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Unfilled orders and price changes: A simultaneous equations system
Author(s) -
Odle Curt,
Koshal Rajindar K.,
Shukla Vishwa
Publication year - 1981
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090020206
Subject(s) - economics , econometrics , variable (mathematics) , order (exchange) , production (economics) , acceleration , microeconomics , mathematics , physics , mathematical analysis , finance , classical mechanics
We have developed and statistically estimated a model which suggests that chances in price and in unfilled orders are simultaneously determined. Estimated systems for five industries suggest that, in the short run, unfilled order accumulations do absorb fluctuations. Our statistical analysis also indicates that anticipated increases in demand will affect current price adjustments if the increased demand is expected to lead to an acceleration in production rates in the not‐too‐distant future. The statistically determined weights of the industrial activity variable suggests that price is primarily determined more by the future conditions than ex post indications of industrial activity levels. Our analysis also supports Zarnowitz's interindustry comparison hypothesis that price responses are inversely related to the ratios of mean unfilled orders of shipments.