Changes In Relative Prices Research Articles

Dynamic lot-sizing models with pricing for new products

While previous dynamic lot-sizing (DLS) models mainly consider mature products, this study analyzes production planning decisions for new products. The demand dynamics caused by new product diffusion complicate production decisions for new products. We integrate DLS and discrete Bass models to provide optimal decisions for pricing and production planning problems. Moreover, we study the joint influence of product diffusion and pricing parameters on the DLS decisions. This leads to the following insights. First, coordinated production-pricing and dynamic pricing improve profitability. Second, the optimal pricing strategy is affected by market conditions. The penetration pricing strategy outperforms the skimming pricing strategy when consumers are less sensitive to relative price changes than to the introductory price, when the product diffuses slowly, or when the consumer initiative level is low. Otherwise, the latter outperforms the former. Finally, pricing strategies and product diffusion patterns reshape the cost structure of a firm. Coordinated decisions and dynamic pricing strategy substantially reduce the cost-revenue ratio, whereas an increase in the consumer initiative level or product diffusion speed can improve cost efficiency.

Industrial Research and Development and Real Exchange Rate Depreciation in a Small Open Economy

To examine how changes in relative national prices affect innovation input, this paper studies the impact of changes in industry-specific real exchange rates on manufacturing R&D in a small open economy. For this purpose I introduce a partial equilibrium model of R&D investment. Under some regularity conditions about pass-through elasticities, the model predicts that an increase in price competitiveness may adversely affect the R&D expenditures of a representative firm. Employing dynamic panel data estimation techniques, I use industry-level observations from Korea to test the predictions of the model. The results reveal that a lagged depreciation in the effective real exchange rate has a negative impact on current industrial R&D expenditures. Particularly, this adverse effect is evident among highly concentrated industries with high export shares, which are expected to have relatively low pass-through elasticities.

Determinants of Short Interest Trading

Short selling is an investing strategy growing in importance, but with detractors who fear that the strategy can disrupt markets. Despite the volume of research on the effects of short selling, very little work has sought to understand the factors that determine the amount of short selling. This article explores which factors best explain the amount of shorting activity. The authors introduce a new variable that measures the relative price change in a company’s equity. Using NASDAQ company level data for the period from 2007 to 2013, they test the importance of volume, percentage price change, and relative price change to explain the number of shares shorted. All three variables are significant determinants of shorting activity. A large enough increase in industry prices may negate the effect of the increase in a company’s own share price on short-selling activities. If the average industry price change is larger than the change in the company’s share price, short sellers are less attracted to the company. Trifurcation (into high, medium, and low values) of the three primary independent variables yielded additional information on their effects on shorting activities. The authors find size-related monotonic relationships between two of their three primary variables and short selling—volume compared with shares outstanding and percentage price change. Relative price change does not support a monotonic relationship, but the differences between the subcategories are small. They also test the importance on short-selling activities of the rate of change in the overall NASDAQ market. High and low rates of change in overall NASDAQ prices do not affect short selling, but the middle range with a flat market reveals an increase in short selling. Flat markets appear to be the short-sellers’ sweet spot.

The International Business Cycle as Intertemporal Coordination Failure

Where investments are irreversible and future uncertain, people in two countries can make investment decisions that turn out to be mutually inconsistent. I argue that this intertemporal coordination failure explains international business cycles in a two-currency-area setting. The sequence of events starts with a domestic expansionary monetary shock, which decreases the domestic real interest rate. Facing low transactions costs, people spend the new money relatively early in the foreign exchange market and in the foreign market for loanable funds. Domestic monetary expansion thereby changes the relative prices of domestic and foreign goods and also of goods of earlier and later stages of production. The relative price changes lead to intertemporal and international coordination failures once the monetary expansion ends and relative prices change. Domestic monetary policy thereby causes the comovement we observe of business cycles across different currency areas.

The international business cycle as intertemporal coordination failure

Where investments are irreversible and the future is uncertain, people in two countries can make investment decisions that turn out to be mutually inconsistent. I argue that this intertemporal coordination failure explains international business cycles in a two-currency-area setting with a floating foreign exchange rate. The sequence of events starts with an expansionary domestic monetary shock, which decreases the domestic real interest rate. Facing low transactions costs, people spend the new money relatively early in the foreign exchange market and in the foreign market for loanable funds. Domestic monetary expansion thereby changes the relative prices of domestic and foreign goods and also of goods of earlier and later stages of production. The relative price changes lead to intertemporal and international coordination failures once the monetary expansion ends and relative prices change. Domestic monetary policy thereby causes the comovement across different currency areas we observe of business cycles.

