Demand, Supply, and Markup Fluctuations

Markup cyclicality has been central for debating policy effectiveness and understanding business-cycle fluctuations. However, measuring the cyclicality of markups is as important as understanding the microeconomic mechanisms underlying that cyclicality. The latter requires measurement of firm-level markups and separating supply from demand shocks. We construct a novel dataset with detailed (multi-)product-level prices for individual firms. By estimating a structural model of supply and demand, we evaluate how companies adjust prices and marginal costs as a response to shocks. We find that price markups respond positively to supply shocks and negatively to demand shocks. The mechanism explaining the observed markup behaviour is the same for both shocks: incomplete pass-through of changes along the marginal-cost curve to price adjustments. These observed price and output responses are consistent with dynamic demand considerations. Finally, we use our estimated shocks to show how aggregate markup fluctuations in the sample period are mostly explained by aggregate demand shocks.

The Economics of Traceability in the New Zealand Dairy Industry

<p>Dairy is an important dietary component, particularly for young children. Because of this the dairy industry is especially sensitive to contamination scares. Dairy is of particular importance to the New Zealand economy, com- prising a significant portion of the country’s GDP. This thesis develops a Markov chain model for the flow of value through the early stages of the dairy supply chain. Using the case of a major New Zealand dairy company, simulations are run under various product testing scenarios. Results point to the importance of where and when testing and interventions take place. Being strict about removing potentially contami- nated product early on in the supply chain can reduce total losses, improving overall production output as a result. Traceability has become an increasingly important research area in recent years. The initial Markov chain model is extended to incorporate parameters for product tracing. By analysing the results of simulations under various scenarios we are able to estimate the value traceability can contribute in the dairy production chain. Using an event analysis technique with a multi-factor model, the third part of this thesis examines how share prices, in a major New Zealand dairy com- pany, are impacted by shocks. Product recalls, adverse weather events, and demand shocks are considered. Results suggest that individual event char- acteristics are important, particularly for global demand shocks. Adverse weather events in general are associated with an increase in share price re- turns. A product recall is associated with the greatest drop in share price returns, emphasising the importance of managing recalls well.</p>

The Economics of Traceability in the New Zealand Dairy Industry

<p>Dairy is an important dietary component, particularly for young children. Because of this the dairy industry is especially sensitive to contamination scares. Dairy is of particular importance to the New Zealand economy, com- prising a significant portion of the country’s GDP. This thesis develops a Markov chain model for the flow of value through the early stages of the dairy supply chain. Using the case of a major New Zealand dairy company, simulations are run under various product testing scenarios. Results point to the importance of where and when testing and interventions take place. Being strict about removing potentially contami- nated product early on in the supply chain can reduce total losses, improving overall production output as a result. Traceability has become an increasingly important research area in recent years. The initial Markov chain model is extended to incorporate parameters for product tracing. By analysing the results of simulations under various scenarios we are able to estimate the value traceability can contribute in the dairy production chain. Using an event analysis technique with a multi-factor model, the third part of this thesis examines how share prices, in a major New Zealand dairy com- pany, are impacted by shocks. Product recalls, adverse weather events, and demand shocks are considered. Results suggest that individual event char- acteristics are important, particularly for global demand shocks. Adverse weather events in general are associated with an increase in share price re- turns. A product recall is associated with the greatest drop in share price returns, emphasising the importance of managing recalls well.</p>

Venting Out: Exports during a Domestic Slump

We study the relationship between domestic-demand shocks and exports using data for Spanish manufacturing firms in 2002–2013. Exploiting plausibly exogenous geographical variation caused by the Great Recession, we find that firms whose domestic sales declined by more experienced a larger increase in export flows, controlling for firms’ supply determinants. This result illustrates the capacity of export markets to counteract the negative impact of local demand shocks. By structurally estimating a heterogeneous-firm model of exporting with nonconstant marginal costs of production, we conclude that these firm-level responses accounted for half of the spectacular increase in Spanish goods exports over the period 2009–2013. (JEL D22, E32, F14, L60)

The Dynamic Impact of Structural Oil Price Shocks on the Macroeconomy

In this paper, we apply the structural vector autoregression (SVAR) model to decompose the international oil price shock into oil supply shocks, aggregate demand shocks and oil-specific demand shocks, and then use the DCC-GARCH model to analyse the dynamic correlations between these three kinds of oil price shocks and the macroeconomic variables of several oil importing and exporting countries. To quantify the intensity of the effect of oil shocks on these variables, we propose a measure, conditional expectation (CoE), to capture the percent change of the economic variable under oil price shocks relative to the median state. The time-varying copula model is employed to estimate the proposed measure through time. The empirical results show that, for instance, the impacts of oil price shocks on macroeconomic variables are different in different periods, showing the time-varying characteristics. Additionally, the impacts of oil price shocks on macroeconomic variables show great differences and some similarities among different countries. Finally, we give some policy suggestions for these countries, in particular for China’s special results.

Demand Shocks and Firm Investment: Micro-evidence from fiscal retrenchment in Italy

We study the effect of a persistent demand shock on corporate factor utilization. Our identification strategy leverages a legislative change designed to permanently reduce spending in certain targeted municipalities. This change generates an arguably-exogenous drop in the revenue of procurement firms, which differs depending on each firm’s reliance for its revenue on procurement in the targeted municipalities. We find that firms responded to the demand shock by cutting capital rather than labor. We propose a theoretical mechanism based on the irreversibility of capital investment.