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Aggregate Firm Behavior Under Uncertainty, Sentiments, and Aggregate Income

Year 2022, Volume: 13 Issue: 1, 1 - 17, 10.02.2022

Abstract

Firms hold buffer stocks such as capital stocks, inventories, liquid assets, and retained earnings to absorb the effects of uncertainties they face. However, the existence of such buffers affects both the performance of the firms and the aggregate income. In this study, we built a stock-flow consistent system dynamics model to analyze these effects. Dynamic equilibrium solutions present that the presence of uncertainty decreases both aggregate firm profitability and aggregate income. On the other hand, we analyzed the effects of a change in the sentiment of entrepreneurs and firm managers on aggregate variables if the levels of buffer stocks were affected by this sentiment in the presence of uncertainty. Simulation results show that a change in the sentiment index causes the aggregate income to change in the same direction.

References

  • Caves, R.E., Jarrett, J.P., and Loucks, M.K. (1979). Competitive conditions and the firm’s buffer stocks: an exploratory analysis. The Review of Economics and Statistics, 61(4), doi:10.2307/1935780
  • Caputo, M. (1996). Uncertainty, flexibility and buffers in the management of firm operating system. Production Planning and Control, 7(5), pp.518-528.
  • Cyert, R., Kang, S., and Kumar, P. (1996). Managerial objectives and firm dividend policy: a behavioral theory and empirical evidence. Journal of Economic Behavior and Organization, Vol.31, pp.157-174.
  • Davidson, P. (1996). Reality and economic theory. Journal of Post Keynesian Economics, 18, pp.479-508.
  • Dimand, R.W. (2021). Keynes, Knight, and fundamental uncertainty: a double centenary 1921-2021. Review of Political Economy, 33(4), pp.570. doi:10.1080/09538259.2021.1924
  • Dobrovolsky, S.P. (1958). Economics of corporate internal and external financing. The Journal of Finance, Vol.13, No.1, pp.35-47. Dunn, S.P. (2000). Fundamental uncertainty and the firm in the long run. Review of Political Economy, Vol.12, No.4.
  • Franke, R. (2012). Microfounded animal spirits in the new macroeconomic consensus. Studies in Nonlinear Dynamics and Econometrics, Vol.16, No.4,
  • Geiger, N. (2016). Psychological elements in business cycles theories: old approaches and new insights. The European Journal of the History of Economic Thought, Vol.23, No.3, pp.478-507.
  • Godley, W. and Lavoie, M. (2006). Monetary economics: an integrated approach to credit, money, income, production, and wealth. Springer.
  • Keynes, J.M. (1921). A treatise on probability. London: Macmillan.
  • Keynes, J.M. (1936). The general theory of employment, interest, and money. London: Macmillan
  • Knight, F.H. (1921). Risk, uncertainty, and profit. Boston: Houghton Mifflin.
  • Lintner, J. (1956). Distribution of incomes of corporations among dividends, retained earnings, and taxes. The American Economic Review, Vol.46, No.2, pp.97-113.
  • Marchionatti, R. (1999). On Keynes’ animal spirits. Kyklos, 52(3), pp.415-439.
  • Minsky, H.P., and Kaufman, H. (2008). Stabilizing an unstable economy (Vol.1). New York: McGraw-Hill.
  • Pigou, A.C. (1927). Industrial fluctuations. London: Macmillan.
  • Rakow, T. (2010). Risk, uncertainty, and prophet: the psychological insights of Frank H. Knight. Judgement and Decision Making, Vol.5, No.6, pp.458-466.
  • Schumpeter, J.A. (1934). Theory of Economic Development, Cambridge: Harvard University Press.
  • Sterman, J.D. (2000). Business dynamics: system thinking and modeling for a complex world. Irwin/McGraw-Hill.
  • Taleb, N.N. (2010). The black swan: the impact of the highly improbable. 2nd Edition, New York, Random House.

