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Seasonality, Cost Shocks, and the Production Smoothing Models of Inventories

  • Miron, Jeffrey A
  • Zeldes, Stephen P

This paper examines whether the negative assessment of the production smoothin g model of inventories in the existing literature is due to inadequat e treatment of cost shocks or seasonal fluctuations. The results of t he authors' empirical work provide a strong negative report on the pr oduction smoothing model, even when it includes cost shocks and seaso nal fluctuations. A striking piece of evidence is that in most indust ries the seasonal pattern in production is similar to the seasonal pa ttern in shipments, even after accounting for the seasonal movements in interest rates, input prices, and the weather. Copyright 1988 by The Econometric Society.

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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 56 (1988)
Issue (Month): 4 (July)
Pages: 877-908

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Handle: RePEc:ecm:emetrp:v:56:y:1988:i:4:p:877-908
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  1. 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.
  2. West, Kenneth D., 1983. "A note on the econometric use of constant dollar inventory series," Economics Letters, Elsevier, vol. 13(4), pages 337-341.
  3. Maccini, Louis J & Rossana, Robert J, 1984. "Joint Production, Quasi-Fixed Factors of Production, and Investement in Finished Goods Inventories," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(2), pages 218-36, May.
  4. Ghysels, E., 1987. "Cycles and Seasonais in Inventories: Another Look At Non-Stationarity and Induced Seasonality," Cahiers de recherche 8718, Universite de Montreal, Departement de sciences economiques.
  5. Olivier J. Blanchard, 1982. "The Production and Inventory Behavior of the American Automobile Industry," NBER Working Papers 0891, National Bureau of Economic Research, Inc.
  6. Jeffrey A. Miron & Stephen P. Zeldes, 1988. "Production, Sales, and the Change in Inventories: An Identity That Doesn`t Add Up," NBER Working Papers 2765, National Bureau of Economic Research, Inc.
  7. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  8. Kenneth D. West, 1985. "A Variance Bounds Test of the Linear Quardractic Inventory Model," NBER Working Papers 1581, National Bureau of Economic Research, Inc.
  9. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-46, April.
  10. Marvin Goodfriend, 1991. "Information-aggregation bias," Working Paper 91-06, Federal Reserve Bank of Richmond.
  11. Hansen, Lars Peter & Singleton, Kenneth J, 1983. "Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 249-65, April.
  12. Schutte, David P, 1983. "Inventories and Sticky Prices: Note," American Economic Review, American Economic Association, vol. 73(4), pages 815-16, September.
  13. Alan S. Blinder, 1986. "More on the Speed of Adjustment in Inventory Models," NBER Working Papers 1913, National Bureau of Economic Research, Inc.
  14. Prescott, Edward C., 1986. "Theory ahead of business-cycle measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 11-44, January.
  15. Kahn, James A, 1987. "Inventories and the Volatility of Production," American Economic Review, American Economic Association, vol. 77(4), pages 667-79, September.
  16. Lawrence J. Christiano & Martin S. Eichenbaum, 1986. "Temporal Aggregation and Structural Inference in Macroeconomics," NBER Technical Working Papers 0060, National Bureau of Economic Research, Inc.
  17. A. S. Blinder & S. Fischer, 1978. "Inventories, Rational Expectations, and the Business Cycle," Working papers 220, Massachusetts Institute of Technology (MIT), Department of Economics.
  18. Martin Feldstein & Lawrence H. Summers, 1979. "Inflation and the Taxation of Capital Income in the Corporate Sector," NBER Working Papers 0312, National Bureau of Economic Research, Inc.
  19. Mankiw, N. Gregory, 1981. "The permanent income hypothesis and the real interest rate," Economics Letters, Elsevier, vol. 7(4), pages 307-311.
  20. Jeffrey A. Miron, 1986. "Seasonal Fluctuations and the Life Cycle-Permanent Income Model of Consumption," NBER Working Papers 1845, National Bureau of Economic Research, Inc.
  21. repec:oup:qjecon:v:101:y:1986:i:3:p:431-53 is not listed on IDEAS
  22. repec:oup:restud:v:52:y:1985:i:2:p:283-93 is not listed on IDEAS
  23. Peter M. Garber & Robert G. King, 1983. "Deep Structral Excavation? A Critique of Euler Equation Methods," NBER Technical Working Papers 0031, National Bureau of Economic Research, Inc.
  24. Ghali, Moheb A, 1987. "Seasonality, Aggregation and the Testing of the Production Smoothing Hypothesis," American Economic Review, American Economic Association, vol. 77(3), pages 464-69, June.
  25. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  26. Irvine, F Owen, Jr, 1981. "Retail Inventory Investment and the Cost of Capital," American Economic Review, American Economic Association, vol. 71(4), pages 633-48, September.
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