in demand, such as beef and lamb. Economic analyses of the beef market, for example, should also include consideration of the market for the related product, lamb. In this paper the effects of exogenous demand and supply shifters on the wholesale-farm price ratio in two closely related industries, beef and lamb, are examined in a Gardner type of model and the effects of excluding consideration of the cross-commodity interactions is measured. Parameter values were chosen based on previous empirical estimates and the judgement of the authors. Due to uncertainty about many of these parameters, a stochastic approach to sensitivity analysis was adopted where an appropriate probability distribution for each of the unknown parameters was chosen and 5,000 values from each of these distributions were drawn to construct estimated frequency distributions of results. It was found that the value for the general equilibrium elasticity of the beef wholesale to farm price ratio with respect to an exogenous demand shift was slightly larger with lamb cross-commodity effects imposed than without. Therefore the inclusion of cross-commodity relationships increases the responsiveness of the beef/cattle price ratio to the demand shift, but only slightly. The results further suggest that the demand and supply cross-price effects are additive rather than counteracting. Therefore incorrectly excluding the cross-commodity effects may result in large errors.

The financialization of commodity markets have become a concern for policy makers and market participants. What was once a market for the hedging of holding physical commodities has expanded to become a market for the diversification of financial assets. When financial assets diversification goals are decoupled from the fundamental factors that affect producers and consumers of physical goods futures markets may not be as efficient in aggregating information concerning the economics of the underlying commodity. Theoretical understanding of whether commodity futures market function well under exogenous shifts in demand for futures contracts depend on our assumptions of how market participants behave, including their level of risk aversion. This paper builds a competitive storage model with an explicit futures market that incorporates irrational shocks to demand for futures contracts. This model is flexible enough to investigate the impact of the financialization of commodity futures markets and the resulting impacts.

I welcome Ari Ben-Shachar's spirited comment on my 1977 paper Demand vs. Supply in the Industrial When I wrote it, over eight years ago, I hoped that the paper would stimulate others to pursue some of the issues which the paper raised. Although Ben-Shachar, regrettably, presents no original research or novel ideas, his comment provides an opportunity to reexamine the demand hypothesis. He flatters me by implicitly assuming that the readers of this JOURNAL are aware of the central argument made by the paper. It seems useful to reiterate briefly the main points before turning to the difficulties raised by Ben-Shachar. I termed the Gilboy thesis the view which claimed that an exogenous shift in demand was a causal factor in the Industrial Revolution. I did not provide an exact definition of the Industrial Revolution, an omission I now regret, because it may have contributed to Ben-Shachar's difficulties.' But under the assumption that most readers were in agreement as to what was meant by the Industrial Revolution, I asked three questions: (1) Was there an exogenous increase in demand for industrial products before and in the early stages of the Industrial Revolution and if so, what caused it and how large was it? (2) Assuming that the answer is yes, could an increase in demand have been a causal factor in the Industrial Revolution, through dynamic effects such as demand-induced technological change, economies of scale and agglomeration, and interfirm external economies? (3) Again assuming that the answer to the first question is yes, could an increase in demand have led to the Industrial Revolution, by bringing into use previously unemployed resources? Now, Ben-Shachar has nothing to say about queries (2) and (3) concentrating his criticism on Part I of the paper, which was an exercise in comparative statics.2 He claims that I dismiss Gilboy's argument simply by ignoring To the contrary, what I tried to do was to leave no stone unturned in giving the demand hypothesis every possible economic interpretation, howeVer fuzzily some of its proponents may have expressed it. I therefore may have gone too far in attributing to Gilboy's paper ideas that were not really there.3 Ben-Shachar's main complaint, however, seems