Trends and patterns in the triple burden of malnutrition in India

AbstractThis paper brings together recent evidence on what has come to be referred to as the triple burden of malnutrition—consisting of overnutrition, undernutriton, and micronutrient deficiencies—using various anthropometric, biochemical, and diet quality indicators, and juxtaposing these against changes in relative prices. The evidence points to the rapid emergence of overweight as a public health problem, widespread not only in urban, but also in rural areas; associated noncommunicable diseases are also on the rise. Over time, while most indicators of undernutrition have improved, magnitudes are nonetheless high; a persistent problem is anemia, the prevalence of which remains high and unchanged. As for food, more than quantity, it is its quality that appears to be correlated with malnutrition. Yet improvements in diet quality have not been high, and micronutrient intakes remain low. It has become increasingly difficult for the poor to have a diet rich in vegetables, dairy and meat, as their prices (per unit calorie), relative to cereals, have risen faster than for the rich.

Imported inputs, irreversibility, and international trade dynamics

In aggregate data, international trade volumes adjust slowly in response to relative price changes, an observation at odds with static models. This paper develops a model of trade in intermediate inputs in which heterogeneous producers face irreversibilities in adjusting their importing status. Changes in aggregate imports are accounted for by adjustment within importing plants, through reallocation between non-importers and importers, and through changes in the importing decisions of new and existing plants. When calibrated to Chilean plant-level data, the model shows that irreversibilities are important for generating aggregate and plant-level dynamics of trade flows in line with the data. In response to a permanent trade reform, increased importing at existing plants crowds out entry, raising consumption above its long-run level, and leading to welfare gains larger than a static model would imply.

Changes in edible oil preference and present-day consumption status of households : A case of Tamil Nadu state, India

Traditionally, in India, a variety of edible oils are used for consumption. The type of edible oil being consumed varied across regions. While one region prefers rapeseed-mustard oil, the other region enjoys peanut, sesame and coconut oils. On the whole, rapeseed and mustard oil and peanut oil are the most popularly consumed edible oils in the country. In the study state, Tamil Nadu, the foremost edible oil consumed is peanut oil besides other oils. The technological, economic and policy changes after liberalization induced drastic changes in consumer's preference for food including edible oils. The Markov Chain Analysis for rural and urban Tamil Nadu revealed that there is a perceptible shift in edible oil consumption from traditional peanut oil to Other Edible Oils (OEO's). The possible reason for these shifts are increased urbanization and changing lifestyles, increased awareness, availability of oils in loose pack form in varied quantities available even in remote areas, change in relative prices of oils, and increased income levels ofrural and urban households. The secondary data published byNational Sample SurveyOrganisation for Tamil Nadu state did not clearly disintegrate the OEO's, primary survey was employed for this study. The results based on 1000 households revealed that the dominant edible oil consumed was non-traditional sunflower oil in both rural and urban regions. The per capita consumption of edible oils was also higher in recent years indicating higher consumption demand. The results from this study affirm that peanut oil, which was traditionally consumed by households as first preference, has been replaced by non-traditional oils like sunflower oil owing to various macroeconomic factors like price, cost of cultivation and imports. The change call for more concerted efforts to supply these non-traditional oils in the future as the demand were expected to be high. Further, it also implies need for increasing the capacities of edible oil industries as the overall consumption of edible oil is increasing over years. This study highlights the need for suitable policy options for edible oil processing and marketing specifically for sunflower oil besides traditional oils and trade on edible oils.

Energy demand, substitution and environmental taxation: An econometric analysis of eight subsectors of the Danish economy

This research contains an econometric analysis of energy demand in trade and industry which allows for substitution between electricity and other energy carriers when relative prices change. The presence of substitution suggests that taxation can be a means of changing the energy input mix in a more environmental-friendly direction. For eight subsectors of the Danish economy, time series (1966–2011) are modeled by means of partial Cointegrated VARs. Long-run demand relations are identified for all subsectors and robust price elasticities are supported in five cases. The results are used in a small impulse–response experiment which suggests a potential for taxation to induce substitution of electricity for fossil-based energy.

