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American Economic Review Vol. 96 No. 5 2006

Declining Volatility in the U.S. Automobile Industry

Valerie A. Ramey1; Daniel J. Vine2

1 Department of Economics, University of California, San Diego, 9500 Gilman Drive, La Jolla, CA 92093-0508. · 2 Division of Research and Statistics, Board of Governors of the Federal Reserve System, 20th and C Streets, NW, Washington, DC 20051.

Abstract

Dramatic changes in the volatility of output occurred in the U.S. auto industry in the early 1980s. Namely, output volatility declined, the covariance of inventory investment and sales grew more negative, and adjustments to production schedules, which in earlier decades stemmed primarily from plants hiring and laying off workers, were more often accomplished with changes in average hours per worker after the mid-1980s. Using a linear quadratic inventory model with intensive and extensive labor adjustments, we show how all of these changes could have stemmed from one underlying factor—a decline in the persistence of motor vehicle sales.

DOI
10.1257/aer.96.5.1876
Volume
96
Issue
5
Pages
1876-1889
Language
en
Sources
openalex crossref bibtex:phds-export.bib

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