Author(s)

Isamu Ginama^1*, Mitsuhiro Odaki²

¹Hiroshima University of Economics, Hiroshima, Japan.
²Hiroshima University, Hiroshima, Japan.

This paper extends the method of regressing production and sales variables on a set of seasonal dummy variables and a linear trend for empirical tests on the production smoothing hypothesis of inventory investment. Unit root testing procedures form the basis for constructing the bootstrap confidence intervals for the ratio of the variance of production to the variance of sales. Models used to test for a unit root when there are structural breaks in the linear time trend are converted to equations comprising deterministic and stochastic components. A limiting distribution of the test statistic is derived. Bootstrap resampling is conducted over deterministic parts of the converted equations to construct confidence intervals for the relative variance ratio for G7 countries. Primary findings for these countries are production-counter smoothing phenomena.

Unit Root, Structural Breaks, Inventory Investment, BCa Confidence Intervals, Limiting Distribution

Ginama, I. and Odaki, M. (2017) Production Smoothing in Developed Countries. Journal of Mathematical Finance, 7, 333-350. doi: 10.4236/jmf.2017.72018.