Declining Volatility in the U.S. Automobile Industry

Dramatic changes in the volatility of output occurred in the U.S. auto industry in the early 1980s. Namely, output volatility declined, the covariance of inventory investment and sales grew more negative, and adjustments to production schedules, which in earlier decades stemmed primarily from plants...

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Bibliographic Details
Published in:The American economic review 2006-12, Vol.96 (5), p.1876-1889
Main Authors: Ramey, Valerie A., Vine, Daniel J.
Format: Article
Language:English
Subjects:
Automobile industry
Automobile production
Automobile sales
Automobiles
Automotive industries
Covariance
Economic models
Exports
GDP
Gross Domestic Product
Industrial production
Industrywide conditions
International trade
Inventory
Investment inventories
Market segments
Motor vehicle industry
Securities sales
Shorter Papers
Statistical variance
Studies
Trends
Trucks
Variables
Volatility
Workforce
Working hours
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Summary:Dramatic changes in the volatility of output occurred in the U.S. auto industry in the early 1980s. Namely, output volatility declined, the covariance of inventory investment and sales grew more negative, and adjustments to production schedules, which in earlier decades stemmed primarily from plants hiring and laying off workers, were more often accomplished with changes in average hours per worker after the mid-1980s. Using a linear quadratic inventory model with intensive and extensive labor adjustments, we show how all of these changes could have stemmed from one underlying factor—a decline in the persistence of motor vehicle sales.
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.96.5.1876