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A Variance Bounds Test of the Linear Quardractic Inventory Model

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  • Kenneth D. West

Abstract

This paper develops and applies a novel test of the Holt, et al.(1961) linear quadratic inventory model. It is shown that a central property of the model is that a certain weighted sum of variances and covariances of production, sales and inventories must be nonnegative. The weights are the basic structural parameters of the model. The model may be tested by seeing whether this sum in fact is nonnegative. When the test is applied to some non-durables data aggregated to the two-digit SIC code level, it almost always rejects the model, even though the model does well by traditional criteria.

Suggested Citation

  • Kenneth D. West, 1985. "A Variance Bounds Test of the Linear Quardractic Inventory Model," NBER Working Papers 1581, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1581
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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.
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    7. Alan J. Auerbach & Jerry R. Green, 1980. "Components of Manufacturing Inventories," NBER Working Papers 0491, National Bureau of Economic Research, Inc.
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