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This volume consists of six essays that develop and/or apply
"rational expectations equilibrium inventory models" to study the
time series behavior of production, sales, prices, and inventories
at the industry level. By "rational expectations equilibrium
inventory model" I mean the extension of the inventory model of
Holt, Modigliani, Muth, and Simon (1960) to account for: (i)
discounting, (ii) infinite horizon planning, (iii) observed and
unobserved by the "econometrician" stochastic shocks in the
production, factor adjustment, storage, and backorders management
processes of firms, as well as in the demand they face for their
products; and (iv) rational expectations. As is well known
according to the Holt et al. model firms hold inventories in order
to: (a) smooth production, (b) smooth production changes, and (c)
avoid stockouts. Following the work of Zabel (1972), Maccini
(1976), Reagan (1982), and Reagan and Weitzman (1982), Blinder
(1982) laid the foundations of the rational expectations
equilibrium inventory model. To the three reasons for holding
inventories in the model of Holt et al. was added (d) optimal
pricing. Moreover, the popular "accelerator" or "partial
adjustment" inventory behavior equation of Lovell (1961) received
its microfoundations and thus overcame the "Lucas critique of
econometric modelling.
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