Tests of Production Smoothing in Selected Japanese Industries
Posted: 27 May 2013
Date Written: June 1, 1992
Using monthly physical quantity data on production, sales and inventories for 29 selected Japanese industries, it is found that the usual variance decompositions are generally consistent with the production smoothing model at both seasonal and nonseasonal frequencies. However, the estimated seasonal coefficients in production and sales are highly correlated, which should not be the case if firms smooth production in the face of anticipated seasonal movements in sales. A further test of the model, which implies production should follow a random walk with drift, provides mixed results but particularly negative results at the seasonal frequencies.
Keywords: Inventories, Production, Seasonality, Cost shocks
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