Belirsizlik Altında Toplam Firma Davranışı, Güven ve Toplam Gelir

Year 2022, Volume: 13 Issue: 1, 1 - 17, 10.02.2022

Abstract

Firmalar karşılaştıkları belirsizliğin olumsuz etkilerini bertaraf edebilmek için sabit sermaye, ürün envanterleri, likit varlıklar ve dağıtılmamış karlar gibi çeşitli tampon stoklar tutarlar. Ancak bu tamponların mevcudiyetinin hem firma performansı hem de toplam gelir üzerinde etkileri vardır. Bu çalışmada, bu etkileri analiz edebilmek için stok-akım tutarlı bir sistem dinamiği modeli kurulmuştur. Modelin dinamik denge çözümleri belirsizliğin toplam firma karlılığını ve toplam geliri düşürdüğünü ortaya koymaktadır. Öte yandan, belirsizlik altında girişimcilerin ve firma yöneticilerinin güvenlerinin bu tampon stokların düzeyini etkilemesi halinde, bu güvendeki bir değişimin ekonomi üzerindeki etkilerinin ne olacağı da araştırılmıştır. Simülasyon sonuçları güven endeksindeki bir değişimin, toplam gelirde aynı yönlü bir değişime yol açacağını göstermiştir.

References

  • Caves, R.E., Jarrett, J.P., and Loucks, M.K. (1979). Competitive conditions and the firm’s buffer stocks: an exploratory analysis. The Review of Economics and Statistics, 61(4), doi:10.2307/1935780
  • Caputo, M. (1996). Uncertainty, flexibility and buffers in the management of firm operating system. Production Planning and Control, 7(5), pp.518-528.
  • Cyert, R., Kang, S., and Kumar, P. (1996). Managerial objectives and firm dividend policy: a behavioral theory and empirical evidence. Journal of Economic Behavior and Organization, Vol.31, pp.157-174.
  • Davidson, P. (1996). Reality and economic theory. Journal of Post Keynesian Economics, 18, pp.479-508.
  • Dimand, R.W. (2021). Keynes, Knight, and fundamental uncertainty: a double centenary 1921-2021. Review of Political Economy, 33(4), pp.570. doi:10.1080/09538259.2021.1924
  • Dobrovolsky, S.P. (1958). Economics of corporate internal and external financing. The Journal of Finance, Vol.13, No.1, pp.35-47. Dunn, S.P. (2000). Fundamental uncertainty and the firm in the long run. Review of Political Economy, Vol.12, No.4.
  • Franke, R. (2012). Microfounded animal spirits in the new macroeconomic consensus. Studies in Nonlinear Dynamics and Econometrics, Vol.16, No.4,
  • Geiger, N. (2016). Psychological elements in business cycles theories: old approaches and new insights. The European Journal of the History of Economic Thought, Vol.23, No.3, pp.478-507.
  • Godley, W. and Lavoie, M. (2006). Monetary economics: an integrated approach to credit, money, income, production, and wealth. Springer.
  • Keynes, J.M. (1921). A treatise on probability. London: Macmillan.
  • Keynes, J.M. (1936). The general theory of employment, interest, and money. London: Macmillan
  • Knight, F.H. (1921). Risk, uncertainty, and profit. Boston: Houghton Mifflin.
  • Lintner, J. (1956). Distribution of incomes of corporations among dividends, retained earnings, and taxes. The American Economic Review, Vol.46, No.2, pp.97-113.
  • Marchionatti, R. (1999). On Keynes’ animal spirits. Kyklos, 52(3), pp.415-439.
  • Minsky, H.P., and Kaufman, H. (2008). Stabilizing an unstable economy (Vol.1). New York: McGraw-Hill.
  • Pigou, A.C. (1927). Industrial fluctuations. London: Macmillan.
  • Rakow, T. (2010). Risk, uncertainty, and prophet: the psychological insights of Frank H. Knight. Judgement and Decision Making, Vol.5, No.6, pp.458-466.
  • Schumpeter, J.A. (1934). Theory of Economic Development, Cambridge: Harvard University Press.
  • Sterman, J.D. (2000). Business dynamics: system thinking and modeling for a complex world. Irwin/McGraw-Hill.
  • Taleb, N.N. (2010). The black swan: the impact of the highly improbable. 2nd Edition, New York, Random House.
There are 20 citations in total.

Details

Primary Language English
Journal Section Articles
Authors

Serçin Sahin 0000-0002-0649-932X

Publication Date February 10, 2022
Submission Date October 22, 2021
Published in Issue Year 2022 Volume: 13 Issue: 1

Cite

APA Sahin, S. (2022). Aggregate Firm Behavior Under Uncertainty, Sentiments, and Aggregate Income. Gümüşhane Üniversitesi Sosyal Bilimler Dergisi, 13(1), 1-17. https://doi.org/10.36362/gumus.1011937