Production Chains, Demand, and Output Volatility in the Durables Sector : 1967-2011

The durables manufacturing sector is modeled as a production chain consisting of firms that produce to order and firms that produce to stock. Output movements are driven solely by shocks to final demand. Separate demand models are estimated over four separate sub-samples spanning the 1967-2011 period. Simulations indicate that changes in the volatility of output can be explained as a by-product of changes in demand behavior without appealing to innovations in production management. The best evidence of innovations in production management that remains are declines in work-in-process and unfilled orders that began in the 1990s–well into the Great Moderation