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Journal Article
Lean inventory corrections
Journal Article
Another soft inventory landing?
Working Paper
Why does inventory investment fluctuate so much during contractions?
Inventory investment appears to have a significant impact on the movement of aggregate output during business cycle contractions. Recent empirical evidence has raised doubts about the often used assumption of a buffer-stock/production-smoothing motivation for inventory. Work by Blinder and Maccini suggests that the use of an (S,s), or intermittent adjustment decision rule, better explains the stylized facts of the dynamics of inventory investment. This has led to the focus on the (S,s) as an alternative to production-smoothing. I assume that some agents use the (S,s) adjustment rule while ...
Working Paper
Seasonal production smoothing
Empirical tests of the production-smoothing hypothesis have yielded mixed results. In this paper, Donald Allen looks for, and finds evidence of, seasonal production smoothing in 15 out of 25 manufacturing series and 8 out of 10 retail series, using detrended seasonally unadjusted data. The equivalent test using seasonally adjusted data were negative for all 35 series. The results suggest that seasonally adjusted data obscure short-term production-smoothing.
Working Paper
Filtering permanent cycles with complex unit roots
Separating cyclical movement from trend growth at seasonal and business cycle frequencies is important to macroeconomic research. At business cycle frequencies, time trends, first differences and the more recent Hodrick-Prescott (HP) filter are used to separate trends from cycles. At seasonal frequencies, ad-hoc methods like the Census Bureau's X-11 seasonal filter are applied. This paper reviews the criteria for permanent cycles in systems characterized by difference equations and looks at the effect of filtering data which exhibit permanent cyclicality. Second order moving averages with ...
Journal Article
What determines long-run growth?
Journal Article
Do inventories moderate fluctuations in output?
Inventories are widely believed to serve as a buffer stock against unexpected fluctuations in demand, allowing firms to plan production more efficiently. If so, we would expect production to vary less than sales and inventory to move in the opposite direction to sales. However, research finds that production varies more than sales and that there is a positive correlation between changes in inventory and changes in sales. These findings imply that inventories are not being used to smooth production and do not serve as a buffer for uncertain demand. Donald S. Allen examines firm-level data and ...
Working Paper
A state space forecasting model with fiscal and monetary control
In this paper we model the U.S. economy parsimoniously in an a theoretic state space representation. We use monthly data for thirteen macroeconomic variables. We treat the federal deficit as a proxy for fiscal policy and the fed funds rate as a proxy for monetary policy and use each of them as control (exogenous) variables, and designate the rest as state variables. The output (measured) variable is the growth rate of quarterly real GDP which we interpolate to obtain a monthly equivalent. We specify a linear relation between state variables and implicitly allow for time variation of the ...
Working Paper
Income inequality and minimum consumption: implications for growth
We propose a model that recognizes hierarchical goods and income inequality among households. The model demonstrates that growth is impacted not by inequality per se, but "absolute" income distribution or the level of poverty underlying the income distribution. Specifically, when a large fraction of the population is below the threshold income necessary for subsistence, aggregate consumption is depressed. In low-income countries, high inequality of income retards consumption growth, whereas in high-income countries inequality may be neutral for growth. Cross-country regressions indicate a ...
Journal Article
How closely do banks manage vault cash?
This article examines daily vault cash balances in the Eighth Federal Reserve District to see if banks have been optimizing their vault cash levels. Recent reductions in reserve requirements have not been accompanied by significant reductions in vault cash. This situation suggests that banks may be managing vault cash reserves primarily as precautionary balances to satisfy daily fluctuations in deposits and withdrawals, rather then part of total reserve management. In 1997, some larger banks instituted formal management of vault currency. If this practice spreads, it will have implications ...