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

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  • Nalewaik, Jeremy
  • Pinto, Eugénio

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.

Suggested Citation

  • Nalewaik, Jeremy & Pinto, Eugénio, 2015. "The response of capital goods shipments to demand over the business cycle," Journal of Macroeconomics, Elsevier, vol. 43(C), pages 62-80.
    • Handle: RePEc:eee:jmacro:v:43:y:2015:i:c:p:62-80
    DOI: 10.1016/j.jmacro.2014.09.003
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    More about this item

    Keywords

    Shipments; Orders; Business investment; Business cycles; Threshold cointegration; Markov-switching models;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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