Supply Shifters Research Articles

Factors Determining the Average Price Level: A Combined Microeconomic and Macroeconomic Approach

We analyze various determinants of the average price level using a strictly mathematical approach. Starting with the microeconomic perspective, we review the effect of demand shifters such as consumer income and the level of advertising on the average price level in a simple partial market equilibrium model. Then, we discuss the effect of supply shifters such as the exogenous tax level, worker wage, rental rate, and technology. We use implicit differentiation and Jacobian determinants. While government spending triggers inflation, taxes have the opposite effect. This is consistent with Keynesian theory. Money supply increases national income and prices while reducing the equilibrium interest rate. Therefore, money supply has pro-inflationary effects. The effect of money demand is the opposite—it increases the equilibrium interest rate, thereby lowering national income and prices. Augmenting the model to the level of international trade, we find that exports raise national income, the interest rate, and the average price level, while the effect of imports is just the opposite. Government spending raises the exchange rate while continuous inflation lowers it.

How do family doctors respond to reduced waiting times for cancer diagnosis in secondary care?

Reducing waiting times is a priority in public health systems. Efforts of healthcare providers to shorten waiting times could be negated if they simultaneously induce substantial increases in demand. However, separating out the effects of changes in supply and demand on waiting times requires an exogenous change in one element. We examine the impact of a pilot programme in some English hospitals to shorten waiting times for urgent diagnosis of suspected cancer on family doctors’ referrals. We examine referrals from 6,666 family doctor partnerships to 145 hospitals between 1st April 2012 and 31st March 2019. Five hospitals piloted shorter waiting times initiatives in 2017. Using continuous difference-in-differences regression, we exploit the pilot as a ‘supply shifter’ to estimate the effect of waiting times on referral volumes for two suspected cancer types: bowel and lung. The proportion of referred patients breaching two-week waiting times targets for suspected bowel cancer fell by 3.9 percentage points in pilot hospitals in response to the policy, from a baseline of 4.8%. Family doctors exposed to the pilot increased their referrals (demand) by 10.8%. However, the pilot was not successful for lung cancer, with some evidence that waiting times increased, and a corresponding reduction in referrals of −10.5%. Family doctor referrals for suspected cancer are responsive at the margin to waiting times. Healthcare providers may struggle to achieve long-term reductions in waiting times if supply-side improvements are offset by increases in demand.

Nonprofit behavior altered by monetary donations: evidence from the U.S. hospice industry.

This study investigates whether reliance on monetary donations alters nonprofit firms' behaviors. Specifically, in the hospice industry, a shorter patients' length of stay (LOS) speeds up overall patient turnover, allowing a hospice to serve more patients and expand its donation network. We measure hospices' donation reliance using the donation-revenue ratio, which indicates the importance of donations for revenue structure. By exploiting the supply shifter of donation, we adopt the number of donors as an instrument to control for the potential endogeneity issue. Our result suggests that a one-percentage-point increase in the donation-revenue ratio decreases patient LOS by 8%. Hospices that are more reliant on donations serve patients diagnosed with diseases that have shorter life expectancies to achieve a lower average LOS of all patients' stay. Overall, we find that monetary donations alter the behavior of nonprofit organizations.

Gravity channels in trade

Gravity variables such as distance, adjacency, colony, free trade agreements or language are used to capture the effects of trade costs in empirical studies. By using actual data on trade costs, this paper decomposes the overall effects of such variables on trade into those through three gravity channels: duties/tariffs (DC), transportation-costs (TC), and dyadic-preferences (PC). As opposed to the existing literature where gravity variables act like supply shifters (through DC and TC), this paper empirically shows that they act like demand shifters (through PC). Regarding policy, it is implied that welfare-improving globalization cannot be achieved only through reductions in direct costs such as duties/tariffs or transportation costs; it is rather the globalization itself that should be promoted in order to shift the preferences of destination countries toward international products and thus reduce indirect trade costs. The results are further connected to several existing discussions in the literature, such as welfare gains from trade and the distance puzzle.

The association between bed occupancy rates and hospital quality in the English National Health Service

We study whether hospitals that exhibit systematically higher bed occupancy rates are associated with lower quality in England over 2010/11–2017/18. We develop an economic conceptual framework to guide our empirical analysis and run regressions to inform possible policy interventions. First, we run a pooled OLS regression to test if high bed occupancy is associated with, and therefore acts as a signal of, lower quality, which could trigger additional regulation. Second, we test whether this association is explained by exogenous demand–supply factors such as potential demand, and unavoidable costs. Third, we include determinants of bed occupancy (beds, length of stay, and volume) that might be associated with quality directly, rather than indirectly through bed occupancy. Last, we use a within-between random-effects specification to decompose these associations into those due to variations in characteristics between hospitals and variations within hospitals. We find that bed occupancy rates are positively associated with overall and surgical mortality, negatively associated with patient-reported health gains, but not associated with other indicators. These results are robust to controlling for demand–supply shifters, beds, and volume. The associations reduce by 12%-25% after controlling for length of stay in most cases and are explained by variations in bed occupancy between hospitals.

