Inventory Cycles

Shibayama, Katsuyuki (2008) Inventory Cycles. Working paper. Department of Economics, University of Kent at Canterbury, Canterbury, Kent (Full text available)

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Abstract

This paper investigates a rational dynamic stochastic general equilibrium model with a stockout constraint and a production chain. Our model shows that both stockout avoidance and cost shock mechanisms replicate stylised inventory facts -- production is more volatile than sales and inventory investment is procyclical. In addition, production smoothing also works at very high frequencies. Note that the cost shock and production smoothing mechanisms are naturally embedded in our micro-founded general equilibrium framework. Moreover, as a by-product, the production chain causes the slow adjustment of inventories in aggregate. Consequently, our model generates (a) high labour volatility and (b) low correlation between labour productivity and output; the standard RBC cannot produce these two empirical findings. Finally, our model yields inventory cycles.

Item Type: Monograph (Working paper)
Uncontrolled keywords: Inventories, Inventory cycles, Stockout constraint, Production Chain, Over‐damped oscillations, Dynamic stochastic general equilibrium model
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculties > Social Sciences > School of Economics
Depositing User: Katsuyuki Shibayama
Date Deposited: 14 Apr 2009 14:33
Last Modified: 05 Sep 2011 23:50
Resource URI: http://kar.kent.ac.uk/id/eprint/6293 (The current URI for this page, for reference purposes)
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