Inventory behavior with permanent sales shocks

Louis J. Maccini, Bartholomew Moore and Huntley Schaller

Journal of Economic Dynamics and Control, 2015, vol. 53, issue C, 290-313

Abstract: Empirically, ADF tests fail to reject the null hypothesis that sales are I(1). We build a model of inventory behavior that incorporates permanent sales shocks. Analytically, the model with I(1) sales implies that the variance ratio (of log production to log sales) is one in the long run, regardless of the strength of production smoothing, stockout avoidance, or cost shocks, but that, at business cycle horizons, the conditional variance ratio (conditional on past production and sales) is greater than one. We explain – analytically, using our model, and intuitively – four traditional inventory puzzles and three puzzles about inventories and monetary policy.

Keywords: Inventories; Production smoothing; Stockout avoidance; Cointegration; Monetary policy effects (search for similar items in EconPapers)
JEL-codes: E22 E23 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (12)

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Working Paper: Inventory Behavior with Permanent Sales Shocks (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:53:y:2015:i:c:p:290-313

DOI: 10.1016/j.jedc.2015.02.010

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