Why is Production More Volatile than Sales? Theory and Evidence on the Stockout-Avoidance Motive for Inventory-Holding
Quarterly Journal of Economics
1992
This paper argues that the macroeconomically interesting features of inventory behavior are well captured by a model in which firms face only demand uncertainty with a nonnegativity constraint on inventories. Empirical implications of the "stockout-avoidance" model of inventory behavior are derived and then tested on disaggregated automobile industry data. The results largely support the model, though they suggest a small role for production-smoothing as well. Subsidiary evidence on the relative variance of demand and cost shocks suggests that demand shocks are indeed more important.
- DOI
- 10.2307/2118479
- Volume
- 107 (2)
- Pages
- 481-510
- Language
- en
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- Sources
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