Tracking the Source of the Decline in GDP Volatility: An Analysis of the Automobile Industry

Valerie Ramey and Daniel J. Vine

No 10384, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Recent papers by Kim and Nelson (1999) and McConnell and Perez-Quiros (2000) uncover a dramatic decline in the volatility of U.S. GDP growth beginning in 1984. Determining whether the source is good luck, good policy or better inventory management has since developed into an active area of research. This paper seeks to shed light on the source of the decline in volatility by studying the behavior of the U.S. automobile industry, where the changes in volatility have mirrored those of the aggregate data. We find that changes in the relative volatility of sales and output, which have been interpreted by some as evidence of improved inventory management, are in fact the result of changes in the process driving automobile sales. We first show that the autocorrelation of sales dropped during the 1980s, and that the behavior of interest rates may be the force behind the change in sales persistence. A simulation of the assembly plants' cost function illustrates that the persistence of sales is a key determinant of output volatility. A comparison of the ways in which assembly plants scheduled production in the 1990s relative to the 1970s supports the intuition of the simulation.

JEL-codes: E2 E3 (search for similar items in EconPapers)
Date: 2004-03
Note: EFG
References: Add references at CitEc
Citations: View citations in EconPapers (39)

Downloads: (external link)
http://www.nber.org/papers/w10384.pdf (application/pdf)

Related works:
Working Paper: Tracking the source of the decline in GDP volatility: an analysis of the automobile industry (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:10384

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w10384

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().