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Seasonality, Cost Shocks, and the Production Smoothing Models of Inventories

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  • Miron, Jeffrey A
  • Zeldes, Stephen P

Abstract

This paper examines whether the negative assessment of the production smoothin g model of inventories in the existing literature is due to inadequat e treatment of cost shocks or seasonal fluctuations. The results of t he authors' empirical work provide a strong negative report on the pr oduction smoothing model, even when it includes cost shocks and seaso nal fluctuations. A striking piece of evidence is that in most indust ries the seasonal pattern in production is similar to the seasonal pa ttern in shipments, even after accounting for the seasonal movements in interest rates, input prices, and the weather. Copyright 1988 by The Econometric Society.

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Bibliographic Info

Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 56 (1988)
Issue (Month): 4 (July)
Pages: 877-908

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Handle: RePEc:ecm:emetrp:v:56:y:1988:i:4:p:877-908

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  1. A. S. Blinder & S. Fischer, 1978. "Inventories, Rational Expectations, and the Business Cycle," Working papers 220, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Ghali, Moheb A, 1987. "Seasonality, Aggregation and the Testing of the Production Smoothing Hypothesis," American Economic Review, American Economic Association, vol. 77(3), pages 464-69, June.
  3. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-46, April.
  4. Ghysels, E., 1987. "Cycles and Seasonais in Inventories: Another Look At Non-Stationarity and Induced Seasonality," Cahiers de recherche 8718, Universite de Montreal, Departement de sciences economiques.
  5. West, Kenneth D, 1986. "A Variance Bounds Test of the Linear Quadratic Inventory Model," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 374-401, April.
  6. Jeffrey A. Miron, 1986. "Seasonal Fluctuations and the Life Cycle-Permanent Income Model of Consumption," NBER Working Papers 1845, National Bureau of Economic Research, Inc.
  7. Abel, Andrew B, 1985. "Inventories, Stock-Outs and Production Smoothing," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 283-93, April.
  8. Hansen, Lars Peter & Singleton, Kenneth J, 1983. "Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 249-65, April.
  9. Blinder, Alan S, 1986. "Can the Production Smoothing Model of Inventory Behavior Be Saved?," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 431-53, August.
  10. Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 9-22.
  11. Irvine, F Owen, Jr, 1981. "Retail Inventory Investment and the Cost of Capital," American Economic Review, American Economic Association, vol. 71(4), pages 633-48, September.
  12. Maccini, Louis J & Rossana, Robert J, 1984. "Joint Production, Quasi-Fixed Factors of Production, and Investement in Finished Goods Inventories," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(2), pages 218-36, May.
  13. Lawrence J. Christiano & Martin S. Eichenbaum, 1986. "Temporal Aggregation and Structural Inference in Macroeconomics," NBER Technical Working Papers 0060, National Bureau of Economic Research, Inc.
  14. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  15. Jeffrey A. Miron & Stephen P. Zeldes, . "Production, Sales and the Change in Inventories: An Identity that Doesn't Add Up," Rodney L. White Center for Financial Research Working Papers 20-87, Wharton School Rodney L. White Center for Financial Research.
  16. Schutte, David P, 1983. "Inventories and Sticky Prices: Note," American Economic Review, American Economic Association, vol. 73(4), pages 815-16, September.
  17. Kahn, James A, 1987. "Inventories and the Volatility of Production," American Economic Review, American Economic Association, vol. 77(4), pages 667-79, September.
  18. Marvin Goodfriend, 1991. "Information-aggregation bias," Working Paper 91-06, Federal Reserve Bank of Richmond.
  19. Peter M. Garber & Robert G. King, 1983. "Deep Structral Excavation? A Critique of Euler Equation Methods," NBER Technical Working Papers 0031, National Bureau of Economic Research, Inc.
  20. Thomas J. Sargent, 1977. "Rational expectations, econometric exogeneity and consumption," Staff Report 25, Federal Reserve Bank of Minneapolis.
  21. Martin Feldstein & Lawrence H. Summers, 1979. "Inflation and the Taxation of Capital Income in the Corporate Sector," NBER Working Papers 0312, National Bureau of Economic Research, Inc.
  22. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  23. Blinder, Alan S, 1986. "More on the Speed of Adjustment in Inventory Models," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(3), pages 355-65, August.
  24. Mankiw, N. Gregory, 1981. "The permanent income hypothesis and the real interest rate," Economics Letters, Elsevier, vol. 7(4), pages 307-311.
  25. West, Kenneth D., 1983. "A note on the econometric use of constant dollar inventory series," Economics Letters, Elsevier, vol. 13(4), pages 337-341.
  26. Blanchard, Olivier J, 1983. "The Production and Inventory Behavior of the American Automobile Industry," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 365-400, June.
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