Abstract
This paper reports estimates of dynamic decision rules for employment, finished goods and unfilled orders obtained from intertemporal models of a firm. Adjustment parameters, appearing in these equations, capture the cyclical relationships between employment and output buffer stocks that are widely believed to hold over business cycles. Empirical results reported in the paper confirm these cyclical effects and provide evidence that inventories are a source of serial persistence in aggregate systems but that labor is not. Evidence is also provided that factor prices have a significant impact upon stock accumulation. Specifically, labor and inventories are inversely related to real wages, and output buffer stocks are significantly affected by measures of the real interest rate.
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