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Structural Instability and the Production-Smoothing Model of Inventories

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  • Rossana, Robert J

Abstract

The production-smoothing model of inventories implies that inventories, labor inputs, sales, and factor input prices are cointegrated if sales and factor prices are I(1) with one cointegrating vector for each state variable held. These propositions are tested in six nondurable-goods industries. All industries provide evidence of cointegration. Fewer quasi-fixed factors are found than previous research often assumed. Estimates of cointegrating vectors provide implausible parameter estimates. Rank stability tests, with fixed or sequentially chosen breakpoints, indicate that the cointegrating matrix has unstable rank. Parameter estimates of cointegrating vectors do not provide much support for the production-smoothing model of inventories.

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Bibliographic Info

Article provided by American Statistical Association in its journal Journal of Business and Economic Statistics.

Volume (Year): 16 (1998)
Issue (Month): 2 (April)
Pages: 206-15

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Handle: RePEc:bes:jnlbes:v:16:y:1998:i:2:p:206-15

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Cited by:
  1. Louis J. Maccini & Bartholomew Moore & Huntley Schaller, 2013. "Inventory Behavior with Permanent Sales Shocks," Fordham Economics Discussion Paper Series dp2013-03, Fordham University, Department of Economics.
  2. Mollick, Andre Varella, 2004. "Production smoothing in the Japanese vehicle industry," International Journal of Production Economics, Elsevier, vol. 91(1), pages 63-74, September.
  3. David Bivin, 2005. "Gauging the performance of the linear-quadratic inventory model," Applied Economics, Taylor & Francis Journals, vol. 37(11), pages 1215-1231.
  4. Louis J. Maccini & Bartholomew J. Moore & Huntley Schaller, 2004. "The Interest Rate, Learning, and Inventory Investment," American Economic Review, American Economic Association, vol. 94(5), pages 1303-1327, December.

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