Temporal Aggregation and the Stock Adjustment Model of Inventories

  • Lawrence J. Christiano
  • Martin Eichenbaum
Part of the Lecture Notes in Economics and Mathematical Systems book series (LNE, volume 322)


This paper examines the quantitative importance of temporal aggregation bias in distorting parameter estimates and hypothesis tests in the production smoothing/buffer stock model of inventories. In particular, our results are consistent with the Mundlak-Zellner hypothesis that temporal aggregation bias can account for the slow speeds of adjustment typically obtained in such a model.


Time Model Rational Expectation Discrete Time Model Continuous Time Model Temporal Aggregation 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Altonji, J. G. (1986): “Intertemporal Substitution in Labor Supply: Evidence From Micro Data,” manuscript.Google Scholar
  2. Blanchard, Olivier J. (1983): “The Production and Inventory Behavior of the American Automobile Industry,” Journal of Political Economy. 91, 365–400.MathSciNetCrossRefGoogle Scholar
  3. Blinder, Alan S. (1981): “Inventories and the Structure of Macro Models,” American Economic Review. 71, 11–16.Google Scholar
  4. Blinder, Alan S. (1986): “Can the Production Smoothing Behavior Model of Inventory Behavior Be Saved,” manuscript.Google Scholar
  5. Blinder, Alan S. and D. Holtz-Eakin (1984): “Inventory Fluctuations in the United States Since 1929,” manuscript.Google Scholar
  6. Bryan, William R. (1967): “Bank Adjustments to Monetary Policy: Alternative Estimates of the Lag,” American Economic Review. 57, 855–864.Google Scholar
  7. Christiano, Lawrence J. (1984): “The Effects of Aggregation Over Time on Tests of the Representative Agent Model of Consumption,” manuscript, Federal Reserve Bank of Minneapolis.Google Scholar
  8. Christiano, Lawrence J. (1986a): “A Continuous Time Model of Cagan’s Model of Hyperinflation Under Rational Expectations,” manuscript, Federal Reserve Bank of Minneapolis.Google Scholar
  9. Christiano, Lawrence J. (1986b): “A Method for Estimating the Timing Interval in a Linear Econometric Model, with an Application to Taylor’s Model of Staggered Contracts,” Journal of Economic Dynamics and Control. 9, 363–404.MathSciNetCrossRefGoogle Scholar
  10. Christiano, Lawrence J. and Martin Eichenbaum (1985): “A Continuous Time, General Equilibrium, Inventory-Sales Model,” manuscript, Federal Reserve Bank of Minneapolis.Google Scholar
  11. Christiano, Lawrence J. and Martin Eichenbaum (1987): “Temporal Aggregation and Structural Inferrence in Macroeconomics,” in Bubbles and Other Essays, ed. by Karl Brunner and Alan H. Meltzer, Carnegie-Rochester Conference Series on Public Policy, vol. 26, Spring, Amsterdam: North-Holland.Google Scholar
  12. Dimelis, Sophia P. and Tryphon Kollintzas (1988): “A Linear Rational Expectations Equilibrium Model of the American Petroleum Industry,” Chapter IV in this book.Google Scholar
  13. Eckstein, Zvi and Martin S. Eichenbaum (1985): “Quantity-Constrained Equilibria in Regulated Markets: The U.S. Petroleum Industry, 1947–1972,” in Energy. Foresight and Strategy, ed. by Thomas J. Sargent, Washington, D.C.: Johns Hopkins University Press.Google Scholar
  14. Eichenbaum, Martin S. (1984): “Rational Expectations and the Smoothing Properties of Inventories of Finished Goods,” Journal of Monetary Economics. 14: 71–96.CrossRefGoogle Scholar
  15. Eichenbaum, Martin S., Lars P. Hansen, and S. Richard: (1985): “The Dynamic Equilibrium Pricing of Durable Goods,” manuscript.Google Scholar
