Inside Money, Output, and Inventories in a Business Cycle

Giovanna Mossetti

Canadian Journal of Economics, 1990, vol. 23, issue 2, 381-99

Abstract: This paper describes a dynamic general equilibrium asset-pricing model of a competitive monetary economy with a storable good and a cash-in-advance constraint where output, inside money, and inventories are endogenously determined. Inventories allow firms to react to high (low) productivity states by increasing (decreasing) production in good (bad) times. In response to a temporary change in the productivity of labor: inside money and output are positively and serially correlated, with inside money changing before output; output fluctuates more than sales, and prices fluctuate less in a flexible price model with no storage.

Date: 1990
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