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http://ssrn.com/abstract=225790
 
 

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Do Firms Smooth the Seasonal in Production in a Boom? Theory and Evidence


Stephen G. Cecchetti


Brandeis International Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Anil K. Kashyap


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

David W. Wilcox


Federal Reserve Board - Division of Research and Statistics

February 1995

NBER Working Paper No. w5011

Abstract:     
Using disaggregated production data we show that the size of seasonal cycles changes significantly over the course of the business cycle. In particular, during periods of high economy-wide activity, some industries smooth seasonal fluctuations while others exaggerate them. We interpret this finding using a simple analytical model that describes the conditions under which seasonal and cyclical fluctuations can be separated. Our model implies that seasonal fluctuations can safely be disentangled from cyclical fluctuations only when the marginal cost of production is linear, and the variation in demand and cost satisfy certain (restrictive) conditions. The model also suggests that inventory movements can be used to isolate the role of demand shifts in generating any interaction between seasonal cycles and business cycles. Thus, the empirical analysis involves studying the variation in seasonally unadjusted patterns of production and inventory accumulation over different phases of the business cycle. Our finding that seasonals shrink during booms and that firms carry more inventories into high sales seasons during a boom leads us to conclude that for several industries, marginal cost slopes up at an increasing rate. Conversely, in a couple of industries we find that seasonal swings in production are exaggerated during booms and that inventories are drawn down prior to high sales seasons, suggesting that marginal costs curves flatten as production increases. Overall, we find considerable evidence that there are non-linear interactions between business cycles and seasonal cycles.

Number of Pages in PDF File: 30

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Date posted: August 11, 2000  

Suggested Citation

Cecchetti, Stephen G. and Kashyap, Anil K. and Wilcox, David W., Do Firms Smooth the Seasonal in Production in a Boom? Theory and Evidence (February 1995). NBER Working Paper No. w5011. Available at SSRN: http://ssrn.com/abstract=225790

Contact Information

Stephen G. Cecchetti (Contact Author)
Brandeis International Business School ( email )
415 South Street
Waltham, MA 02453
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
212-720-8629 (Phone)
212-720-2630 (Fax)
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Anil K. Kashyap
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7260 (Phone)
773 702-0458 (Fax)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
773-702-7260 (Phone)
773-702-0458 (Fax)
David W. Wilcox
Federal Reserve Board - Division of Research and Statistics ( email )
20th and C Streets, NW
Mailstop 153
Washington, DC 20551
United States
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