  16. Feldstein, Martin S. and Alan Auerbach (1976): “Inventory Behavior in Durable Manufacturing: The Target Adjustment Model,” Brookings Papers on Economic Activity. 2, 351–408.CrossRefGoogle Scholar
  17. Goodfriend, Marvin (1985): “Reinterpreting Money Demand Regressions,” in Understanding Monetary Regimes ed. by Karl Brunner and Allan H. Meltzer, Carnegie-Rochester Conference Series on Public Policy, vol. 22, Amsterdam: North-Holland.Google Scholar
  18. Hannan, Edward J. (1970): Multiple Time Series. New York: Wiley.MATHCrossRefGoogle Scholar
  19. Hansen, Gary D. (1985): “Indivisible Labor and the Business Cycle,” Journal of Monetary Economics, 16: 309–327.CrossRefGoogle Scholar
  20. Hansen, Lars P. and Thomas J.Sargent (1980a): “Methods for Estimating Continuous Time Rational Expectations Models from Discrete Data,” Research Department, Staff Report 59, Federal Reserve Bank of Minneapolis.Google Scholar
  21. Hansen, Lars P. and Thomas J. Sargent (1980b): “Formulating and Estimating Dynamic Rational Expectations Models,” Journal of Economic Dynamics and Control. 2: 351–408.MathSciNetCrossRefGoogle Scholar
  22. Hansen, Lars P. and Thomas J. Sargent (1981): “Formulating and Estimating Continuous Time Rational Expectations Models from Discrete Data,” manuscript.Google Scholar
  23. Li, W. K. and A. I. McLeod (1981)’: “Distribution of the Residual Autocorrelations in Multivariate ARMA Time Series Models,” Journal of the Royal Statistical Society (Series B), 43, 231–239.MathSciNetMATHGoogle Scholar
  24. Lucas, Robert E., Jr. and Edward C. Prescott (1971): “Investment Under Uncertainty,” Econometrica. 39, 659–681.MathSciNetMATHCrossRefGoogle Scholar
  25. Luenberger, David G. (1969): Optimization by Vector Space Methods. New York: Wiley.MATHGoogle Scholar
  26. Maccini, Louis J. and Robert J. Rossana (1984): “Joint Production, Quasi-Fixed Factors of Production, and Investment in Finished Goods Inventories,” Journal of Money Credit and Banking. 16, 218–236.CrossRefGoogle Scholar
  27. MaCurdy, Thomas E. (1981): “An Empirical Model of Labor Supply in a Life-Cycle Setting,” Journal of Political Economy. 89, 1059–1085.CrossRefGoogle Scholar
  28. McCallum, Bennett T. (1984): “Inventory Fluctuations and Macroeconomic Analysis: A Comment,” manuscript.Google Scholar
  29. Mundlak, Yair (1961): “Aggregation Over Time in Distributed Lag Models,” International Economic Review. 2, 154–163.MATHCrossRefGoogle Scholar
  30. Rogerson, R. (1984): “Indivisible Labor, Lotteries and Equilibrium,” manuscript.Google Scholar
  31. Sargent, Thomas J. (1979): Macroeconomic Theory. New York: Academic Press.MATHGoogle Scholar
  32. Telser, L. G. (1967): “Discrete Samples and Moving Sums in Stationary Stochastic Processes,” Journal of the American Statistical Association. 62, 484–499.MathSciNetCrossRefGoogle Scholar
  33. West, Kenneth D. (1986): “A Variance Bounds Test of the Linear-Quadratic Inventory Model,” Journal of Political Economy. 94, 374–401.CrossRefGoogle Scholar
  34. Zellner, Arnold (1968): “Note on Effect of Temporal Aggregation on Estimation of Stock Adjustment Equation,” manuscript.Google Scholar

Copyright information

© Springer-Verlag, New York, Inc. 1989

Authors and Affiliations

  • Lawrence J. Christiano
    • 1
    • 2
  • Martin Eichenbaum
    • 3
  1. 1.Federal Reserve Bank of MinneapolisUSA
  2. 2.NBERUSA
  3. 3.Northwestern UniversityUSA

Personalised recommendations