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How Do Firms React to Surprising Changes to Demand? A Vector Autoregressive Analysis Using Business Survey Data

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  • Buckle, Robert A
  • Meads, Chris S

Abstract

The way in which economic agents respond to unexpected changes to demand is a central issue in contemporary business cycle theories. Although several empirical papers have used macro data to evaluate this issue there are very few results available that have used direct measures of expectation errors from micro panel data. This paper uses micro panel data from a New Zealand quarterly tendency survey to derive expectation errors for nine variables over an unusually long period of 24 years. A vector-autoregressive model is estimated and used to simulate the dynamic reaction of manufacturers to surprising changes to demand. Unexpected changes to demand are important in explaining unplanned changes in output, inventories, employment and labor turnover. Selling price and cost expectation errors are not particularly sensitive to surprising changes to demand. Copyright 1991 by Blackwell Publishing Ltd

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Bibliographic Info

Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics & Statistics.

Volume (Year): 53 (1991)
Issue (Month): 4 (November)
Pages: 451-66

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Handle: RePEc:bla:obuest:v:53:y:1991:i:4:p:451-66

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Cited by:
  1. Michael Ehrmann, 2004. "Firm Size and Monetary Policy Transmission – Evidence from German Business Survey Data," CESifo Working Paper Series 1201, CESifo Group Munich.
  2. David Law & Bob Buckle & Dean Hyslop, 2006. "Toward a Model of Firm Productivity Dynamics," Treasury Working Paper Series 06/11, New Zealand Treasury.
  3. Richard De Abreu Lourenco & Philip Lowe, 1994. "Demand Shocks, Inflation and the Business Cycle," RBA Research Discussion Papers rdp9411, Reserve Bank of Australia.
  4. Brian Silverstone, 2000. "Respondent Dynamics within the NZIER Survey of Business Opinion: An Introductory Perspective," Working Papers in Economics 00/03, University of Waikato, Department of Economics.
  5. Ciaran Driver & Fabrice Goffinet, 1998. "Investment under Demand Uncertainty, Ex-Ante Pricing, and Oligopoly," Review of Industrial Organization, Springer, vol. 13(4), pages 409-423, August.

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