The (Mis-)Specification of Production Costs in Production Smoothing Models

9 Pages Posted: 31 May 2011 Last revised: 22 Aug 2011

Date Written: May 30, 1997

Abstract

Estimation results obtained with production smoothing models are often imprecise and sensitive to normalisation rules. It is argued that production costs in these models can be better specified in terms of production factor costs. The resulting (factor demand) model with inventories leads to more efficient estimation results and normalisation rules become even redundant. Furthermore, the (smoothing) role of inventories with respect to production factors is discussed.

Keywords: production smoothings models, production factor costs

JEL Classification: D21

Suggested Citation

Peeters, Marga, The (Mis-)Specification of Production Costs in Production Smoothing Models (May 30, 1997). Economics Letters, Vol. 59, No. 1, 1997, Available at SSRN: https://ssrn.com/abstract=1855489

Marga Peeters (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

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