Formation of firms' production decisions in finnish manufacturing industries

Business survey data have recently been used in several studies to shed light on the formation of firms' plans and expectations. The main tool for analysis has been the multivariate conditional log-linear model. The trichotomous answers in a typical business survey have an ordering. This makes it possible to analyse firms' production decisions with a categorized version of Cox's proportional hazards model. In this paper the production decisions of Finnish firms are investigated using data from the Finnish business survey. The results obtained are largely in accord with the implications of the production smoothing model of Blinder (1982).