What do inventories tell us about news-driven business cycles?

Nicolas Crouzet and Hyunseung Oh

Journal of Monetary Economics, 2016, vol. 79, issue C, 49-66

Abstract: There is widespread disagreement over the quantitative contribution of news shocks to business-cycle fluctuations. This paper provides a simple identifying restriction, based on inventory dynamics, that tightly pins down this contribution. Structural models predict that finished-good inventories should fall when there is an increase in consumption and investment induced by news shocks. A structural VAR with these sign restrictions indicates that news shocks account for at most 20 percent of output volatility. Since inventories comove positively with consumption and investment in the data, shocks that generate negative comovement cannot account for the bulk of fluctuations.

Keywords: News shocks; Business cycles; Investment; Inventories; Intertemporal substitution (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (12)

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Related works:
Working Paper: Can news shocks account for the business-cycle dynamics of inventories? (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:79:y:2016:i:c:p:49-66

DOI: 10.1016/j.jmoneco.2016.03.005

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