LABOR SUPPLY ESTIMATION BIASES FROM DISREGARDING NONWAGE BENEFITS

Labor supply models and research underpinned by labor supply decisions often assume that workers' choices are functions of wage and wage offers. However, the literature shows evidence that such decisions at least partly depend on nonwage benefits encompassed in jobs and occupations. In this paper, I develop and estimate a stochastic dynamic model of occupation and job choice, where nonwage benefits are directly incorporated into the decision alongside wages (a full model). Nested within the full model is a wage model, which represents the common practice in the literature of basing selection solely on wages and disregarding nonwage benefits. I separately estimate the full model and the nested wage model to compare the implications (biases) of omitting nonwage benefits. I compare the two models' estimates of elasticities and an inequality reduction intervention policy. I find that disregarding nonwage benefits generally causes biases. There are cases when the two models predict very similar outcomes and have close estimates, such as in occupation‐specific elasticities and job transition elasticities. But these special cases are products of canceling biases. In most cases, ignoring nonwage benefits will bias estimates by overestimating the importance of wage in the selection process and by disregarding changes in relative prices between wage and nonwage benefits. (JEL J20, J32, D91)

Decarbonising the energy intensive basic materials industry through electrification – Implications for future EU electricity demand

The need for deep decarbonisation in the energy intensive basic materials industry is increasingly recognised. In light of the vast future potential for renewable electricity the implications of electrifying the production of basic materials in the European Union is explored in a what-if thought-experiment. Production of steel, cement, glass, lime, petrochemicals, chlorine and ammonia required 125 TW-hours of electricity and 851 TW-hours of fossil fuels for energetic purposes and 671 TW-hours of fossil fuels as feedstock in 2010. The resulting carbon dioxide emissions were equivalent to 9% of total greenhouse gas emissions in EU28. A complete shift of the energy demand as well as the resource base of feedstocks to electricity would result in an electricity demand of 1713 TW-hours about 1200 TW-hours of which would be for producing hydrogen and hydrocarbons for feedstock and energy purposes. With increased material efficiency and some share of bio-based materials and biofuels the electricity demand can be much lower. Our analysis suggest that electrification of basic materials production is technically possible but could have major implications on how the industry and the electric systems interact. It also entails substantial changes in relative prices for electricity and hydrocarbon fuels.

Evidence on Orcutt's hypothesis using Turkish–US commodity trade

ABSTRACTMany of the studies that have tested the Orcutt's hypothesis in trade have used aggregate trade data between one country and rest of the world. Since these studies suffer from aggregation bias, three recent studies have employed data at commodity level and have found relatively more support for the hypothesis. In this paper we test the hypothesis using commodity level data from 54 industries that trade between Turkey and the US. We find support for the notion that trade flows respond to exchange rate changes faster than to relative price changes in one-third of the industries, supporting Orcutt's conjecture.

Labor Supply Estimation Biases from Disregarding Non-Wage Benefits

Labor supply models and research underpinned by labor supply decisions typically assume the agents’ choices are functions of wage and wage offers. However, there is evidence that these selections are not only wage-driven, but at least in part depend on non-wage benefits encompassed in jobs and occupations. In this paper, I develop and estimate a stochastic dynamic model of occupational and job choice, where non-wage benefits are directly incorporated into the decision alongside wages. A nested model within this is a wage model, representing common practice in the literature, where non-wage benefits are disregarded. I separately estimate the full model and the nested wage model in order to compare the implications of omitting non-wage benefits. Three analyses are compared: elasticities, economy-wide structural changes in occupations, and inequality reduction intervention policies. I find that while disregarding non-wage benefits generally causes biases, there are cases when the two models predict very similar outcomes and have close estimates, such as in occupational-specific elasticities and job transition elasticities. However, I demonstrate that these special cases are products of canceling biases, and that the same estimates on subpopulations are biased. These results suggest that in most cases, ignoring non-wage benefits will bias estimates by overestimating the importance of wage in the selection process (and so any intervention or change in wages will be over-emphasized) and by disregarding changes in relative prices between wage and non-wage benefits, such as happens through changes in wage taxes or in non-wage benefits. These biases can be severe. The results suggest that ignoring non-wage benefits in labor supply decisions is appropriate only in the special case in which subpopulation biases negate each other, which is atypical.

Contributions of Productivity and Relative Price Changes to Farm‐level Profitability Change

AbstractThis article investigates the sources of profitability change at the farm level, by farm size and specialization, with an application to a sample of 256 farms in Kansas from 1993 to 2010. Using the Lowe index method, profitability change is decomposed into changes in total factor productivity and terms of trade. The nonparametric data envelopment analysis method is used to further decompose total factor productivity into technical change and different measures of output‐oriented efficiency change. Finally, the system‐Generalized Methods of Moments approach is employed to investigate the dynamic relationship between different components of productivity on farm profitability. Results indicate that profitability change is mainly driven by total factor productivity change. The main source of total factor productivity change is technical change. The upward‐shifting frontier results in declining technical efficiency. Results point towards the need to support research and development without ignoring efforts to encourage the uptake of existing technologies.