Markups and Financial Shocks

Abstract This paper analyses the impact of financial frictions on markup adjustments at the firm level. We use a rich panel data set that matches information on banking relationships with firm-level data. By relying on insights from recent contributions in the literature, we obtain exogenous credit supply shifters and markups that are both firm specific and time varying. We uncover new findings at this level. In particular, firms more exposed to liquidity risks tend to raise markups in response to negative bank-loan supply shocks, while less exposed firms generally reduce them. Further empirical analyses suggest that our findings are mostly consistent with models featuring a sticky customer base, where financially constrained firms have an incentive to raise markups in order to sustain liquidity without losing too many customers. Our results have important economic implications regarding the cyclicality of the aggregate markup.

To Mine or to Trade? An Empirical Study of Bitcoin Exchange and Mining Markets

Problem Definition: The recent upsurge in Bitcoin prices has raised interest in the investment of Bitcoin. However, faced with the investment options of mining and trading, the behavior of investors is not clear and requires a closer scrutiny of both the Bitcoin exchange market and the mining market. Specifically, little is known about the pattern of the interaction of the two markets. As mining significantly determines the reliability and security of the operation of the Bitcoin system, it’s important to understand whether the trading market can influence the investment in mining. Academic/Practical Relevance: Our research bridges the gap between operation management, finance and information technology, and makes contribution to studies in the operations and economics of cryptocurrency systems. Methodology: Using a variety of datasets at a large scale, our empirical study uncovers the causal impact of the exchange market on the mining market. Specifically, we formulate an empirical framework that encompasses key dimensions of the Bitcoin exchange market, exchange rate and liquidity, and also jointly models the entry and exit of the mining market characterized by supply and demand of Bitcoin mining rigs. The framework also accounts for a holistic set of demand and supply shifters that exogenously alter the investment behavior in the Bitcoin mining market. Results: We empirically show people tend to associate a higher valuation of Bitcoin with a higher Bitcoin exchange rate, and such exchange rate has significant impacts on both the supply and demand of the mining rigs. Furthermore, we demonstrate that the Bitcoin exchange market serves as a substitute for the Bitcoin mining market for investment. This substitution effect is particularly pronounced to those investors as potential entrants to the Bitcoin mining market. Managerial Implications: Our study sheds light on the impact of the Bitcoin exchanges on the Bitcoin mining activities which contribute to the operation of the Bitcoin system.

The Double Trigger for Mortgage Default: Evidence from the Fracking Boom

This paper exploits a natural experiment afforded by the fracking boom in Pennsylvania to shed light on the determinants of mortgage default. Looking only at mortgages originated before fracking became viable, and using the underlying geology as a supply shifter, we find that mortgages on homes exposed to shale drilling experience a significant reduction in default risk. This effect is more than four times greater for borrowers who are underwater on their loans. Additional evidence shows that fracking activity does not raise house prices, but significantly increases household income through higher royalty payments, wages, and salaries. Furthermore, we find that fracking directly leads to employment increases in the drilling/mining and construction sectors at the county level and reduces income from unemployment benefits at the ZIP-code level. Finally, in addition to reducing mortgage-default risk, we show that fracking lowers credit card delinquencies. These results are most consistent with the “double-trigger” theory of mortgage default, where underwater borrowers subject to an adverse income shock are much more likely to lose their homes to foreclosure. This paper was accepted by David Simchi-Levi, finance.

Empirical Evidence of Changing Food Demand and Consumer Preferences in Russia

AbstractWe investigate food preference changes in Russia that may have resulted from political, economic, and other changes. Our empirical framework utilizes advances in consumer theory and exploits provincial-level panel data on food consumption and supply shifters to identify price and income effects. Our findings indicate that consumers underwent a structural preference change that began in 2007 and continued into 2014. To illustrate the magnitude of this change, we contrast economic effects for select food commodities across regions. The new insights will be useful in designing timely and effective food and trade policies, as well as informing strategy decisions of agribusiness industry players.

