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Serial Correlation in Demand, Backlogging and Production Volatility

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  • Maccini, Louis J
  • Zabel, Edward

Abstract

This paper explores the idea that stockout avoidance motives together with serial correlation in demand and/or the backlogging of excess demand is sufficient to induce firms to behave so that the variance of production exceeds the variance of sales. The authors show that the idea holds under a wide range of circumstances facing firms, including additive as well as multiplicative demand uncertainty, a general form of serial correlation in demand, whether inventory and shortage costs apply, and whether payment occurs at order or delivery. The results greatly enhance the empirical relevance of the idea. Copyright 1996 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): 37 (1996)
Issue (Month): 2 (May)
Pages: 423-52

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Handle: RePEc:ier:iecrev:v:37:y:1996:i:2:p:423-52

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Cited by:
  1. Hamister, James W. & Suresh, Nallan C., 2008. "The impact of pricing policy on sales variability in a supermarket retail context," International Journal of Production Economics, Elsevier, vol. 111(2), pages 441-455, February.
  2. Yi Wen, 2009. "Input and output inventory dynamics," Working Papers 2008-008, Federal Reserve Bank of St. Louis.
  3. Yi Wen, 2005. "Labor hoarding and inventories," Working Papers 2005-040, Federal Reserve Bank of St. Louis.
  4. Wen, Yi, 2004. "General Equilibrium Analysis of the Supply of Capital," Working Papers 04-02, Cornell University, Center for Analytic Economics.
  5. Yi Wen, 2007. "Production and Inventory Behavior of Capital," Annals of Economics and Finance, Society for AEF, vol. 8(1), pages 95-112, May.
  6. Wen, Yi, 2004. "Durable Goods Inventories and the Volatility of Production: Explaining the Less Volatile U.S. Economy," Working Papers 04-01, Cornell University, Center for Analytic Economics.
  7. Wen, Yi, 2005. "Understanding the inventory cycle," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1533-1555, November.
  8. Wen, Yi, 2003. "The Power of Demand: A General Equilibrium Analysis of Multi-Stage-Fabrication Economy with Inventories," Working Papers 03-13r, Cornell University, Center for Analytic Economics.
  9. Wen, Yi, 2003. "Durable Goods Inventories and the Volatility of Production: A Puzzle," Working Papers 03-12, Cornell University, Center for Analytic Economics.
  10. Yi Wen, 2005. "The multiplier: a general equilibrium analysis of multi-stage-fabrication economy with inventories," Working Papers 2005-046, Federal Reserve Bank of St. Louis.
  11. Wen, Yi, 2003. "Understanding the Inventory Cycle: I. Partial Equilibrium Analysis," Working Papers 03-08, Cornell University, Center for Analytic Economics.

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