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Aggregation and Testing of the Production Smoothing Hypothesis

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  • Lai, Kon S
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    Abstract

    This paper examines the aggregate implications of the production smoothing model. The analysis indicates that aggregation can be a source of bias distorting tests of production smoothing based on the relative variance of production and sales. It is shown that, depending upon the relative variability of different types of market shocks firms face, the aggregation bias can be so severe as to render the test of the production smoothing hypothesis invalid. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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    Bibliographic Info

    Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

    Volume (Year): 32 (1991)
    Issue (Month): 2 (May)
    Pages: 391-403

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    Handle: RePEc:ier:iecrev:v:32:y:1991:i:2:p:391-403

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    Cited by:
    1. Scott Schuh, 1996. "Evidence on the link between firm-level and aggregate inventory behavior," Finance and Economics Discussion Series 96-46, Board of Governors of the Federal Reserve System (U.S.).
    2. Allen, Donald S., 1997. "A multi-sector inventory model," Journal of Economic Behavior & Organization, Elsevier, vol. 32(1), pages 55-87, January.
    3. Donald S. Allen, 1999. "Seasonal production smoothing," Working Papers 1999-004, Federal Reserve Bank of St. Louis.
    4. Donald S. Allen, 1994. "Why does inventory investment fluctuate so much during contractions?," Working Papers 1994-029, Federal Reserve Bank of St. Louis.
    5. Rossana, Robert J., 1998. "On the adjustment matrix in error correction models," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 427-444, July.

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