Double Trigger for Mortgage Default: The Fracking Boom

This paper exploits a natural experiment afforded by the fracking boom in Pennsylvania to shed light on the determinants of mortgage default. Looking only at mortgages originated before fracking became viable, and using the underlying geology as a supply shifter, we find that mortgages on homes exposed to shale drilling experience a significant reduction in default risk. This effect is more than four times greater for borrowers who are underwater on their loans. Additional evidence shows that fracking activity does not raise house prices but significantly increases household income through higher royalty payments, wages and salaries. Furthermore, we find that fracking directly leads to employment increases in the drilling/mining and construction sectors at the county level, and reduces income from unemployment benefits at the ZIP code level. Finally, in addition to reducing mortgage default risk, we show that fracking lowers credit card delinquencies. These results are most consistent with the double-trigger theory of mortgage default, where underwater borrowers subject to an adverse income shock are much more likely to lose their homes to foreclosure.

Climate extremes and agricultural commodity markets: A global economic analysis of regionally simulated events

Agroclimatic extremes can be seen as typical supply shifters that, on a par with economic and structural drivers, distort supply, demand, trade, and induce price variability. Economic simulation models typically operate under the assumption of ‘normal’ growing conditions, contain no explicit parameterization of climatic anomalies on the supply side, and confound multifarious sources of yield fluctuation in harvest-failure scenarios. In this article we follow a novel approach by augmenting a partial equilibrium model of global agriculture with a recently developed indicator of yield stress. We perform a multi-scenario analysis where the most extreme temperature and soil-moisture anomalies of the last decades, be it negative or positive, recur in the near future. Our results indicate that: (i) regional climate extremes may have significant economic impacts both at the domestic and international levels; (ii) the magnitude of the transmission effect depends on the attributes of the simulated extremes, the positioning of the impacted country in the trade arena, and the market status quo at the time of the shock; and (iii) crop prices generally display asymmetry to the direction of the agrometeorological shock with stronger responsiveness to negative anomalies (i.e., those leading to yield reduction) than to positive ones.

A Parsimonious Approach to Incorporate Firm Heterogeneity in CGE-Models

This paper proposes a parsimonious and intuitive way to incorporate Melitz-type firm heterogeneity in a CGE-model based on the conventional Armington trade structure. The Armington trade structure is extended with demand, supply, and trade cost shifters. Each sector can be modelled as either Melitz, Ethier-Krugman, or Armington, depending on the specification chosen for the shifters. The trade structure of the model can be calibrated based on two estimable parameters: the trade or tariff elasticity and the shape parameter of the size distribution of firms. With this setup fixed and iceberg trade costs are calibrated jointly based on observed import shares. The structure is incorporated within the standard GTAP model and changes to the GEMPACK code are discussed in detail. Changes in both trade values and welfare are decomposed. Experiments with global reductions in iceberg and fixed trade costs are simulated in a medium-size model with 11 countries, 11 sectors, and 6 production factors. The experiments show that the welfare effects are largest under Melitz, followed by Ethier-Krugman and Armington, although differences are modest.

Gravity Channels in Trade

Gravity variables such as distance, adjacency, colony, free trade agreements or language are used to capture the effects of trade costs in empirical studies. By using actual data on trade costs, this paper decomposes the overall effects of such variables on trade into those through three gravity channels: duties/tariffs (DC), transportation costs (TC), and dyadicpreferences (PC). When PC is ignored as is typical in existing studies in the literature, it is shown that nearly all gravity effects are due to distance, 29 percent through DC and 71 percent through TC. The tables turn as the additional channel of PC is introduced and shown to dominate other channels, with adjacency contributing about 45 percent, distance about 32 percent, colony about 14 percent, free trade agreements about 7 percent, and language about 2 percent. It is implied that gravity variables mainly capture the effects of demand shifters rather than supply shifters (as implied by the existing literature). The results are further connected to several existing discussions in the literature, such as welfare gains from trade and the distance puzzle.

Gravity Channels in Trade

Gravity variables such as distance, adjacency, colony, free trade agreements or language are used to capture the effects of trade costs in empirical studies. By using actual data on trade costs, this paper decomposes the overall effects of such variables on trade into those through three gravity channels: duties/tariffs (DC), transportation-costs (TC), and dyadic-preferences (PC). When PC is ignored as is typical in existing studies in the literature, it is shown that nearly all gravity effects are due to distance, 29 percent through DC and 71 percent through TC. The tables turn as the additional channel of PC is introduced and shown to dominate other channels, with adjacency contributing about 45 percent, distance about 32 percent, colony about 14 percent, free trade agreements about 7 percent, and language about 2 percent. It is implied that gravity variables mainly capture the effects of demand shifters rather than supply shifters (as implied by the existing literature). The results are further connected to several existing discussions in the literature, such as welfare gains from trade and the distance puzzle.

