Keywords: Inventory investment, production smoothing, adjustment speeds, aggregation bias
Abstract: This paper describes the finished goods inventory behavior
of more than 700 U.S. manufacturing firms between 1985-93 using a new Census
Bureau longitudinal data base. Three key results emerge. First,
there is a broad mix of production-smoothing and production-bunching
firms, with about two-fifths smoothing production. Second,
firm-level inventory adjustment speeds are about an order of
magnitude larger than aggregate adjustment speeds due to econometric
aggregation bias. Finally, accounting for time variation in the
inventory adjustment speed due to fluctuations in firm size improves
the fit of a traditional aggregate inventory model by one-fifth.
Full paper (694 KB PDF)
| Full paper (687 KB Postscript)
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