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Production management, output volatility, and good luck

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  • Bivin, David G.

Abstract

This paper models the scale of the technology shocks as a decision variable whose value is determined by the production manager. It is shown that smaller shocks enhance profit in several ways and thus the firm has an incentive to adopt more reliable production technologies. The adoption of these technologies may account for the "good luck" hypothesis in which the stabilization of Gross Domestic Product (GDP) since 1984 is attributed to smaller shocks. It differs from this hypothesis in two respects. First, the reduced volatility should be permanent. Second, the stabilization does not require smaller intrinsic shocks to the economy.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 32 (2008)
Issue (Month): 7 (July)
Pages: 2118-2136

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Handle: RePEc:eee:dyncon:v:32:y:2008:i:7:p:2118-2136

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  1. Aubhik Khan & Julia K. Thomas, 2002. "Inventories and the business cycle: an equilibrium analysis of (S,s) policies," Working Papers 02-20, Federal Reserve Bank of Philadelphia.
  2. Wen, Yi, 2002. "Understanding the Inventory Cycle," Working Papers 02-04, Cornell University, Center for Analytic Economics.
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  9. James A. Kahn & Margaret M. McConnell & Gabriel Perez-Quiros, 2002. "On the causes of the increased stability of the U.S. economy," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 183-202.
  10. Hirsch, Albert A., 1996. "Has inventory management in the US become more efficient and flexible? A macroeconomic perspective," International Journal of Production Economics, Elsevier, vol. 45(1-3), pages 37-46, August.
  11. Valerie A. Ramey & Daniel J. Vine, 2004. "Why Do Real and Nominal Inventory-Sales Ratios Have Different Trends," NBER Working Papers 10703, National Bureau of Economic Research, Inc.
  12. Bivin, David G., 2008. "Production stability in a supply-chain environment," International Journal of Production Economics, Elsevier, vol. 114(1), pages 265-275, July.
  13. Milgrom, Paul & Roberts, John, 1990. "The Economics of Modern Manufacturing: Technology, Strategy, and Organization," American Economic Review, American Economic Association, vol. 80(3), pages 511-28, June.
  14. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  15. Christiano, Lawrence J., 1988. "Why does inventory investment fluctuate so much?," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 247-280.
  16. Alan S. Blinder & Louis J. Maccini, 1991. "Taking Stock: A Critical Assessment of Recent Research on Inventories," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 73-96, Winter.
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Cited by:
  1. Bivin, David G., 2008. "Production stability in a supply-chain environment," International Journal of Production Economics, Elsevier, vol. 114(1), pages 265-275, July.

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