The Federal Reserve Board eagle logo links to home page<
Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page Evidence on the Link between Firm-Level and Aggregate Inventory Behavior
Scott Schuh

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.

Keywords: Inventory investment, production smoothing, adjustment speeds, aggregation bias

Full paper (694 KB PDF) | Full paper (687 KB Postscript)

Home | Economic research and data | FR working papers | FEDS | 1996 FEDS papers
To comment on this site, please fill out our feedback form.
Last update: July 16, 1997