Oscillations and Amplifications in Demand-Supply Network Chains

Oscillations and Amplifications in Demand-Supply Network Chains

 

From Modeling and Measuring the Bullwhip Effect

Demand variability and uncertainty is a driver of supply chain inventory. Managing supply chains can be a challenge when demand variability and uncertainty is high. For a company in a supply chain consisting of multiple stages, each of which is run by a separate organization (or company), the variability of demand faced by this company can be much higher than the variability faced by downstream stages (where “downstream stages” refers to the stages closer to the final consumption of the product). The bullwhip effect refers to the phenomenon where demand variability amplifies as one moves upstream in a supply chain (Lee et al, 1997a, or LPW). LPW described this as a form of demand information distortion. Lee et al (1997b) further discussed the managerial and practical aspects of the bullwhip effect, giving more industry examples. The bullwhip effect phenomenon is closely related to studies in systems dynamics (Forrester, 1961; Sterman, 1989; Senge, 1990). Sterman (1989) observed a systematic pattern of demand variation amplification in the Beer Game, and attributed it to behavioral causes (i.e., misperceptions of feedback). Macroeconomists have also studied the phenomenon (Holt et al, 1968; Blinder, 1981; Blanchard, 1983).

 

From Operational and Behavioral Causes of Supply Chain Instability

 

Supply chain instability is often described as the bullwhip effect, the tendency for variability to increase at each level of a supply chain as one moves from customer sales to production (Lee et al. 1997, Chen et al. 2000). While amplification from stage to stage is important, supply chain instability is a richer and more subtle phenomenon. The economy, and the networks of supply chains embedded within it, is a complex dynamic system and generates multiple modes of behavior. These include business cycles (oscillation), amplification of orders and production from consumption to raw materials (the bullwhip), and phase lag (shifts in the timing of the cycles from consumption to materials). High product returns and spoilage are common in industries from consumer electronics to hybrid seed corn (Gonçalves 2003). Many firms experience pronounced hockey-stick patterns in which orders and output rise sharply just prior to the end of a month or quarter as the sales force and managers rush to hit revenue goals. Boom and bust dynamics in supply chains are often worsened by phantom orders—orders customers place in response to perceived shortages in an attempt to gain a greater share of a shrinking pie (T. Mitchell 1923, Sterman 2000, ch. 18.3, Gonçalves 2002, Gonçalves and Sterman 2005).

What are the causes of supply chain instability? Why does supply chain instability persist, despite the lean revolution and tremendous innovations in technology? What can be done to stabilize supply chains and improve their efficiency?

Here I describe the origins of supply chain instability from a complex systems perspective. The dynamics of supply chain networks arise endogenously from their structure. That structure includes both operational and behavioral elements.

 

From Operational and Behavioral Causes of Supply Chain Instability

Oscillation, Amplification, and Phase Lag

Exhibit 1 shows industrial production in the US. The data exhibit several modes of behavior. First, the long-run growth rate of manufacturing output is about 3.4%/year. Second, as seen in the bottom panel, production fluctuates significantly around the growth trend. The dominant periodicity is the business cycle, a cycle of prosperity and recession of about 3–5 years in duration, but exhibiting considerable variability.

The amplitude of business cycle fluctuations in materials production is significantly greater than that in consumer goods production (exhibit 2). The peaks and troughs of the cycle in materials production also tend to lag behind those in production of consumer goods. Typically, the amplitude of fluctuations increases as they propagate from the customer to the supplier, with each upstream stage tending to lag behind its customer. These three features, oscillation, amplification, and phase lag, are pervasive in supply chains.

 

From Booms, Busts, and Beer: Understanding the Dynamics of Supply Chains

A central question in operations management is whether the oscillations, amplification and phase lag observed in supply chains arise as the result of operational or behavioral causes.

Operational theories assume that decision makers are rational agents who make optimal decisions given their local incentives and information.  Supply chain instability must then result from the interaction of rational actors with the physical and institutional structure of the system.

  • Physical structure includes the network linking customers and suppliers and the placement of inventories and buffers within it, along with capacity constraints and time delays in production, order fulfillment, transportation, and so on.
  • Institutional structure includes the degree of horizontal and vertical coordination and competition among firms, the availability of information to decision makers in each organization, and the incentives faced by each decision maker.

Behavioral explanations also capture the physical and institutional structure of supply chains, but view decision makers as boundedly rational actors with imperfect mental models, actors who use heuristics to make ordering, production, capacity acquisition, pricing and other decisions (Morecroft 1985, Sterman 2000, Boudreau et al. 2003, Gino & Pisano 2008, Bendoly et al. 2010, Croson et al. 2013).

Amplifications and Phase Lag

Amplification and phase lag arise from the presence of basic physical structures including stocks of inventory and delays in adjusting production or deliveries to changes in incoming orders.

Oscillations

Oscillations, however, are not inevitable. They arise from boundedly rational, behavioral decision processes

The difference matters: if supply chain instability arises from operational factors and rational behavior, then policies must be directed at changing the physical and institutional structure of the system, including incentives.

If, however, instability arises from bounded rationality and emotional arousal such policies may not be sufficient.