Three distinct but related markets ñ the market for space, the capital market and the market for physical assets ñ contribute jointly to commercial property performance. Typically supply and demand in each of these markets is analyzed in isolation. A simple graphical analysis, similar in construction to the DiPasquale-Wheaton (DW) model that links real estate and real assets, is proposed that illustrates how the three markets inter-relate. Apparently contradictory trends, such as tightening yields at a time when vacancy rates are rising, or a boom in construction activity at a time when rents are falling, can be reconciled if the three markets are analyzed as an integrated whole. The analysis appeals to a production function for production, rather than short run supply constraints as in the DW model, to achieve equilibrium. The benefit of this approach is the new insights that are offered into the economic drivers of expansion and refurbishment for existing assets, which are a prominent feature of many property markets at present, as well as the key role of site-value ratios in determining equilibrium conditions and investment returns. With the increasing popularity of the Four Quadrant model for investment in real estate markets, a framework for describing how these markets are related has obvious expository applications to investment advisors and their customers. An integrated analysis is helpful at a time when commercial property in many countries is characterized by high levels of construction activity and refurbishment, falling yields and where the fundamental cost of capital, as measured by the long-term inflation-indexed bond yield, in several markets, such as the UK and Australia, has recently hit all-time lows. Firstly, the market for commercial space has been widely analyzed. The demand for commercial space is typically determined as a lagged response to economic variables such as employment, consumer spending or population growth. The supply of space can be regarded as fixed in the short run, though the lagged supply response to rental growth can display high elasticity. Secondly, and quite independently, the capital market determines the discount rate that the market will apply to the future rental stream of each asset. Typically the capital asset pricing model (CAPM) is employed to determine the cost of capital which sets the required rate of return on investment. Thirdly, the market for physical assets (hereafter, ìassetsî) is determined by construction costs and land values. Land value reflects the quasi-monopoly element in location. Land value is the adjusting factor that brings the construction cost of the asset (including developerís ìprofitî) into line with the discounted cash flow from the expected future rental stream. An exogenous shift in demand for space, or, quite independently, fluctuations in the cost of capital can each lead to disequilibrium in the market for assets, stimulating or deterring construction activity. For example, a reduction in the required rate of return, as defined by CAPM, can lead to a rise in property values and stimulate construction even though the demand for space is simultaneously declining. Property values can rise, and construction may be stimulated, even though rents are falling. The accuracy of prediction of future trends in each of the three markets, as well as overall investment returns for commercial property, is likely to be enhanced from analysis, or at least explicit acknowledgement, of the inter-relationships between the markets for space, capital and physical assets.

A policy reform such as trade liberalisation can accelerate structural change in an economy, causing an exogenous shift in relative factor demands. For some developing countries, the result may be an increase in skills demand associated with the adoption of newly available foreign technology and lower-cost imported capital goods. This demand shift may be permanent or only temporary, but in either case the skills supply should eventually increase in response to higher returns. One concern, however, is that with an initially highly skewed distribution of education the skilled labour supply adjustment may be prolonged; likewise any transitional increase in skill-based wage inequality.

Under conventional neoclassical analysis the labour market is in equilibrium when the real wage rate is such that the demand for labour equals the supply of labour and the market clears. This equilibrium is consistent with full employment in that nobody willing to work at the equilibrium wage will remain unemployed. If there is an exogenous shift in either demand or supply then the real wage rate will adjust to eliminate any excess demand for, or supply of, labour.

This paper evaluates the contribution of housing policy in Singapore to financial sector development, housing wealth formation and macro-economic performance, both retrospectively and prospectively. It provides an overview of past housing policies and traces the linkages to the financial sector. Housing policy as effected through the Housing and Development Board and the Central Provident Fund (CPF) hampered the development of the commercial housing loans sector and domestic financial markets, but contributed to the overall growth and stability of the housing loans market and associated financial institutions. Housing policy and the trend of housing asset inflation contributed significantly to the formation of both gross and net housing wealth. Economic growth has not suffered from the heavy emphasis on housing investment although various policies that resulted in exogenous shifts in housing demand contributed to increased housing price volatility in the short term. The structure of the housing loans market has also allowed the CPF contribution rate to be more effectively used as an instrument for macro-economic stabilisation.

We test whether foreign demand matters for local house prices in the US using an identification strategy based on the existence of 'home bias abroad' in international real estate markets. Following an extreme political crisis event abroad, a proxy for a strong and exogenous shift in foreign demand, we show that house prices rise disproportionately more in neighbourhoods with a high concentration of population originating from the crisis country. This effect is strong, persistent, and robust to the exclusion of major cities. We also show that areas that were already expensive in the late 1990s have experienced the strongest foreign demand shocks and the biggest drop in affordability between 2000 and 2017. Our findings suggest a non-trivial causal effect of foreign demand shocks on local house prices over the last 20 years, especially in neighbourhoods that were already rather unaffordable for the median household.

