Input and Output Inventories in General Equilibrium

Matteo Iacoviello (), Fabio Schiantarelli () and Scott Schuh ()
Additional contact information
Scott Schuh: Federal Reserve Bank of Boston

No 658, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: We build and estimate a two-sector (goods and services) dynamic general equilibrium model with two types of inventories: finished goods (output) inventories yield utility services while materials (input) inventories facilitate the production of goods. The model, which contains neutral and inventory-specific technology shocks and preference shocks, is estimated by Bayesian methods. The estimated model replicates the volatility and cyclicality of inventory investment and inventory-target ratios. When estimated over subperiods, the results suggest that changes in the volatility of inventory shocks, or in structural parameters associated with inventories, play a minor role in the reduction of the volatility of output.

Keywords: Inventories; business cycles; output volatility; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: E22 E32 E37 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
Date: 2007-03-23
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Related works:
Working Paper: Input and output inventories in general equilibrium (2007)
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