Production - demand adjustment in Norwegian manufacturing: A quarterly error correction model

Abstract

In this paper, we specify a general error correction equation for seasonally unadjusted data, with an arbitrary number of regressors. Special attention is paid to the specification of trend and seasonal filters, which have proved to be of importance when using seasonally unadjusted quarterly data. Within this framework, the adjustment of production to demand in a stock-building sector is analyzed. We have specified an output decision equation with three explanatory variables, capacity, demand, and stock imbalance. The model is estimated on Norwegian quarterly national accounts data by means of a non-linear least squares algorithm. Experiences from simulation exercises are also reported - illustrating the dynamic tracking as well as the dynamic behaviour of the model.