Inventories in Dynamic General Equilibrium

Katsuyuki Shibayama

Studies in Economics from School of Economics, University of Kent

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.

Keywords: Public-private partnerships; Social Marginal Cost Pricing; Incentives; Contracts; EU Transport Policy (search for similar items in EconPapers)
JEL-codes: L14 L33 L51 L91 R48 (search for similar items in EconPapers)
Date: 2010-04
New Economics Papers: this item is included in nep-bec and nep-dge
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.kent.ac.uk/economics/repec/1005.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ukc:ukcedp:1005

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Studies in Economics from School of Economics, University of Kent School of Economics, University of Kent, Canterbury, Kent, CT2 7FS.
Bibliographic data for series maintained by Dr Anirban Mitra ().