 

Key People:

  • Jay W Forrester
  • John Sterman
  • Rogelio Oliva
  • Hau L Lee

 

Key Terms:

  • Bullwhip Effect
  • Oscillations
  • Amplifications
  • Negative Feedback Loop
  • Positive Feedback Loop
  • Phase Lag
  • Supply Chain Networks
  • Inventory Management
  • Production Smoothening
  • Beer Distribution Game
  • Industrial Dynamics
  • Operational and Institutional Structures
  • Behavioral causes
  • Instability
  • Variability
  • Uncertainty

 

Key Sources of Research:

 

Behavioral Causes of Demand Amplification in Supply Chains: “Satisficing” Policies with Limited Information Cues

Rogelio Oliva

Paulo Gonçalves

 

Click to access 1889_087eb4f1-0532-4a7d-a206-3d565efc02af_2005-OLIVA133.pdf

 

 

REDUCING THE IMPACT OF DEMAND PROCESS VARIABILITY WITHIN A MULTI-ECHELON SUPPLY CHAIN

Francisco Campuzano Bolarín1,Lorenzo Ros Mcdonnell1, Juan Martín García

2008

 

Click to access CAMPU215.pdf

 

 

The impact of order variance amplification/dampening on supply chain performance

 

Robert N. Boute, Stephen M. Disney, Marc R. Lambrecht and Benny Van Houdt

 

Click to access KBI_0603.pdf

 

 

Coping with Uncertainty: Reducing ”Bullwhip” Behaviour in Global Supply Chains

 

Rachel Mason-Jones, and Denis R. Towill

Click to access 24557527da7aa9da7de238fe7f4a463b2af6.pdf

 

 

Bullwhip in Supply Chains ~ Past, Present and Future

Steve Geary Stephen M Disney and Denis R Towill

 

Click to access 492a6e6ae1d0f186fe2570b7477428e8e467.pdf

 

 

Shrinking the Supply Chain Uncertainty Circle

R Mason-Jones

Click to access 19980901d.pdf

 

 

THE BULLWHIP EFFECT IN SUPPLY CHAIN Reflections after a Decade

Gürdal Ertek, Emre Eryılmaz

 

Click to access ertek_eryilmaz_cels2008.pdf

 

 

Information distortion in a supply chain: The bullwhip effect

Hau L Lee; V Padmanabhan; Seugjin Whang

Management Science; Apr 1997; 43, 4;

Click to access f26117d56ab96aabe2d6cee4c390ab20ee18.pdf

 

 

 

THE SUPPLY CHAIN COMPLEXITY TRIANGE: UNCERTAINTY GENERATION IN THE SUPPLY CHAIN

 

Click to access 140687.pdf

 

 

The Bullwhip Effect in Supply Chains

Hau L. Lee, V. Padmanabhan and Seungjin Whang

1997

http://sloanreview.mit.edu/article/the-bullwhip-effect-in-supply-chains/

 

 

The Bullwhip Effect: Analysis of the Causes and Remedies

 

Jonathan Moll

Rene Bekker

 

Click to access werkstuk-moll_tcm243-354834.pdf

 

 

‘BULLWHIP’ AND ‘BACKLASH’ IN SUPPLY PIPELINES

Vinaya Shukla, Mohamed M Naim, Ehab A Yaseen

 

https://hal.archives-ouvertes.fr/hal-00525857/document

 

 

How human behaviour amplifies the bullwhip effect – a study based on the beer distribution game online

Joerg Nienhaus, Arne Ziegenbein*, Christoph Duijts

 

Click to access Bullwhip_Effect_Article.pdf

 

 

The Bullwhip Effect in Different Manufacturing Paradigm: An Analysis

Shamila Nabi KHAN1 Mohammad Ajmal KHAN2 Ramsha SOHAIL

 

Click to access 11.pdf.pdf

 

 

On replenishment rules, forecasting and the bullwhip effect in supply chains

Stephen M. Disney1 and Marc R. Lambrecht

 

Click to access Disney%20-%20On%20replenishment%20rules%20forecasting%20and%20the%20bullwhip%20effect%20in%20supply%20chains%20pre%20print.pdf

 

 

Causes and Remedies of Bullwhip Effect in Supply Chain

Sivakumar Balasubramanian Larry Whitman Kartik Ramachandran Ravindra Sheelavant

 

Click to access 2001IERCBullwhip.pdf

 

 

Booms, Busts, and Beer: Understanding the Dynamics of Supply Chains

John Sterman

 

Click to access Sterman%20Beh%20Ops%20Handbook%20Chapter%20140210.pdf

 

 

Modeling and Measuring the Bullwhip Effect

Li Chen and Hau L. Lee

2015

Click to access Chen_Lee_Bullwhip_2015.pdf

 

 

Operational and Behavioral Causes of Supply Chain Instability

John D. Sterman

Click to access 2a3118c5c7d2bd475335549b0b943009d66c.pdf

 

 

Order Stability in Supply Chains: Coordination Risk and the Role of Coordination Stock

Rachel Croson, Karen Donohue, Elena Katok, and John Sterman

Click to access Order%20Stability%20in%20SCs050212.pdf

Click to access Order_Stability_070505.pdf

 

 

SUPPLY CHAIN DYNAMICS, THE “BEER DISTRIBUTION GAME” AND MISPERCEPTIONS IN DYNAMIC DECISION MAKING

John D. Sterman

Click to access E6-63-01-02.pdf

 

 

When Do Minor Shortages Inflate To Great Bubbles?

Paulo Gonçalves

2002

 

Click to access Gonca1.pdf

 

 

A new technology paradigm for collaboration in the supply chain

Branko Pecar and Barry Davies

Click to access c522d454d1dc036a22db29b2dee005dbc44e.pdf

 

 

MANAGERIAL INSIGHTS ON THE IMPACT OF FORECASTING AND INFORMATION ON VARIABILITY IN A SUPPLY CHAIN

Frank Chent, Zvi Drezner2 , Jennifer K. Ryan3 and David Simchi-Levi

 

Click to access 4%20chen.pdf

 

 

Supply and Production Networks: From the Bullwhip Effect to Business Cycles

Dirk Helbing Stefan Laemmer

2004

 

Click to access 04-12-033.pdf

 

 

Inventory dynamics and the bullwhip effect : studies in supply chain performance

Udenio, M.

