In this paper we examine two different measures of monthly production that have been used by economists. The first measure, which we refer to as IP, is the index of industrial production constructed by the Board of Governors of the Federal Reserve. This measure is used extensively in empirical work on the business cycle, as well as by policymakers and others to assess the current state of the economy. The second measure, which we refer to as Y4, is constructed from the accounting identity that output equals sales plus the change in inventories. Sales and inventory data are reported by the Department of Commerce. This measure of output is frequently used to estimate models of inventory accumulation. theoretically, these two series measuare the same underlying economic variable--the production of goods by firms during the month. We show here that the time series properties of these two series are radically different.Center for Research on Economic and Social Theory, Department of Economics, University of Michiganhttp://deepblue.lib.umich.edu/bitstream/2027.42/100881/1/ECON333.pd