Pseudo panel data estimation technique and rational addiction model: an analysis of cigarette, alcohol and coffee demands

AbstractWe use a pseudo‐panel data approach to analyze the relationship between the consumptions of cigarettes, alcohol, and coffee in a rational addiction framework. We find that while cigarette and coffee demands fit well with the rational addiction model, alcohol demand conforms to a model with inventory effects. The results suggest that alcohol consumption increases the marginal utility derived from consumption of cigarettes. Increasing alcohol prices would decrease not only the consumption of alcohol, but also the consumption of cigarettes. On the other hand, increasing cigarette prices do not have the same effect on consumption of alcohol. The cross‐price elasticity of coffee with respect to cigarette price is positive and significant which suggests that coffee substitutes for cigarettes when cigarette prices increase. The cross‐price elasticity of alcohol with respect to coffee price is found to be negative and significant. On the other hand, Morishima elasticities of substitution indicate that cigarette, alcohol and coffee substitute each other along the indifference curve when relative prices change.

DO FOREIGN AID AND REMITTANCE INFLOWS HURT COMPETITIVENESS OF EXPORTS OF PACIFIC ISLAND COUNTRIES? AN EMPIRICAL STUDY OF FIJI

(ProQuest: ... denotes formulae omitted.)1. INTRODUCTIONSince their independence in the second half of the last century, the Pacific island countries (PICs)1 have been receiving generous foreign aid. Besides supplementing domestic savings, they have been adding to real resources of PICs, as they are in foreign exchange. In recent years, steadily rising inward remittances sent by migrant islanders residing and working in Australia, New Zealand, United States and Europe, have exceeded aid inflows. Aid and remittance flows into PICs have been observed to be relatively more stable and larger in terms of percentages of gross domestic product (GDP) when compared to those of other developing countries.Expectedly, they have been raising concerns whether these inflows are hurting the export competitiveness of the island nations, a phenomenon known as Dutch disease,2 which seems to be responsible for continuing stagnation in export earnings as reflected in their ratios to respective GDPs of the concerned PICs, and generally decreasing trend in export growth rates. Decline in export competiveness is associated with appreciation of currencies, which is identified as one of the side effects of capital inflows.There are a number of publications on PICs, beginning from the path breaking sixvolume study conducted by Hilarian Codipilly of World Bank (1993), which pointed out to the Pacific paradox of plentiful aid with no growth, by attributing to the ineffective use of aid, studies by IMF including Browne (2006) and Avalos (2013) of UN ESCAP (2013). These studies hinted at the possibility of Dutch Disease. However, there has been no definitive empirical study. Most of the empirical studies undertaken so far have been cross-sectional studies employing panel data. They came invariably to an identical conclusion that the results obtained were of ambiguous nature and that occurrence of a Dutch disease was conjectural. These empirical studies include Fielding (2007a, 2007b, 2010), Brown (2008).The reason behind the ambiguous nature of results appears to be due to inadequacies. In the first place, the period studied for countries included in the panel was short; the number of variables chosen for study did not go beyond exchange rate, aid and remittances and inflation, since data on other contingent factors influencing growth process were not available for the same period for all countries concerned. To the best of knowledge of the authors, there is no study undertaken so far of any specific PIC in this regard. This paper seeks to fill the gap by taking up Fiji, which among all PICs, has a fairly longer database offering sufficient scope for an intensive study by focusing on contingent factors as well.The paper is organized on the following lines: whilst the next section presents a brief summary of the literature on the Dutch disease; the third section reviews the trends in aid and remittance inflows received by PICs in general and Fiji in particular; the fourth section outlines the methodology adopted for the empirical investigation; the fifth section reports the results; and the last section presents conclusions with policy implications.2. A BRIEF REVIEW OF LITERATURE ON DUTCH DISEASEOne of the earliest contributions to the literature on the impact of steady inflows of aid was that of Professor Corden (1984). Focusing attention on the effect of capital inflows on domestic relative prices and output, Corden (1984) called the small states as price takers, since prices of all traded goods are fixed in world markets. Therefore, increase in domestic expenditure would result only in the rise of the prices of goods that are not internationally traded. The resultant relative price change would lead to a change in the composition of output, with the traded goods sector contracting. The aggregate output falls, justifying the description of the relative price effect as 'Dutch disease'.Fielding (2007a) explains that in the basic Dutch disease model, the nature of the exchange rate regime makes little difference to the effects of an increase in foreign exchange income. …

