Economics at your fingertips  

Durable Goods Production and Inventory Dynamics: An Application to the Automobile Industry

James Kahn () and Adam Copeland ()

No 270, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: This paper develops a model of the joint determination of production, inventories and pricing of a monopolistically competitive durable good.producer. The model gives rise to time-varying markups that interact with the inventory-sales ratio, even with flexible prices. Maximum likelihood estimation with automobile industry data yields plausible parameter estimates and impulse responses. We then apply the model to analyze the impact of the "Cash-for-Clunkers" program, and ÃÂfind that the model predicts a negligible production response; essentially all the action is inventories. This leads us to consider evidence of threshold effects that imply a stronger response very far from the steady state. This results in a modest but more plausible production response to the policy--still modest in comparison to the sales impact, but now at least measurable. Even with some production response, the results still provide a cautionary tale for countercyclical policies that rely on stimulating consumer spending. Even an impact on spending need not translate into a comparable impact on employment and output.

Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in 2012 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().

Page updated 2020-07-05
Handle: RePEc:red:sed012:270