Can the Production Smoothing Model of Inventory Behavior Be Saved?
AbstractThe production smoothing model of inventory behavior has a long and venerable history, and theoretical foundations which seem very strong. Yet certain overwhelming facts seem not only to defy explanation within the production smoothing framework, but actually to argue that the basic idea of production smoothing is all wrong. Most prominent wnong these is the fact that the variance of detrended production exceeds the variance of detrended sales.This paper first documents the stylized facts. Then it derives the production smoothing model rigorously and explains how the model can be amended to make it consistent with the facts. Next, estimates of stock adjustment equations derived from the theory are presented and evaluated. Finally, it reviews the theoretical and empirical evidence and tries to drawsome tentative conclusions.
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Bibliographic InfoArticle provided by MIT Press in its journal Quarterly Journal of Economics.
Volume (Year): 101 (1986)
Issue (Month): 3 (August)
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Web page: http://mitpress.mit.edu/journals/
Other versions of this item:
- Alan S. Blinder, 1984. "Can The Production Smoothing Model of Inventory Behavior be Saved?," NBER Working Papers 1257, National Bureau of Economic Research, Inc.
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- Alan J. Auerbach & Jerry R. Green, 1980. "Components of Manufacturing Inventories," NBER Working Papers 0491, National Bureau of Economic Research, Inc.
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- Lieberman, Charles, 1980. "Inventory Demand and Cost of Capital Effects," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 348-56, August.
- F. Owen Irvine, 1981. "Specification errors and the stock-adjustment model: why estimated speeds-of-adjustment are too slow in inventory equations," Working Paper Series / Economic Activity Section 14, Board of Governors of the Federal Reserve System (U.S.).
- Akhtar, M A, 1983. "Effects of Interest Rates and Inflation on Aggregate Inventory Investment in the United States," American Economic Review, American Economic Association, vol. 73(3), pages 319-28, June.
- Martin Feldstein & Alan Auerbach, 1976. "Inventory Behavior in Durable-Goods Manufacturing: The Target-Adjustment Model," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(2), pages 351-408.
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