Inventories in Dynamic General Equilibrium

Shibayama, Katsuyuki (2010) Inventories in Dynamic General Equilibrium. Discussion paper. School of Economics, University of Kent at Canterbury, Kent, UK (Full text available)

Abstract

This article investigates a dynamic general equilibrium model with a stockout constraint, which means that no seller can sell more than the inventories that she has. The model successfully explains two inventory facts; (i) inventory investment is procyclical, and (ii) production is more volatile than sales. The key intuition is that, since inventories and demand are complements in generating sales, the optimal level of inventories is increasing in expected demand. Thus, when demand is expected to be strong, firms increase their production not only to meet their demand but also to accumulate inventories. Also, our model shows that the inventory to sales ratio is persistent and countercyclical, while the (endogenous) markup is countercyclical. These are because a high interest rate in booms discourages firms to hold inventories.

Item Type: Monograph (Discussion paper)
Uncontrolled keywords: Inventory investment, Inventory cycles, Stockout constraint, 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: 21 Dec 2018 05:43 UTC
Last Modified: 21 Dec 2018 05:43 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/71414 (The current URI for this page, for reference purposes)
Shibayama, Katsuyuki: https://orcid.org/0000-0003-3472-398X
  • Depositors only (login required):

Downloads

Downloads per month over past year