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Declining Volatility in the U.S. Automobile Industry

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  • Daniel J. Vine
  • Valerie A. Ramey

Abstract

Dramatic changes in the volatility of output occurred in the U.S. auto industry in the early 1980s. Namely, output volatility declined, the covariance of inventory investment and sales grew more negative, and adjustments to production schedules, 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. Using a linear quadratic inventory model with intensive and extensive labor adjustments, we show how all of these changes could have stemmed from one underlying factor?a decline in the persistence of motor vehicle sales. (JEL G31, L25, L62, M11)

Suggested Citation

  • 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.
    • Handle: RePEc:aea:aecrev:v:96:y:2006:i:5:p:1876-1889
    DOI: 10.1257/aer.96.5.1876
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    References listed on IDEAS

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    1. Blanchard, Olivier J, 1983. "The Production and Inventory Behavior of the American Automobile Industry," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 365-400, June.
    2. Chang-Jin Kim & Charles R. Nelson, 1999. "Has The U.S. Economy Become More Stable? A Bayesian Approach Based On A Markov-Switching Model Of The Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 608-616, November.
    3. Margaret M. McConnell & Gabriel Perez-Quiros, 2000. "Output fluctuations in the United States: what has changed since the early 1980s?," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
    4. Ramey, Valerie A. & West, Kenneth D., 1999. "Inventories," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 13, pages 863-923, Elsevier.
    5. James A. Kahn & Margaret M. McConnell & Gabriel Perez-Quiros, 2002. "On the causes of the increased stability of the U.S. economy," Economic Policy Review, Federal Reserve Bank of New York, vol. 8(May), pages 183-202.
    6. Aizcorbe, Ana M, 1992. "Procyclical Labour Productivity, Increasing Returns to Labour and Labour Hoarding in Car Assembly Plant Employment," Economic Journal, Royal Economic Society, vol. 102(413), pages 860-873, July.
    7. Valerie A. Ramey & Daniel J. Vine, 2004. "Tracking the Source of the Decline in GDP Volatility: An Analysis of the Automobile Industry," NBER Working Papers 10384, National Bureau of Economic Research, Inc.
    8. Timothy F. Bresnahan & Valerie A. Ramey, 1994. "Output Fluctuations at the Plant Level," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(3), pages 593-624.
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    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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