Price Endogeneity and Food Demand in Urban China

AbstractPrice endogeneity has been ignored in previous analyses of food demand in urban China. We exploit data provided by the China National Bureau of Statistics on agricultural commodity supply shifters and use reduced‐form price equations to account for price endogeneity. Applying our unique econometric approach to the analysis of provincial‐level food demand in China, we find strong statistical evidence of price endogeneity. Models that ignore price endogeneity result in substantially biased elasticities and misleading estimates of future food demand in China.

Deposit interest rate ceilings as credit supply shifters: Bank level evidence on the effects of Regulation Q

Abstract How did deposit interest rate ceilings, an important feature of the U.S. regulatory regime until the mid-1980s, affect individual banks’ lending and the transmission of monetary policy to credit? I estimate the effect of deposit rate ceilings inscribed in Regulation Q on commercial banks’ credit growth using a historical bank level data set starting in 1959. Banks’ credit growth contracted sharply when legally fixed deposit rate ceilings were binding. Interaction terms with monetary policy suggest that the policy impact on bank level credit growth was non-linear and significantly larger when rate ceilings were in place. Bank size and capitalization mitigate these effects. At the bank level, short-term interest rates exceeding the legally fixed deposit rate ceilings identify policy induced credit supply shifts that disappeared with deposit rate deregulation and thus weakened the bank lending channel substantially since the early 1980s.

Deposit Interest Rate Ceilings as Credit Supply Shifters: Bank Level Evidence on the Effects of Regulation Q

Shocks emanating from and propagating through the banking system have recently gained interest in the macroeconomics literature, yet they are not a feature unique to the 2008/09 financial crisis. Banking disintermediation shocks occured frequently during the Great Inflation era due to fixed deposit rate ceilings. I estimate the effect of deposit rate ceilings inscribed in Regulation Q on the transmission of federal funds rate changes to bank level credit growth using a historic bank level data set spanning half a century from 1959 to 2013 with about two million observations. Measures of the degree of bindingness of Regulation Q suggest that individual banks? lending growth was smaller the more binding the legally fixed rate ceiling. Interaction terms with monetary policy suggest that the policy impact on bank level credit growth was non-linear at the ceiling ?kink? and significantly larger when rate ceilings were in place. At the bank level, short-term interest rates exceeding the legally fixed deposit rate ceilings identify bank loan supply shifts that disappeared with deposit rate deregulation and thus weakened the credit channel of monetary transmission since the early 1980s.

A QUANTITATIVE ANALYSIS OF SUPPLY RESPONSE IN THE NAMIBIAN MUTTON INDUSTRY

Agricultural activities in Namibia contribute 5.5% of Namibia’s GDP, while 70% of the population relies on agriculture for employment and day-to-day living. The purpose of this study is to investigate the relationships between the various price and non-price factors contributing to the supply dynamics within the mutton industry in Namibia. The autoregressive distributed lag approach to co-integration was used to determine the longrun and short-run supply response elasticities between economic and climatology factors on time-series data. Supply shifters showed significant short-run and long-run elasticities with regard to the mutton produced. Results also revealed that the system takes nearly two months to recover to the long-run supply equilibrium, should any disturbances occur within the supply system.

Price transmission and market power in a transition context: evidence from the Polish fluid milk sector

Profound changes have been taking place in the Polish dairy sector since the beginning of transition. Two distinct features have attracted particular attention, namely growing consolidation of the downstream industries and serious farm fragmentation. Consequently, in the debate numerous concerns have been expressed that the sector's restructuring has been proceeding, so to speak, at farmers' expense. Most frequently farmers' relatively weak bargaining position, compared with that of processors and retailers, has been blamed for this state of affairs. Up to now, however, no convincing evidence has been provided that these arguments really hold. This article aims at verifying the above view by examining the mechanism of price transmission. To put the problem in a theoretically consistent, structural equation setting, an approach using exogenous demand and supply shifters is followed. The analysis is couched in a vector error correction model framework. The results suggest that price transmission between farm and retail levels is affected by both short-run and long-run asymmetries. Moreover, behaviour of prices in the fluid milk sector in Poland is consistent with the use of market power by the downstream sector.

Gasoline Demand by Different Demographic Groups

Demand equations are estimated for three age groups of the U.S. population utilizing consumer expenditure data and gasoline prices. To account for the introduction of large vehicles into the market a truck variable is included in the model. Simultaneity is corrected by running a two-stage least square model using the crude oil price as a supply shifter. The estimated elasticities suggest that retirees have the most elastic demand function for gasoline, and workers have a demand function which is considerably less elastic that retirees, confirming the hypotheses of this paper.