The (Mis-)Specification of Production Costs in Production Smoothing Models
9 Pages Posted: 31 May 2011 Last revised: 22 Aug 2011
Date Written: May 30, 1997
Abstract
Estimation results obtained with production smoothing models are often imprecise and sensitive to normalisation rules. It is argued that production costs in these models can be better specified in terms of production factor costs. The resulting (factor demand) model with inventories leads to more efficient estimation results and normalisation rules become even redundant. Furthermore, the (smoothing) role of inventories with respect to production factors is discussed.
Keywords: production smoothings models, production factor costs
JEL Classification: D21
Suggested Citation: Suggested Citation
Peeters, Marga, The (Mis-)Specification of Production Costs in Production Smoothing Models (May 30, 1997). Economics Letters, Vol. 59, No. 1, 1997, Available at SSRN: https://ssrn.com/abstract=1855489
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