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 InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1257.
Date of creation: Jan 1984
Date of revision:
Publication status: published as Blinder, Alan S. "Can the Production Smoothing Model of Inventory Behavior Be Saved?" Quarterly Journal of Economics, August 1986, pp431-453.
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Other versions of this item:
- Blinder, Alan S, 1986. "Can the Production Smoothing Model of Inventory Behavior Be Saved?," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 431-53, August.
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- 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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NBER Working Papers
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NBER Working Papers
0891, National Bureau of Economic Research, Inc.
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- Alan S. Blinder, 1981. "Retail Inventory Behavior and Business Fluctuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(2), pages 443-520.
- 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.).
- Michael C. Lovell, 1959. "Manufacturers' Inventories, Sales Expectations, and the Acceleration Principle," Cowles Foundation Discussion Papers 86, Cowles Foundation for Research in Economics, Yale University.
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