This paper has two purposes. One is to assess different models of inventory behavior in terms of their ability to well approximate the realized data on inventories. We do this initially for the pure production smoothing model and then for a sequence of generalizations of the model. Our analysis both performs specification tests as well as measures the deviations of the data from each null model, which we refer to as model noise. This involves the introduction of a noise ratio which provides a metric for measuring the magnitude of the noise component of the data. A second purpose is to explore whether observed cost shocks, including in particular carefully measured series on raw materials prices, can be helpful in explaining inventory movements. We find that the basic production level smoothing model of inventories, augmented by buffer stock motives, observed cost shocks, properly measured, and to a lesser extent stockout avoidance motives, appears to well approximate monthly inventory data.
The effects of demand and price expectations on price behavior are analyzed, using data from the manufacturing sector and a model formulated to pinpoint the demand-oriented factors affecting prices and to incorporate price expectations as a direct influence on price behavior. The expected normal demand is seen to have a strong and systemic influence on price behavior. The expected normal level of new orders is found to be an adequate measure with sector data in general, although some industries require more specification. The effects of inventories and unfilled orders on prices are sporadic and across sectors and industries. Demand-oriented forces are concluded to perform as well statistically as cost-push determinants. Expectations concerning the current normal industry price level have a significant and consistent impact on price behavior. This supports the idea that firms setting prices take into account their estimates of competitor's prices. Future price expectations appear to have little effect on current price information. 15 references.
Inventories consist of stocks of finished goods, goods-in-process, and raw materials and supplies held by business firms. Interest in inventories among economists stems primarily from the observation that inventory fluctuations are an important feature of business cycles.
Abstract. Recent empirical and theoretical research on business inventories is surveyed and critically evaluated. While most inventory research has had macroeconomic motivations, we focus on its microtheoretic basis and on potential conflicts between theory and evidence. The paper asks two principal questions. First, how can inventories, which are allegedly used by firms to stabilize production, nonetheless be a destabilizing factor at the macroeconomic level? Second, why, if firms are following the production‐smoothing model, is production more variable than sales in many industries? We suggest that the so‐called ( S,s ) model may help answer both questions.
This paper studies fiscal deficits, consumption-saving behavior, current account imbalances, and exchange rates in a small open economy populated by households with finite lives. Suppose the government undertakes a bond-financed tax cut today. The authors find that if tax finance is anticipated primarily to be used in the future to close the deficit then 'twin deficits' will be observed today, but if money finance is anticipated primarily to be used in the future then current fiscal deficits will induce a decline in current consumption, thus creating trade surpluses, a result they term 'unpleasant fiscal arithmetic.' Copyright 1995 by Ohio State University Press.