A paradigmatic developing suburb, Acton, Massachusetts, was zoned in 1955 to produce a community of 45,000 people. In 2010, Acton had about 23,000 people and is unlikely to grow much more. I develop a simple model in the Tiebout (1956) tradition to explain why Boston's suburbs, and by extension, most suburbs, have adopted land-use regulations that are arguably too restrictive. The baseline model is that of a single developer who owns all the land in a community and commits herself to a master plan. Private covenants assure that the community will be fully developed, and competition among community developers creates at least locally optimal densities. This outcome is contrasted with a model in which undeveloped land is owned by many developers, who must coordinate their land-use decisions by way of public zoning. Their initial zoning plan is disciplined by the wariness of prospective homebuyers, who decline to buy homes in towns without zoning. New homeowners, however, realize that developer control of zoning could lead to changes that will result in excessive density. As enough of them arrive, they take over the reins of zoning to avoid overdevelopment. In a stable housing market, I show that a system by which all homeowners pay for community services by property taxes plus exactions or impact fees for later, higher-cost development leads to the same optimal outcome as a private developer. Finally, I argue that an exogenous shift in housing demand, such as that caused by unexpected inflation in the 1970s, and the (perhaps endogenous) adoption of extra-municipal regulations, is apt to cause all zoned communities to adopt additional restrictions. These can be modeled as if the town acquired a monopoly on development rights because other towns simultaneously limit growth. Acton and all of Boston's suburbs and those of other high-productivity metropolitan areas end up with populations that are arguably too small and housing prices that are too high.

We investigate how cooperative firms reacted to the current crisis. This allows us to compare the behavior of cooperative and conventional firms facing exogenous shifts in demand. After a short survey of a stream of theoretical literature, we analyze a large group of Italian production cooperatives in the periods 2003-2010 and 1994-2011 and we contrast co-ops behavior with the overall trend in the industries in which they operate. Our sample’s evidence suggests that the cooperative’s behavior has a stabilizing effect on employment with respect to shocks in output demand. Unlike profit-maximizers, cooperative firms seem to be adjusting pay more than employment when facing shocks. Production co-ops look better equipped than their profit-maximizing counterparts in tackling the long recession also because they have been very cautious in their profit policies over time. Unlike conventional firms, they have significantly increased their own equity during “good” years instead of distributing large dividends to their members.

We study the relation between access to finance and productivity. Our contribution to the literature is a clean identification of a causal effect of access to finance on productivity. Specifically, we exploit an exogenous shift in demand for a product to expose how producers adapt their productivity in the presence of varying levels of access to finance. We use a triple differences testing approach and find that production increases the most over the sample period in areas with relatively strong access to finance, even in comparison to a control group. This result is statistically significant, and robust to a variety of controls, alternative variables, and tests. The causal effect of access to finance on productivity that we find speaks to the larger role of finance in economic growth.

THIS paper uses the Capital Asset Pricing Model (CAPM) to examine the joint price (quantity)-advertising decision for the monopolist under uncertainty. A generalized form of uncertainty is treated where the variability of sales volume (price) depends on the price (quantity)-advertising decision in a flexible manner. In contrast, previous models (Horowitz [6] and Dehez and Jacquemin [3]) assume that uncertainty is exogenous. The Dorfman-Steiner Theorem is generalized to the uncertainty case and the comparative statics properties of the model explored. Specifically, the results are shown to depend on: (a) the precise form in which uncertainty enters the random demand function; (b) the relationship between the risk-adjusted price (quantity) elasticity of demand and advertising, and (c) the covariance of the random cash flow with the random rate of return of the market portfolio. Unambiguous results are obtained in all cases for the additive and multiplicative uncertainty models. For the generalized uncertainty case, unambiguous results are obtained for exogenous shifts in demand. Determinate results are obtained for general changes in risk if the variance of sales volume (price) increases with price (sales volume).

Recent years have seen large increases in the prices of houses, farm products, and oil, often with little clear connection to economic fundamentals. These price increases created plausibly exogenous shifts in demand for construction, farm, and mining machinery. This paper uses these demand shifts to estimate the elasticity of machinery supply. Graphical evidence, OLS, and IV estimates all indicate that the quantity of machinery supplied increased rapidly during the booms, with only modest increases in prices. Pooled sample estimates of the supply elasticity are around 5, much larger than the estimate of 1 from Goolsbee (1998). Results thus suggest that public policies that stimulate investment demand will have only modest effects on the prices of investment goods.

The paper offers an explanation for temporal price dispersion. Temporal price dispersion in the model is due neither to exogenous shifts in demand nor to price discrimination motives as shown in other papers. In this paper the explanation relies on peak‐load pricing. In the model presented, consumers decide to purchase a given product in a certain time period according to the satisfaction they derive from the product at that time and to the prices and number of customers they expect at each firm and period. The demand in each period is controlled by sellers through prices. By offering different prices in different periods, sellers motivate consumers to spread themselves across periods in a profitable way. Therefore, the demand and price in each time period is determined endogeneously.