Inventory growth cycles with debt-financed investment

Cycles de croissance et des stocks dans une économie financée par la dette

Matheus Grasselli () and Adrien Nguyen-Huu
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Matheus Grasselli: Departement of Mathematics and Statistics [Hamilton, McMaster University] - McMaster University [Hamilton, Ontario], Fields Institute for Research In Mathematical Sciences - Fields Institute for Research In Mathematical Sciences

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Abstract: We propose a continuous-time stock-flow consistent model for inventory dynamics in an economy with firms, banks, and households. On the supply side, firms decide on production based on adaptive expectations for sales demand and a desired level of inventories. On the demand side, investment is determined as a function of utilization and profitability and can be financed by debt, whereas consumption is independently determined as a function of income and wealth. Prices adjust sluggishly to both changes in labour costs and inventory. Disequilibrium between expected sales and demand is absorbed by unplanned changes in inventory. This results in a five-dimensional dynamical system for wage share, employment rate, private debt ratio, expected sales, and capacity utilization. We analyze two limiting cases: the long-run dynamics provides a version of the Keen model with effective demand and varying inventories, whereas the short-run dynamics gives rise to behaviour that we interpret as Kitchin cycles.

Keywords: macroeconomic dynamics; business cycles; inventories; disequilibrium analysis (search for similar items in EconPapers)
Date: 2016-10-03
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Inventory growth cycles with debt-financed investment (2018)
Working Paper: Inventory growth cycles with debt-financed investment (2018)
Working Paper: Inventory growth cycles with debt-financed investment (2016)
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