The Potential Role of Manufacturers’ Orders in the Linear-Quadratic Flexible Accelerator Model [Research in Applied Economics]
Abstract: The linear-quadratic flexible accelerator model has been a staple for empirical analysis within the inventories literature. A key assumption of the model is that sales are a proxy for demand, thus inventories are generated in instances where production does not equilibrate with demand. We seek to improve upon the benchmark linear-quadratic model by introducing firm orders, thus allowing for differentiation between realized and expected demand. Estimation results suggest that the omission of orders heavily biases the coefficient sign and magnitude associated with sales. Furthermore, the estimated adjustment speed of orders is both larger in magnitude and statistical significance than for sales. The disparity in the rates of adjustment between expected and realized demand provides a new contribution towards understanding the adjustment speed puzzles pervasive in the literature. Finally, the addition of orders provides stronger evidence of a cointegrating relationship in a trivariate system of equations versus a standard bivariate system containing strictly inventories and sales. However, exogenous order shocks do not seem to meaningfully impact inventory investment, nor sales. Furthermore, forecast error variance for sales, and inventories are not well explained by orders. These results suggest that orders are important in explaining the underlying data generating processes for sales, and inventories, as well as the long-run relationship between inventory, and sales, but offer little in forecasting potential.
Abstract: Producer price inflation has long been considered a leading indicator for consumer price inflation. However, the evidence supporting the cost-push theory of inflation over extended periods is inconclusive and lacks direct quantification. To address this gap, we employ structural break and causality tests, regression analysis, and local projection impulse-response functions. Our analysis allows us to precisely identify instances when producer prices lead consumer prices and quantify short-run and long-run pass-through rates. We find relatively robust evidence of a producer price pass-through rate between 8 and 12%. However, there are significant periods where unidirectional pass-through does not hold. Local projections reveal that producer price pass-through is small but persistent in states where producer prices lead consumer prices, and larger but shorter-lived in states where there is no causal directionality. Our findings enhance the understanding of producer price pass-through to consumer inflation, providing valuable insights for policymakers and market participants interested in accurately forecasting and managing inflationary pressures.
The Evolution of Inventory Dynamics in a Post-Crisis Economy [Economics Bulletin (Forthcoming)]
Abstract: Inventories are of historical importance when describing business cycles and production volatility. While research in inventories is relatively mature, the growing attention to global value chains and commodity shortages in recent quarters warrants a return and critical reassessment of inventories as a business cycle feature. Herein, we estimate the persistence, volatility, and adjustment rates of inventories over different subsamples, paying particular attention to the period following the Financial Crisis. We find through the estimation of a flexible accelerator model that inventories continue to exhibit strong persistence while the persistence of sales has simultaneously diminished. Using standard volatility metrics within the literature, we illustrate that production volatility relative to sales volatility over long subsamples is highest from 2007 onward. Finally, we uncover evidence from several vector error correction models that the adjustment speed and cointegrating relationship between inventory and sales has deteriorated in the years following the Financial Crisis. This evidence suggests the need for a structural model that can identify the mechanisms underlying these critical changes in inventory dynamics during the post-crisis era.
Do Jet Fuel Price Movements Help Forecast Airline Fares and the Demand for Air Travel? (With Bebonchu Atems and Lance Bachmeier) [Applied Economics Letters]
Abstract: The paper studies the predictive content of jet fuel prices for the U.S. aviation industry through in-sample and out-of-sample forecasting exercises. Our results suggest the possibility of limited improvements in the predictions of airline fares, and little evidence of predictability from jet fuel prices to measures of air travel demand.
Risky Teen Behavior and Birth Control Use in Adulthood (With Allyssa Wadsworth) [Under Review]
Learning by Doing, Productivity, and Growth: New Evidence on the Link between Micro and Macro Data (With Brad Humphreys and Scott Schuh) [Under Review]
Collectible Pricing in Secondary Markets: The Role of Firm Commitment (With Adam Nowak and Kole Reddig)
Do Producer Prices Lead Consumer Prices? A Replication Under Data Revisions [Under Review]
Internal and External Determinants of Short-Run Inflation in Pennsylvania [Under Review]
Which Producer Prices Lead Consumer Prices? [Under Review]
Using Microsoft Excel to Enhance a General Education Economics Course
Imposing Shape Constraints in Semiparametric Smooth Coefficient Seemingly Unrelated Regressions Models (With Feng Yao)
Unintended Consequences of the MLB Pitch Clock: Injury Risk, Player Performance, and Player Preference (With Alexander Cardazzi)
Do Improvements to Broadband Access Actually Enhance Standards of Living in Developed Nations? (With Andrew Vassallo)
Institutional Representation in the Economics Profession: Evidence from the 2023 NBER Summer Institute (With Allyssa Wadsworth)
Western Economic Association International (Summer 2023)
Pennsylvania Economic Association (Summer 2023)
Southern Economics Association (Fall 2022)
Western Economic Association International (Summer 2022)
Missouri Valley Economic Association (Fall 2021)
North American Association of Sports Economists (Summer 2021)
Institute for Industrial and Systems Engineers (Summer 2018)
Ad Hoc Referee
International Journal of Sports Finance (2)