TY  - JOUR
AU  - Durlauf,Steven N.
AU  - Maccini,Louis J.
TI  - Measuring Noise in Inventory Models
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4487
PY  - 1993
Y2  - October 1993
UR  - http://www.nber.org/papers/w4487
L1  - http://www.nber.org/papers/w4487.pdf
N1  - Author contact info:
Steven N. Durlauf
Department of Economics
University of Wisconsin
1180 Observatory Drive
Madison, WI  53706-1393
Tel: 608/263-3859
Fax: 608/262-2033
E-Mail: sdurlauf@ssc.wisc.edu

Louis J. Maccini
Department of Economics
Johns Hopkins University
Baltimore, MD   21218
Tel: 410/516-7607
E-Mail: Maccini@jhu.edu
AB  - This paper has two purposes.  One is to assess different models of inventory behavior in terms of their ability to well approximate the realized data on inventories.  We do this initially for the pure production smoothing model and then for a sequence of generalizations of the model.  Our analysis both performs specification tests as well as measures the deviations of the data from each null model, which we refer to as model noise.  This involves the introduction of a noise ratio which provides a metric for measuring the magnitude of the noise component of the data.  A second purpose is to explore whether observed cost shocks, including in particular carefully measured series on raw materials prices, can be helpful in explaining inventory movements.  We find that the basic production level smoothing model of inventories, augmented by buffer stock motives, observed cost shocks, properly measured, and to a lesser extent stockout avoidance motives, appears to well approximate monthly inventory data.
ER  -