What Inventory Behavior Tells Us About Business Cycles

Mark Joseph Bils and James A Kahn ()

No 7310, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Manufacturers' finished goods inventories move less than shipments over the business cycle. We argue that this requires marginal cost to be more procyclical than is conventionally measured. We construct, for six manufacturing industries, alternative measures of marginal cost that attribute high-frequency productivity shocks to procyclical work effort, and find that they are much more successful in accounting for inventory behavior. The difference is attributable to cyclicality in the shadow price of labor, not to diminishing returns in fact, parametric evidence suggests that the short-run slope of marginal cost is close to zero for five of the six industries. Moreover, while our measures of marginal cost are procyclical relative to output price, they are too persistent for intertemporal substitution to be important. We conclude that countercyclical markups are chiefly responsible for the sluggish response of inventory stocks over the cycle.

JEL-codes: E3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-his
Date: 1999-08
Note: EFG
View list of references View citations in EconPapers

Downloads: (external link)
http://www.nber.org/papers/w7310.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

Related works:
Working Paper: What inventory behavior tells us about business cycles (1998)
Working Paper: What inventory behavior tells us about business cycles (1999)
Working Paper: What Inventory Behavior Tells Us About Business Cycles (1996)
Journal Article: What Inventory Behavior Tells Us about Business Cycles (2000)
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: http://EconPapers.repec.org/RePEc:nbr:nberwo:7310

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w7310
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().