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Serial Correlation in Demand, Backlogging and Production Volatility

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  • Maccini, Louis J
  • Zabel, Edward

Abstract

This paper explores the idea that stockout avoidance motives together with serial correlation in demand and/or the backlogging of excess demand is sufficient to induce firms to behave so that the variance of production exceeds the variance of sales. The authors show that the idea holds under a wide range of circumstances facing firms, including additive as well as multiplicative demand uncertainty, a general form of serial correlation in demand, whether inventory and shortage costs apply, and whether payment occurs at order or delivery. The results greatly enhance the empirical relevance of the idea. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Maccini, Louis J & Zabel, Edward, 1996. "Serial Correlation in Demand, Backlogging and Production Volatility," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 423-452, May.
    • Handle: RePEc:ier:iecrev:v:37:y:1996:i:2:p:423-52
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    Cited by:

    1. Wen, Yi, 2004. "Durable Goods Inventories and the Volatility of Production: Explaining the Less Volatile U.S. Economy," Working Papers 04-01, Cornell University, Center for Analytic Economics.
    2. Wen, Yi, 2005. "Understanding the inventory cycle," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1533-1555, November.
    3. Yi Wen, 2005. "Labor hoarding and inventories," Working Papers 2005-040, Federal Reserve Bank of St. Louis.
    4. Wen, Yi, 2003. "The Power of Demand: A General Equilibrium Analysis of Multi-Stage-Fabrication Economy with Inventories," Working Papers 03-13r, Cornell University, Center for Analytic Economics.
    5. Wen, Yi, 2003. "Durable Goods Inventories and the Volatility of Production: A Puzzle," Working Papers 03-12, Cornell University, Center for Analytic Economics.
    6. Yi Wen, 2011. "Input and Output Inventory Dynamics," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(4), pages 181-212, October.
    7. Yi Wen, 2007. "Production and Inventory Behavior of Capital," Annals of Economics and Finance, Society for AEF, vol. 8(1), pages 95-112, May.
    8. Hamister, James W. & Suresh, Nallan C., 2008. "The impact of pricing policy on sales variability in a supermarket retail context," International Journal of Production Economics, Elsevier, vol. 111(2), pages 441-455, February.
    9. Yi Wen, 2005. "The multiplier: a general equilibrium analysis of multi-stage-fabrication economy with inventories," Working Papers 2005-046, Federal Reserve Bank of St. Louis.
    10. Wen, Yi, 2004. "General Equilibrium Analysis of the Supply of Capital," Working Papers 04-02, Cornell University, Center for Analytic Economics.
    11. Zhan Qu & Horst Raff, 2021. "Vertical Contracts in a Supply Chain and the Bullwhip Effect," Management Science, INFORMS, vol. 67(6), pages 3744-3756, June.
    12. Wen, Yi, 2003. "Understanding the Inventory Cycle: I. Partial Equilibrium Analysis," Working Papers 03-08, Cornell University, Center for Analytic Economics.

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