Journal of Political Economy Vol. 79 No. 5 1971
The Square-Root Law of Precautionary Reserves
Abstract
This article presents a generalization of the square-root theorems formulated by various authors with regard to special kinds of safety reserves. Some of the results established in the paper are the following: (1) the validity of the square-root law does not require that the actual components of net demand be stochastically independent and identically distributed; (2) in particular, such a law is compatible with the existence of serial correlation among reserve changes; and (3) if expected net demand differs from zero, the elasticity of the total reserve with respect to expected demand is between 0.5 and 1.
- DOI
- 10.1086/259817
- Volume
- 79
- Issue
- 5
- Pages
- 1095-1104
- Language
- en
- Sources
- openalex crossref