Commentary 
The “Bullwhip Effect” has gotten the media’s attention. However, the market and monetary policy’s causes, effects, and consequences are not well discussed. To understand its impact on the financial ecosystem, we need a definition of what this effect is.
The bullwhip effect is a phenomenon in the distribution channel where demand forecasts create yield supply chain inefficiencies. The “bullwhip effect” refers to the increases in swings of inventory building or reduction in response to shifts in consumer demand as one moves further up the supply chain.
Historically, businesses have a propensity to overestimate the strength or weakness of the consumer. When consumption is strong, businesses believe it is an indefinite state and vice versa. Therefore, small changes to the demand side of the equation tend to lead to significant changes on the supply side….