Testing the (S,s) model of inventory investment with Canadian wholesale trade data

Abstract

The (S,s) model of inventories is a robust alternative to production smoothing theories. Despite the apparent usefulness of the model, exhaustive testing has been lacking in the literature. This note employs a recently published econometric methodology to test the (S,s) model and provide additional evidence from Canadian wholesale trade. The empirical findings favour (S,s) against the quadratic cost model for all the product categories investigated.