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The response of capital goods shipments to demand over the business cycle

Jeremy Nalewaik and Eugénio Pinto

Journal of Macroeconomics, 2015, vol. 43, issue C, 62-80

Abstract: We study how producers of capital goods set shipments in response to fluctuations in new orders. We find that shipments respond more to orders when new orders fall below a certain level relative to shipments, usually after orders plunge in recessions. This cyclical change in producers’ behavior accounts for a considerable portion of the downturn in equipment investment in the 2001 and 2008–9 recessions. A simple model of production to order suggests that heightened persistence in new orders growth may explain the greater responsiveness of shipments, as may increases in the producers’ target delivery lag.

Keywords: Shipments; Orders; Business investment; Business cycles; Threshold cointegration; Markov-switching models (search for similar items in EconPapers)
JEL-codes: E22 E23 E32 (search for similar items in EconPapers)
Date: 2015
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Handle: RePEc:eee:jmacro:v:43:y:2015:i:c:p:62-80