2014

 

Click to access 776508.pdf

 

 

RECENT WORK ON BUSINES CYCLES IN HISTORICAL PERSPECTIVE: REVIEW OF THEORIES AND EVIDENCE

VictorZarnowitz

1984

 

Click to access w1503.pdf

 

 

THEORY AND HISTORY BEHIND BUSINESS CYCLES:ARE THE 1990S

THE ONSET OF A GOLDEN AGE?

 

Victor Zarnowitz

WorkingPaper7010 htp:/w.nber.org/papers/w7010

1999

 

Click to access w7010.pdf

 

 

The Beginning of System Dynamics

Jay W. Forrester

 

Click to access D-4165-1.pdf

 

 

Profiles in Operations Research: Jay Wright Forrester

David C. Lane John D. Sterman

 

Click to access jwf-profile-in-op.pdf

 

 

SYSTEM DYNAMICS MODELLING IN SUPPLY CHAIN MANAGEMENT: RESEARCH REVIEW

2000

 

Click to access 54fe11ea0aaa47f4c8e08959be2ef52d50a6.pdf

 

 

INDUSTRIAL DYNAMICS-AFTER THE FIRST DECADE

JAY W. FORRESTER

 

Click to access Forrester68.pdf

 

 

Industrial Dynamics

Jay W Forrester

1961

 

 

Business Dynamics

John Sterman

2000

 

Long Wave Economic Cycles Theory

Long Wave Economic Cycles Theory

 

From CAUSES AND CONSEQUENCES OF KONDRATIEV’S LONG-WAVE CYCLE

Economic Cycles

Economists recognize four major cycles, or regular fluctuations, in the economy as follows:

(1) Kitchin’s short-wave cycle of average duration 3-5 years, discovered in 1930;

(2) Juglar’s cycle of average duration 7-11 years, discovered in 1862;

(3) Kuznets’ medium-wave cycle of average duration 15-25 years, discovered in 1923;

(4) Kondratiev’s long-wave cycle of average duration 45-60 years, discovered in 1922.

J. Schumpeter, who was born in Austria and came to the United States where he also served as President of the American Economic Society in the 1950’s, was an outstanding student of economic cycles. He believed that the various cycles are inter-dependent, in contrast with the view of others such as Forrester, who believed that the cycles act independently of one another. Schumpeter baptized three of the four cycles by naming them after their discoverers. The exception was Kuznets’ cycle, which he did not recognize.

 

From Long-Wave Economic Cycles: The Contributions of Kondratieff, Kuznets, Schumpeter, Kalecki, Goodwin, Kaldor, and Minsky

Several different theories of the long wave exist. These include Kondratieff’s theory of cycles in production and relative prices; Kuznets’ theory of cycles arising from infrastructure investments; Schumpeter’s theory of cycles due to waves of technological innovation; Keynes–Kaldor–Kalecki demand and investment oriented theories of cycles; Goodwin’s theory of cyclical growth based on employment and wage share dynamics; and Minsky’s financial instability hypothesis whereby capitalist economies show a genetic propensity to boom-bust cycles.

Writing in the early 1920s Nikolai Kondratieff advanced the idea of the probable existence of long wave cycles in capitalist economies lasting roughly between 48 and 60 years. Within that, there is a period of accumulation of material wealth as productive forces move to a newer, higher, level of development. But at a certain point there commences a decline in economic activity, only to re-start growing again later (Kondratieff 2004 [1922]). This mechanism has been dubbed, in economic literature, as Kondratieff cycles. It should be noted that prior to Kondratieff, some empirical efforts on systematizing the cyclicality of economic crises was carried out by van Gelderen (1913), Buniatian (1915), and de Wolff (1924), which Kondratieff admits to in his publications (see end note in Kondratieff 1935). Though Kondratieff’s ideas were not well accepted by the official Soviet economics he insisted on his main argument and in short time followed up with more rigorous publications. Only few English language translations were available at the time (most notably, Kondratieff 1935). Nevertheless, the potency of his ideas was recognized quickly entering the work of subsequent economists (e.g., Schumpeter 2007 [1934]; Kuznets 1971; Rostow 1975; and others) as we review in the next section.

Simon Kuznets received the Nobel Prize in Economics in 1971 for his empirical analysis of economic growth, where he identified a new era of ‘modern economic growth’. Like Kondratieff, Kuznets relied on empirical analysis and statistical data in his pioneering research. Absorbing his findings on historical development of the industrial nations with initially abstract categories of the national income decomposition, Kuznets developed a concept of long swings, though disputed, now referred to as Kuznets cycles or Kuznets swings (e.g., Korotayev and Tsirel 2010). The Kuznets swings’ period is ranged between 15–25 years and initially connected by Kuznets with demographic cycles. In that analysis, the economist observed and quantified the cyclicality of production and prices, linking with immigrant population flows and construction cycles. Researchers have attempted to connect these cycles with investments in fixed capital or infrastructure investments (see Ibid. for literature review). 

As mentioned, the work of Kondratieff and Kuznets fostered a systematic approach to modern understanding of long economic swings. Numerous authors have further proposed not only different mechanisms underlying cycles but also cycles on different time scales. An early theory of cycles was put forward by Robert Owen in 1817, who stressed wealth inequality and poverty, originating in industrialization, yielding under-consumption as a reason for economic crises. Sismondi, in the middle of the 19th century took a similar view and developed a theory of periodic crises due to under-consumption. This led to the discussion of the ‘general glut’ theory of the 19th century, which Marx and other classical economists also extensively contributed to. More specifically, a mechanism of cycles on a shorter times scale, of 8–10 years duration, was developed by Juglar (Juglar cycles), resulting, as he saw it, from the waves in fixed investment. Later, Kitchin, in the 1920s, introduced an inventory cycle of 3–5 years. Later an important contribution was made by Schumpeter (1939), who referred to the ‘bunching’ of innovations and their diffusion as a cause for long waves in economic activity. Roughly at the same time, Samuelson (1939), influenced by the Spiethof accelerator and the Keynesian multiplier principle, developed the first mathematically- oriented cycle theory using difference equations.3 Others, such as Rostow (1975), had proposed the theory of stages of growth. Simultaneous with Samuelson, Kalecki (1937) developed his theory of investment implementation cycles where he saw significant delays between investment decisions and investment implementations, formally introducing differential delay systems as tool for studying cycles. Kaldor (1940), rooted in Keynesian theory, developed his famous nonlinear investment-saving cycles, which took into account aggregate demand. Later, Goodwin (1967) proposed a model of growth cycles, which took into account classical growth theory, but was based on unemployment-wage share dynamics, since the overall growth rate, as well as productivity growth, are kept constant in the long run. 

