The adjustment of output-inventory process under linear decision rules*

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Linear decision rule models which allow adjustment of output, inventory and unfilled orders in order to absorb fluctuations in demand are empirically estimated here for three representative industries: Southern pine lumber, printing paper, and softwood plywood. The empirical results show a more stabilizing influence in the recent period for the three industries in general and the cyclical tendencies appear to have been dampened out. For the plywood sector, the introduction of futures trading by the end of 1969 has helped considerably in exerting a stabilizing influence and in reducing considerably or even eliminating the sources of cyclical instability.

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  • *

    Computational assistance for this work was provided by a grant from the Academic Senate, University of California, Santa Barbara. The authors wish to thank the two referees for their advice and suggestions which helped to improve the content and presentation of this revised version.

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