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Still More on the Speed of Adjustment in Inventory Models: A Lesson in Aggregation

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  • Seitz, Helmut

Abstract

Applied econometric research has been troubled by the fact that estimated adjustment speeds from stock-adjustment models of inventory investment turn out to be "implausibly slow." The paper presents new empirical evidence using business-survey data collected by the IFO Institute Munich, Germany. It is shown empirically that there is no such a thing as an "implausibly slow" adjustment speed if estimation is done at the same level of aggregation as is requested by the underlying microeconomic theory, that is, at the level of the individual firm. Slow adjustment speeds turn out to be an artifact due to aggregation.

Suggested Citation

  • Seitz, Helmut, 1993. "Still More on the Speed of Adjustment in Inventory Models: A Lesson in Aggregation," Empirical Economics, Springer, vol. 18(1), pages 103-127.
    • Handle: RePEc:spr:empeco:v:18:y:1993:i:1:p:103-27
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    Cited by:

    1. Scott Schuh, "undated". "Evidence on the Link between Firm-Level and Aggregate Inventory Behavior," Finance and Economics Discussion Series 1996-46, Board of Governors of the Federal Reserve System (U.S.), revised 10 Dec 2019.
    2. W. Allard Bruinshoofd & Clemens J. M. Kool, 2004. "Dutch Corporate Liquidity Management: New Evidence on Aggregation," Journal of Applied Economics, Taylor & Francis Journals, vol. 7(2), pages 195-230, November.
    3. Daniele Coen-Pirani, 2004. "Markups, Aggregation, and Inventory Adjustment," American Economic Review, American Economic Association, vol. 94(5), pages 1328-1353, December.
    4. Knetsch, Thomas A., 2004. "The Inventory Cycle of the German Economy," Discussion Paper Series 1: Economic Studies 2004,09, Deutsche Bundesbank.

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