Next we discuss a Minsky long cycle: a financially-based approach to the long wave theory. Long cycles have historically been interpreted as an interaction of real forces with cost and prices. Kondratieff cycles emphasize secular changes in production and prices; Kuznets cycles are associated with economic development and infrastructure accumulation; Schumpeterian cycles are the result of waves of technological innovation; while Goodwin cycles are based on changes in the functional distribution of income arising from changed bargaining power conditions in a period of high growth rates and Keynesian theories express demand factors.

The work of Hyman Minsky provides an explicitly financially driven theory of business cycles. Minsky’s own writings were largely devoted to exposition of a short-run cycle and a very long-run analysis of stages of development of capitalism. The short-run analysis is illustrated in two articles (Minsky 1957, 1959) that present a financially driven model of the business cycle based on the multiplier-accelerator mechanism with floors and ceilings. A later formalization is the Delli Gatti et al.’s work (1994) in which the underlying dynamic mechanism is increasing leveraging of profit flows, which roughly captures Minsky’s (1992a) hedge-speculative-Ponzi finance transition dynamic that is at the heart of his famous financial instability hypothesis. The very long-run analysis of stages of capitalism’s development is illustrated in Minsky’s (1992b) essay on ‘Schumpeter and Finance’. These stages of development perspective have been further elaborated by Whalen (1999) and Wray (2009). Recently, Palley (2010, 2011) has argued Minsky’s (1992a) financial instability hypothesis also involves a theory of long cycles. This long cycle explains why financial capitalism is prone to periodic crises and it provides a financially grounded approach to understanding long wave economics.  A long cycles perspective provides a middle ground between short cycle analysis and stages of development analysis. Such a perspective was substantially developed by Minsky in a paper co-authored with Piero Ferri (Ferri and Minsky 1992). However, unfortunately, Minsky entirely omitted it in his essay (Minsky 1992a) summarizing his financial instability hypothesis, leaving the relation between the short and long cycle undeveloped.

 

Key People:

  • Jay Forrester
  • John Sterman
  • J. Schumpeter
  • Joshua Goldstein
  • Aleksandr V. Gevorkyan
  • N. Kondratiev
  • Kaldor
  • Kalecki
  • Hyman Minsky
  • Goodwin
  • P. Samuelson
  • Simon Kuznets
  • Juglar
  • Kitchin

 

Key Sources of Research:

 

The sixth Kondratieff – long waves of prosperity

2010

Click to access kondratieff_en.pdf

 

 

Kondratieff-cycles

http://www.kondratieff.net/kondratieff-cycles

 

 

Overview of Kondratieff

http://www.kwaves.com/kond_overview.htm

 

 

K-WAVES IN GLOBAL PERSPECTIVE

Kondratieff Waves in the World System Perspective

Andrey V. Korotayev and Leonid E. Grinin

Click to access 023-064.pdf

http://www.sociostudies.org

 

 

Kondratieff, N. and Schumpeter, Joseph A. long-waves theory

 

 

 

LONGWAVE PRINCIPLE

http://www.longwavegroup.com

 

 

CAUSES AND CONSEQUENCES OF KONDRATIEV’S LONG-WAVE CYCLE

by Antal E. Fekete,

January 24, 2005

 

Click to access aefcausesandconsequenceskondratievs.pdf

 

 

AN INTEGRATED THEORY OF THE ECONOMIC LONG WAVE

John D. Sterman

1984

Click to access SWP-1563-15376357.pdf

 

 

Business Cycles and Long Waves: A Behavioral Disequilibrium Perspective

John D. Sterman
Erik Mosekilde

1993

 

https://dspace.mit.edu/bitstream/handle/1721.1/46906/businesscycleslo00ster.pdf?sequence=1

 

 

THE ECONOMIC LONG WAVE: THEORY AND EVIDENCE

John D. Sterman

1985

 

https://dspace.mit.edu/bitstream/handle/1721.1/47592/economiclongwave00ster.pdf?sequence=1

 

 

A Behavioral Model of the Economic Long Wave

John sterman

1985

https://www.researchgate.net/publication/223670697_A_Behavioral_Model_of_the_Economic_Long_Wave

 

 

Bifurcations and Chaotic Behavior in a Simple Model of the Economic Long Wave

John Sterman

Click to access mosek103.pdf

 

 

Simple Model of the Economic Long Wave

Sterman, J.D.

1985

Click to access CP-85-021.pdf

 

 

Mode Lockins: and Entrainment of Endogenous Economic Cycles

Christian Haxholdt. Christian Kampmann  Erik Mosekilde . and John D. Sterman

January 1994

https://dspace.mit.edu/bitstream/handle/1721.1/48535/modelockingentra00haxh.pdf?sequence=1

 

 

Disaggregating a Simple model of the Economic Long Wave

C. E. Kampmann

1985

Click to access kampm438.pdf

 

 

Entrainment in a Disaggregated Economic Long Wave Model.

KAMPMANN, C., HAXHOLDT, C., MOSEKILDE, E. & STERMAN, J. D.

