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More on the Speed of Adjustment in Inventory Models

Listed author(s):
  • Alan S. Blinder

When empirical stock-adjustment models of manufacturers' inventories of finished goods are estimated, there appear to be two local minima in the sum of squared residuals functions. At one local minimum, the estimated adjustment speed is typically quite high; at the other, it is typically quite low. Furthermore, finding two sets of estimates that fit the data almost equally well does not appear to be a quirk of this particular application. Rather, it stems from a fundamental identification problem that afflicts partial adjustment models of all kinds. In the specific context of manufacturers' inventories of finished goods, the estimation procedure employed by Maccini and Rossana seems to pick out the solution with rapid adjustment (and high serial correlation in the disturbances) whereas the solution with slow adjustment (and little serial correlation) is more often the global minimum.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1913.

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Date of creation: May 1986
Publication status: published as Blinder, Alan S. "More on the Speed of Adjustment in Inventory Models," Journal of Money, Credit, and Banking, Vol. 18, No. 3, (August 1986), pp. 355-365.
Handle: RePEc:nbr:nberwo:1913
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  1. R. W. Hafer & Scott E. Hein, 1982. "Financial innovations and the interest elasticity of money demand: some historical evidence," Working Papers 1982-011, Federal Reserve Bank of St. Louis.
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