The multiplier: a general equilibrium analysis of multi-stage-fabrication economy with inventories

Yi Wen

No 2005-046, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper provides a general equilibrium multi-stage production model to explain the co-existence and co-movement of output- and input-inventories. The model offers a neoclassical perspective on the propagation mechanism of demand uncertainty. It reveals that uncertainty in demand at downstream can be transmitted and amplified towards upstream by inventory investment at all stages of production via input-output linkages, leading to a chain-multiplier effect on aggregate output and employment. The model is capable of explaining several long-standing puzzles of the business cycle associated with inventories.

Keywords: Business cycles; Production (Economic theory); Investments (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2005-046

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DOI: 10.20955/wp.2005.046

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