(1994)

Click to access haxho193.pdf

 

 

Nonlinear Interactions in the Economy

Erik Mosekilde, Jesper Skovhus Thomsen, John Sterman

http://link.springer.com/chapter/10.1007/978-3-642-48808-5_2

 

 

Mode-Locking and Chaos in a Periodically Driven Model of the Economic Long Wave

THOMSEN, J. S., MOSEKILDE, E., LARSEN, E. R. & STERMAN, J. D.

1990

Click to access thoms1137.pdf

 

 

Nonlinear Dynamics in the World Economy: The Economic Long Wave

John Sterman

1988

Structure, Coherence and Chaos in Dynamical Systems

 

 

Cycles Research Institute

http://cyclesresearchinstitute.org/subjects/cycles-economy/kondratieff-cause/

 

 

Solar Cycles and Kondratieff

Kondratieff And Solar Cycles

 

 

Time Scales and Mechanisms of Economic Cycles: A Review of Theories of Long Waves

Lucas Bernard

Aleksandr V. Gevorkyan

Thomas Palley

Willi Semmler

 

Click to access WP337.pdf

 

 

Donella Meadows Institute

http://donellameadows.org/archives/the-long-wave/

 

 

The Long-Wave Debate

 

Click to access XB-87-404.pdf

 

 

A Spectral Analysis of World GDP Dynamics: Kondratieff Waves, Kuznets Swings, Juglar and Kitchin Cycles in Global Economic Development, and the 2008–2009 Economic Crisis

Korotayev, Andrey V and Tsirel, Sergey V.

2010

http://escholarship.org/uc/item/9jv108xp

 

 

Long Cycles: Prosperity and War in the Modern Age

Joshua S. Goldstein

New Haven: Yale University Press, 1988

http://www.joshuagoldstein.com/jgcycle.htm

 

 

On the accurate characterization of business cycles in nonlinear dynamic financial and economic systems

Dimitri O. Ledenyov and Viktor O. Ledenyov

 

Click to access 1304.4807.pdf

 

 

Long-Wave Economic Cycles:
The Contributions of Kondratieff, Kuznets, Schumpeter, Kalecki, Goodwin, Kaldor, and Minsky

Lucas Bernard, Aleksandr V. Gevorkyan, Tom Palley, and Willi Semmler

Click to access 120-163.pdf

 

 

Long Waves, Depression, and Innovation: Implications for National and Regional Economic Policy

Bianchi, G., Bruckmann, G., Delbeke, J. and Vasko, T.

 

Click to access CP-85-009.pdf

 

 

A War-Economy Theory of the Long Wave

Joshua S . Goldstein

Click to access jgcyciea.pdf

 

 

The Predictive Power of Long Wave Theory, 1989-2004

Joshua S. GOLDSTEIN

http://www.joshuagoldstein.com/jgkond.htm

 

 

An economic policy for the fifth long wave 

ANGELO REATI and JAN TOPOROWSKI

BNL Quarterly Review, no. 231, December 2004.

 

Click to access 0510008.pdf

 

 

A Stock-Flow Consistent Model of Minskyan Long Waves

Soon Ryoo

 

Click to access Ryoo.pdf

 

 

When the Kondratieff winter comes:
an exploration of the recent economic crisis from a long wave theory perspective

Zenonas Norkus

 

Click to access Zenonas%20Norkus%20-%20KondratieffWinter.pdf

 

 

Long Waves in External Imbalances, Credit Growth and Asset Prices: An Historical Perspective on Global Financial Crisis

Marco Gallegati

2015

http://repository.cmu.edu/cgi/viewcontent.cgi?article=1126&context=sem_conf

Mergers and Acquisitions – Long Term Trends and Waves

Mergers and Acquisitions – Long Term Trends and Waves

 

I can see now how low interest rates begets low interest rates.

Low Interest Rates and Business Investments seem to have a Circular Causality.

Low Interest rates result in low investments as a result of business decisions by corporations.  Please see my post Business Investments and Low Interest Rates.

Low Investments result in Low Interest Rates as a result of Monetary Policy response to boost investments and economic growth/GDP growth rates..

As a result, M&A activity, thus, increases, as companies seek inorganic growth rather than organic growth.

 

Historical Trends and Cycles

A. Long Term Interest Rates

From Real Interest Rates Over the Long Run

real-interest-rates

 

B. Business Investments

From Real Interest Rates Over the Long Run

investments

 

C.  Merger and Acquisitions
From M&A Statistics

usmabest

D. Worldwide Monthly M&A

From M&A Statistics

maaworld

ma-monthly

 

Mergers and Acquisitions Waves

  • THE FIRST WAVE: 1897 – 1904
  • THE SECOND WAVE: 1916 – 1929
  • THE THIRD WAVE: 1965 – 1969
  • THE FOURTH WAVE: 1984 – 1989
  • THE FIFTH WAVE: 1992 – 2000
  • THE SIXTH WAVE: 2003 – 2007

 

These waves are typically labeled as

  • the horizontal merger wave of the 1890s,
  • the vertical mergers of the 1920s,
  • the conglomerate merger wave of the 1960s,
  • the refocusing wave of the 1980s,
  • and the global wave of the 1990s
  • the private equity/LBO led wave of 2000s

 

From  The Business Environment / Mergers and Merger Waves: A Century of Cause and Effect / Killian J. McCarthy

Mergers are everyday occurrences. And individual mergers can be motivated by any number of motives. Proportionately, however, history tells us that most mergers are announced during a merger wave; that is, during a period of intense activity, which is usually followed by an interval of relatively less intense activity. And merger waves are very different animals.

