Declining Volatility in the U.S. Automobile Industry
AbstractThis paper documents the dramatic changes in volatility that occurred in the U.S. auto industry in the early 1980s. Namely, output volatility declined significantly, the covariance of inventory investment and sales became much more negative, and adjustments to output, which in earlier decades stemmed primarily from plants hiring and laying off workers, were more often accomplished with changes in average hours per worker after the mid 1980s. Building on the work of Blanchard (1983), we show how all of these changes could have stemmed from one underlying factor%u2014a decline in the persistence of motor vehicle sales. We use both industry-level data as well as micro data on production schedules from 103 assembly plants in the United States and Canada to document the developments in the early 1980s. We then use the original Holt, Modigliani, Muth and Simon (1960) linear quadratic inventory model to show how a decline in the persistence of sales leads to all of the changes noted above, including the propensity to use intensive margins of adjustment over extensive labor margins, even in the absence of technological change.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11596.
Date of creation: Sep 2005
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Other versions of this item:
- Daniel J. Vine & Valerie A. Ramey, 2006. "Declining Volatility in the U.S. Automobile Industry," American Economic Review, American Economic Association, vol. 96(5), pages 1876-1889, December.
- E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-09-17 (All new papers)
- NEP-BEC-2005-09-17 (Business Economics)
- NEP-HIS-2005-09-17 (Business, Economic & Financial History)
- NEP-MAC-2005-09-17 (Macroeconomics)
- NEP-TID-2005-09-17 (Technology & Industrial Dynamics)
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.:
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Handbook of Macroeconomics,
in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 13, pages 863-923
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