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Inventories, Factor Demand and Capacity Utilization : the Long and Short Run Structure


  • Peeters, Marga

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))


An ECM is derived from first order conditions of a factor demand model. Decisions on inventory stock and capacity utilization are (endogenously) modelled, by which a large systems of equations results. Within this system the exogeneity of real factor prices as well as sales in tested. The role of inventory stock in the long run, i.e. as a precautionary measure (according to Holt, Modigliani, Muth and Simon (1960) and/or as a production factor (Kydland and Prescott (1982), Christiano (1988) are further investigated by impulse response functions. For French industrial sectors (1970.I-1992.IV) inventory stocks turn out to be both a decision variable as well as a residual. The precautionary measure is not rejected, but a linear-quadratic specification seems not to hold. Further, no strong evidence is found for the inventory stock as a production factor.

Suggested Citation

  • Peeters, Marga, 1995. "Inventories, Factor Demand and Capacity Utilization : the Long and Short Run Structure," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1995007, Universit√© catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  • Handle: RePEc:ctl:louvir:1995007

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity


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