Since the late 19th century, the world has experienced a number of major merger waves (see Figure 2.1). The first (ca. 1895–1904) and second (ca. 1918–1929) of these merger waves were US-based events, driven by changes in the physical operating environment of a US firm (Weston et al., 2004; Gaughan, 2010). The third (ca. 1960–1969) was driven, among other factors, by the rise of modern management theory (Weston & Mansinghka, 1971); a theory which spread from the USA to the UK. The fourth – the first anti-merger wave (ca. 1981–1989) – occurred when corporate raiders discovered that many of the conglomerates created in the 1960s were worth less than the sum of their parts (Shleifer & Vishny, 1991; Allen et al., 1995). And during this period, merger activity spread from the USA to the UK, and then to Continental Europe. The fifth (ca. 1991–2001) was driven by deregulation, market liberalization and globalization (Andrade et al., 2001; de Pamphilis, 2008; Gaughan, 2010), and during this merger wave records were broken in all regions (Sudarsanam and Mahate, 2003), as the wave spread from its usual North American base to engulf Europe and then Asia (de Pamphilis, 2008). Finally, in the sixth wave (ca 2003–2008), private equity firms took advantage of historically low interest rates to make speculative acquisitions. This was the first merger wave of the 21st century, and perhaps the first truly global merger wave.

 

Mergers and Acquisitions have gone up considerably in last few years.  2015 was the best year ever in history of M&A.  2016 also will prove to be almost as good as 2015.  As the interest rates rise, the M&A activity will pick up as companies would like to lock-in current low interest rates for capital.  Forward guidance by the Fed Reserve on interest rates increases for 2017 is also going to influence M&A decisions.

 

Please see my related posts:

Business Investments and Low Interest Rates

 

 

Key Sources of Research:

 

Real Interest Rates Over the Long Run

Decline and convergence since the 1980s

Kei-Mu Yi

Jing Zhang

 

Click to access kei-mu-yi-epp.pdf

 

 

M&A Statistics

https://imaa-institute.org/mergers-and-acquisitions-statistics/

 

 

Monthly M&A Insider – December 2016

http://mergermarketgroup.com/publication/ma-insider-december-2016/#.WIFzPrG-JUE

 

 

US M&A News and Trends

 

Click to access US_Flashwire_Monthly.pdf

 

 

2015 M&A TRENDS

financial.thomsonreuters.com

 

 

Eat or Be Eaten: A Theory of Mergers and Merger Waves

Gary Gorton, Matthias Kahl, Richard Rosen

NBER Working Paper No. 11364
Issued in May 2005

http://www.nber.org/papers/w11364

 

 

Understanding mergers and acquisitions: activity since 1990

Greg N. Gregoriou and Luc Renneboog

 

Click to access 02~Chapter_1.pdf

 

 

THE Q-THEORY OF MERGERS

Boyan Jovanovic Peter L. Rousseau

Working Paper 8740 http://www.nber.org/papers/w8740

Click to access w8740.pdf

 

 

Mergers as Reallocation

Boyan Jovanovic and Peter L. Rousseau

October 2002

http://www.nber.org/papers/w9279.pdf?new_window=1

 

 

Mergers and Technological Change: 1885-1998

Boyan Jovanovic and Peter L. Rousseau∗

May 15, 2001

 

Click to access merge23a.pdf

 

 

Corporate Governance and Merger Activity in the U.S.: Making Sense of the 1980s and 1990s

Bengt R. Holmström

Steven N. Kaplan

February 2001

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=261112

 

 

”What drives merger waves?”

Harford, Jarrad.

Journal of Financial Economics, V ol.77(2005):.529-560.

 

 

The Determinants of Merger Waves: An International Perspective

Dennis C. Mueller

Klaus Peter Gugler

2008

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1275293

 

 

The Determinants of Merger Waves

Klaus Peter Gugler

Dennis C. Mueller

B. Burcin Yurtoglu

January 2006

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=507282

 

 

Economists’ Hubris – The Case of Mergers and Acquisitions

Shahin Shojai

June 14, 2009

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1418986&download=yes

 

 

New Evidence and Perspectives on Mergers

Gregor Andrade

Mark L. Mitchell

Erik Stafford

January 2001

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=269313&download=yes

 

 

AN OVERVIEW ON THE DETERMINANTS OF MERGERS AND ACQUISITIONS WAVES

Vancea Mariana

University of Oradea Faculty f Economics

Click to access 055.pdf

 

 

DRIVERS OF MERGER WAVES A Revisit

Soegiharto

https://journal.ugm.ac.id/index.php/gamaijb/article/viewFile/5586/4557

 

 

Business Cycle and Aggregate Industry Merger

Srdan Komlenovic1, Abdullah Mamun2 & Dev Mishra2

University of Saskatchewan

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.527.8260&rep=rep1&type=pdf

 

 

Are There Waves in Merger Activity After All?

Dennis L. Gärtner and Daniel Halbheer

August 2008

ftp://ftp.repec.org/opt/ReDIF/RePEc/iso/ISU_WPS/92_ISU_full.pdf

 

 

Strategic merger waves: A theory of musical chairs

Flavio Toxvaerd

Journal of Economic Theory 140 (2008) 1 – 26

 

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.557.4982&rep=rep1&type=pdf

 

 

WAVES AND PERSISTENCE IN MERGER AND ACQUISITION ACTIVITY

John T. Barkoulas

Christopher F. Baum

Atreya Chakraborty

Click to access wp396.pdf

 

 

Causes and Consequences of Merger Waves

Jörn Kleinert Henning Klodt

 

Click to access kap1092.pdf

Milankovitch Cycles: Astronomical Theory of Climate Change and Ice Ages

Milankovitch Cycles: Astronomical Theory of Climate Change and Ice Ages

 

The following is an interview of George Kukla.

From An Unrepentant Prognosticator

GK: Well, I think that neither the “bad boys” nor the “good guys” know what is going on, and even worse, would be able to comprehend it. (This is not to claim that I am absolutely sure about it).