An innovative approach to food security policy in developing countries

The article describes and analyzes the innovative concept of food security policy and presents theoretical microeconomic model of food security by Abdulai (2000) that explains individuals’ demand for food ingredients. The literature review involves both direct and indirect policy measures that ensure food security in developing countries. These policies involve direct interventions involving structural changes in relative prices and targeted food subsidies, and indirect measures such as improving agricultural infrastructure, the general economic environment, and providing farmers with new farm technologies to increase food production. The manuscript shows the efforts several food security policy researchers have put to examine policy options and their impacts on food security.

An Investigation into the Price, Exchange Rates and Export Movements in Selected Countries and Policy Implications for India

Background/Objectives: Export competitiveness of an economy is determined by exchange rate and price level movements. This paper endeavors to analyze relative price and exchange rate movements in selected Asian countries visa- vis India and theirimplications for trade policy. Methods/Statistical analysis: The trends in changes in relative prices, exchange rates and trade are analyzed for years 1993, 2003 and 2013. Unit value index for exports is used to calculate relative price ratios. The relative prices and exchange rates are calculated using simple mathematical equations. Then, the price ratios and exchange rates are compared with export and imports movements of each country vis-a-vis another to assess effects of these movements on trade competitiveness. Findings: The study elucidates thatthe greater the increase in the exchange rate than the increase in the relative price level, the beneficial it is for a country to trade with another country. India’s exports to selected five countries reflected an upward trend whenever the depreciation of currency was greater that the upward movements in the price levels. An analysis of percentage changes in price and exchange rates and growth rates of exports and imports also reflects that India experienced a slow growth in exports in all those years when price rise was not compensated equally by exchange rate depreciations.It also indicates that whenever the price rise was compensated by the equivalent or greater depreciation of currency, there was surplus in trade with the competing country. These findings are in tune with fundamental macroeconomic theory of exchange rates and price movements. This analysis clearly indicates that unlike other competing economies India lacks active policy interventions that will help in enhancing export competitiveness through precise exchange rate movements. Applications/Improvements: The study puts forward a strong case in favor of an exchange rate policy that brings about the movements in exchange rate in such a manner as to compensate for the changing price level in India.

Revisiting Environmental Kuznets Curves through the energy price lens

The goal of this paper is to provide new insights to elucidate the inconclusive results from the Environmental Kuznets Curve (EKC) empirical literature. For the first time in empirical literature, an econometric analysis includes the relative prices for several energy sources. The paper provides strong evidence on the relevance of energy prices to CO2 emissions. Accordingly, one reason for the lack of agreement in the EKC literature may be the absence of energy prices in empirical exercises. The presence of relative energy price changes in the econometric specification confirms a monotonic and positive relationship between CO2 and gross domestic product (GDP). Therefore, we may conclude that there is a decoupling process but without reaching any turning point on that relationship. The policy implications are straightforward. Direct climate action by policy makers is required to break the positive relationship between CO2 and GDP. That conclusion has been reinforced by the reduction of energy prices since the middle of 2014. Otherwise, the trend in energy prices may reverse the relative decarbonisation processes accounted for in recent years in major developed countries.

Intertemporal propensity to consume

Cross-sectionally estimated Engel curves tend to exhibit shapes that imply ultimately decreasing marginal propensities to consume as income rises. This suggests at first sight a tendency to slow down in private consumption. This tendency has to be reconsidered taking into account the fact that Engel curves usually shift significantly over time. We introduce the notion of “intertemporal propensity to consume” to shed more light on the drivers and patterns of the evolution of Engel curves. Using this notion, we are able to identify and measure the direction of the expansion path of consumption as time goes by, while controlling for household characteristics and price levels. Using German household data, we show that, over time, the intertemporal propensity to consume systematically offsets the consumption paths implied by the marginal propensity to consume that is derived cross-sectionally at one point in time. We claim that this difference between marginal and intertemporal propensity to consume should be ascribed to variations in the socioeconomic structures that occur over time and that may be linked both to the supply side (innovation and technical change) and the demand side (learning dynamics of consumers). We also show that changes in relative prices play a minor role in the evolution of Engel curves.