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The Production and Inventory Behavior of the American Automobile Industry

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Olivier J. Blanchard

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Abstract

Understanding inventory movements is central to an understanding of business cycles. This paper presents an empirical study of the behavior of inventories in the automobile industry. It finds that inventory behavior is well explained by the assumption of intertemporal optimization with rational expectations. The underlying cost structure appears to have substantial costs of changing production as well as substantial costs of being away from target inventory, the latter being a function of current sales. Given this cost structure, whether inventory behavior is stabilizing or destabilizing depends on the characteristics of the demand process. In the automobile industry, inventory behavior is destabilizing: the variance of production is larger than the variance of sales.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0891.

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Date of creation: Sep 1983
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Publication status: published as Blanchard, Olivier J. "The Production and Inventory Behavior of the American Automobile Industry." Jounrnal of Poltical Economy, Vol. 91, No. 3,(June 1983), pp. 365-400. Chicago: University of ChicagoPress, 1983.
Handle: RePEc:nbr:nberwo:0891

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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(1976-2), pages 351-408. [Downloadable!]
  2. Olivier J. Blanchard, 1982. "Identification in Dynamic Linear Models with Rational Expectations," NBER Technical Working Papers 0024, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Hansen, Lars Peter & Sargent, Thomas J., 1980. "Formulating and estimating dynamic linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 2(2), pages 7-46, May. [Downloadable!] (restricted)
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  4. Blinder, Alan S, 1982. "Inventories and Sticky Prices: More on the Microfoundations of Macroeconomics," American Economic Review, American Economic Association, vol. 72(3), pages 334-48, June. [Downloadable!] (restricted)
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  5. Sargent, Thomas J, 1978. "Rational Expectations, Econometric Exogeneity, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 673-700, August. [Downloadable!] (restricted)
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