However, this is how I see it:

Yes, the globe is warming, so we do have “global warming” indeed! It proceeds in up and down cycles, but the general trend is up, no doubt about it.

What is happening is very similar to the time 115,000 years ago, when the last glaciation started. It is difficult to comprehend, but it is really so: The last glacial was accompanied by the increase of a really averaged global mean surface temperature, alias global warming.

What happened then was that the shifting sun warmed the tropics and cooled the Arctic and Antarctic. Because the tropics are so much larger than the poles, the area-weighted global mean temperature was increasing. But also increasing was the temperature difference between the oceans and the poles, the basic condition of polar ice growth. Believe it or not, the last glacial started with “global warming”!

The shifts of solar orbit today are about two to three times weaker than in the last glacial, or by the way, in the last 400,000 years. So, on that basis, we have little to worry. However, to expect today a possible complete melting of the Antarctic and Greenland ice sheets is entirely out of place.

So my advice: wait and see what happens! In no more than 50 years we’ll see who’s right.

GM: You said that “neither the “bad boys” nor the “good guys” know what is going on, and even worse, would be able to comprehend it.” Does that mean we shouldn’t worry about it? Why are all of these other scientists worried?

GK: The only thing to worry about is the damage that can be done by worrying. Why are some scientists worried? Perhaps because they feel that to stop worrying may mean to stop being paid.

GM: I’m afraid to ask this question: What do you think of the way the media has covered both “global cooling” and “global warming”?

GK: I just think that they need to make money and they seem to know best how to do it. You can’t blame them for that.

GM: In most cases, it seems like global warming and global cooling are separated by political lines. Are you surprised that the issue is so politicized?

GK: Am I surprised that global warming and cooling are separated by political lines? NOT at all. Especially if media seem to be helping a lot.

GM: What effects do carbon-dioxide emissions have on the cooling and warming cycles? Could they throw it out of balance, and what would that look like?

GK: Good question! The CO2 certainly has an influence. For instance, it appears that already now, with still relatively low concentrations, it may have a significant warming impact on the night [temperature] minima. And because the usual way to determine the daily mean is as the average of the daily minimum and maximum, here we go! But it is difficult to be sure: more clouds can do the same.

GM: In 2000, you told the Columbia University News that you believed that global warming was merely a blip before a coming ice age. Do you still agree with that?

GK: That article is principally still OK. Only then I didn’t know that the glacials, all glacials by the way, started by global warming. (Understood as area-weighted average global mean temperature, that is.) So the title of that Columbia article today would have been: “Evidence of approaching ice age is in accelerated global warming.” [Editor’s note: The current subtitle of the piece reads, “Sees Evidence of Approaching Ice Age Despite Global Warming”] Also, I didn’t stress the exceptional weakness of currently ongoing astronomic changes as compared to the last three glacial cycles. No doubt that we have about 10,000 or even possibly 20,000 years still ahead before the major ice advance can start. What we should watch now is the El Niño and La Niña. They can tell.

GM: There’s a general consensus among scientists (or at least scientific representation in the media) that man is responsible for global warming. What do you think about that? Do you agree?

GK: What I think is this: Man is responsible for a PART of global warming. MOST of it is still natural.

 

From Orbital forcing timescales: an introduction

A brief review is given of orbital patterns affecting the Earth which may be of use in establishing, for long or short periods, orbital forcing timescales (OFT). The metronomic variations of the Earth-Moon system and of the Earth-Sun orbital patterns produce gravitational and temperature effects which alter the physical environment on the Earth’s surface. These give an interpenetrating effect of forcing cycles ranging from twice daily tides, day-night alternations, various tidal patterns and the annual solar pattern. All of these have been used palaeontologically to give precision to short-term age determination in the past.

It is cycles of the Milankovitch band which are showing promise of enabling new practical timescales to be established for parts of geological time. These depend on changes in the Earth-Sun distance (perihelion and precession cycles of 19 and 23 ka at the present time), changes in the tilt of the Earth’s axis with respect to the Earth’s orbit round the Sun (the obliquity cycles of 41 and 54 ka), and changes in the geometry of the Earth’s orbit around the Sun (eccentricity cycles of 106 and 414 ka). Since the number of days in the year have changed through time; so have the periods of the perihelion and precession cycles. There is increasing evidence that small-scale sedimentary rhythmic couplets, often grouped into bundles, may represent the effect of some of these; often the precessional couplets are grouped into bundles of five or so with in the lower eccentricity period. The disentangling of the interpenetrating cycles to produce an OFT is an exciting problem and challenge for palaeobiology and sedimentology. These should enable numerical dates to be given to biostratigraphic and chronostratigraphic timescales and eventually enable many earth processes to be analysed in real time.

26 Ma oscillations related to the Cosmic Year (c. 260 Ma) have been invoked to explain periodic mass extinctions in the fossil record. But evidence is presented to suggest such extinctions are not, in fact, periodic.

 

 

Key Concepts:

  • 23000 yrs cycle – Earth’s Precessional
  • 41000 yrs cycle – Earth’s Obliquity
  • 100000 yrs cycle – Earth’s Eccentricity
  • Glacial-Interglacial Cycles
  • Abrupt Climate Change
  • Paleo Climate
  • Glacial Inception
  • Interglacial Termination
  • Ice Age
  • End of Holocene
  • Anthropocene
  • Periodicity

 

Key People:

  • Andre Berger
  • George Kukla
  • J. Imbrie
  • N J Shackleton
  • WS Broecker
  • ME Raymo
  • J A Rial
  • David Archer
  • J D Hays
  • Michel Crucifix
  • Chronis Tzedakis

 

 

Key Sources of Research:

 

Challenges for ice age dynamics: a dynamical systems perspective

Michel Crucifix Guillaume Lenoir1, and Takahito Mitsui1

December 14, 2015

 

Click to access 1512.03557.pdf

 

