INDUCED SEASONALITY AND PRODUCTION-SMOOTHING MODELS OF INVENTORY BEHAVIOR

This paper examines whether seasonal patterns in production are consistent with the observed seasonality in sales and the constraints imposed by a simple model of optimal production and inventory behavior. Formal hypothesis tests often provide statistical rejections of the model's restrictions. Nonetheless, in many cases seasonals constructed from the model explain most of the variation in the unconstrained production seasonals. And in contrast to instrumental variable estimates of Euler equations, the estimates of structural parameters embedded in the constrained seasonals often have the signs postulated by traditional models of inventory behavior.