The Production Smoothing Model is Alive and Well
NBER Working Paper No. 2877 (Also Reprint No. r1359)
Monthly data in physical units for seven industries are used to examine the production smoothing hypothesis. The results strongly support this hypothesis. Significant effects of expected future sales on current production are found for four industries, and the estimated decision equations for all seven industries imply production smoothing behavior. The previous negative results regarding the hypothesis appear to be due to the use of poor data, particularly the shipments and inventory data of the Department of Commerce.
Published: Journal of Monetary Economics, Vol. 24, No. 3, pp. 353-370, (1989).