N THE STRUCTURE AND ORIGIN OF MAJOR GLACIATION CYCLES
1. LINEAR RESPONSES TO MILANKOVITCH FORCING

J.Imbrie,• E.A.Boyle,2 S.C.Clemens,•
A. Duffy, • W.R. Howard,s G. Kukla,s
J. Kutzbach,4 D. G. Martinson,s A. Mcintyre?5, A. C. Mix, 6 B. Molfino, s J.J. Morley, s
L. C. Peterson,? N.G. Pisias,6 W.L. Prell, • M.E. Raytoo,2 N.J. Shackletons, and
J. R. Toggweiler

 

Click to access Imbrie_etal_1992_Paleoc_Milankovitch_Linear.pdf

 

ON TH• STRUCTURE AND ORIGIN OF MAJOR GLACIATION CYCLES

2. THE 100,000-YEAR CYCLE

J.Imbrie,• A. Berger, E.A. Boyle, S.C. Clemens•, A.Duffy,• W.R. Howard, G.Kukla, J.Kutzbach, D.G.Martinson , A.Mcintyre A.C. Mix,  B. Molfino, J.J.Morley, L.C.Peterson, N.G.Pisias, W.L.Prell, M.E.Raymo,N.J.Shackleto9n,andJ.R. Toggweile

PALEOCEANOGRAPHY, VOL. 8, NO. 6, PAGES 699-735, DECEMBER 1993

 

Click to access Imbrie_etal_1993_Paleoc_Milankovitch_100K.pdf

 

The 100,000-Year Ice-Age Cycle Identified and Found to Lag Temperature, Carbon Dioxide, and Orbital Eccentricity

Nicholas J. Shackleton

 

Click to access shackleton-2000.pdf

 

MILANKOVITCH THEORY AND CLIMATE

A. Berger

 

ftp://ftp.elic.ucl.ac.be/berger/Berger-1988-Review%20Geophys.pdf

 

Ice Age Terminations

Hai Cheng,1 R. Lawrence Edwards,1* Wallace S. Broecker,2 George H. Denton,3 Xinggong Kong,4 Yongjin Wang,4 Rong Zhang,5 Xianfeng Wang1

Click to access Cheng%20et%20al.%202009_terminations.pdf

 

Variations in the Earth’s Orbit: Pacemaker of the IceAges

J.D.Hays,John Imbrie, N.J.Shackleton

1976

 

Click to access 573cca0c08ae9ace840fe240.pdf

 

An outsider’s review of the astronomical theory of the climate: is the eccentricity-driven insolation the main driver of the ice ages?

Maya Elkibbi), Jose ́ A. Rial

2001

Click to access ESRreviewpaper.pdf

 

The 41 kyr world: Milankovitch’s other unsolved mystery

Maureen E. Raymo

Kerim Nisancioglu

 

Click to access raymo-2003.pdf

 

Pacemaking the Ice Ages by Frequency Modulation of Earth’s Orbital Eccentricity

J. A. Rial

Click to access Pacemaking.pdf

 

Earth’s orbital eccentricity and the rhythm of the Pleistocene ice ages: the concealed pacemaker

J.A. Rial

Click to access GPCiceages.pdf

 

 

Unlocking the mysteries of the ice ages

Maureen E. Raymo & Peter Huybers

Click to access 2008_Raymo+Huybers.pdf

 

Orbital forcing timescales: an introduction

MICHAEL R. HOUSE

Click to access 1.full.pdf

 

Links between eccentricity forcing and the 100,000-year glacial cycle

 

Lorraine E. Lisiecki

Click to access ngeo828.pdf

 

Understanding nonlinear responses of the climate system to orbital forcing

J.A. Rial, C.A. Anaclerio

Click to access Nonlinear.pdf

 

The Earth’s Orbit and the Ice Ages

Curt Covey

1984

Click to access SciAm1984.EarthsOrbitIceAges.pdf

 

A Paleoclimate Model of Ice-Albedo Feedback Forced by Variations in Earth’s Orbit

Richard McGehee∗ Clarence Lehman

 

Click to access 001fcdb7a08c2e20e7ab44fc0bd1f11f70ea.pdf

 

In defense of Milankovitch

Gerard Roe

Click to access roe06grl_54724.pdf

 

The End of Present Interglacial – How and When

Wallace S Broecker

Click to access broecker.pdf

 

Timing and duration of Last Interglacial conditions in Europe: a chronicle of a changing chronology

Chronis Tzedakis

Click to access tzedakis.pdf

 

Last Interglacial Climates

George J. Kukla  et all

 

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.650.7835&rep=rep1&type=pdf

 

 

Theories and Modeling of Glacial–Interglacial Cycles and Glacial Inception

Alexandra Jahn

 

Click to access TheoriesLGI_Jahn.pdf

 

An Unrepentant Prognosticator

Climatologist George Kukla still believes an ice age is likely.

MARI KRUEGER

http://www.gelfmagazine.com/archives/an_unrepentant_prognosticator.php

 

Can we predict the duration of an interglacial?

P. C. Tzedakis1, E. W. Wolff2, L. C. Skinner3, V. Brovkin4, D. A. Hodell3, J. F. McManus5, and D. Raynaud

Click to access cp-8-1473-2012.pdf

 

Is Nature Warning Us of a New Ice Age?

by Laurence Hecht

 

Click to access warning_ice_age.pdf

 

CO2: The Greatest Scientific Scandal Of Our Time

by Zbigniew Jaworowski

 

Click to access 20_1-2_CO2_Scandal.pdf

 

Where the Global Warming Hoax Was Born

 

by Marjorie Mazel Hecht

 

Click to access GWHoaxBorn.pdf

 

The Coming (or Present) Ice Age

A long-term perspective on the current global warming fad

by Laurence Hecht

 

Click to access ComingPresentIceAge.pdf