Inventory growth cycles with debt-financed investment

Matheus R. Grasselli and Adrien Nguyen-Huu

Structural Change and Economic Dynamics, 2018, vol. 44, issue C, 1-13

Abstract: We propose a continuous-time stock-flow consistent model for inventory dynamics in an economy with firms, banks, and households. On the supply side, firms decide on production based on adaptive expectations for sales demand and a desired level of inventories. On the demand side, investment is determined as a function of utilization and profitability and can be financed by debt, whereas consumption is independently determined as a function of income and wealth. Prices adjust sluggishly to both changes in labour costs and inventory. Disequilibrium between expected sales and demand is absorbed by unplanned changes in inventory. This results in a five-dimensional dynamical system for wage share, employment rate, private debt ratio, expected sales, and capacity utilization. We analyze two limiting cases: the long-run dynamics provides a version of the Keen model with effective demand and varying inventories, whereas the short-run dynamics gives rise to behaviour that we interpret as Kitchin cycles.

Keywords: Macroeconomic dynamics; Business cycles; Inventories; Disequilibrium analysis (search for similar items in EconPapers)
JEL-codes: C61 E12 E20 E32 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0954349X16300947
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Inventory growth cycles with debt-financed investment (2018)
Working Paper: Inventory growth cycles with debt-financed investment (2016)
Working Paper: Inventory growth cycles with debt-financed investment (2016)
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: https://EconPapers.repec.org/RePEc:eee:streco:v:44:y:2018:i:c:p:1-13

DOI: 10.1016/j.strueco.2018.01.003

Access Statistics for this article

Structural Change and Economic Dynamics is currently edited by F. Duchin, H. Hagemann, M. Landesmann, R. Scazzieri, A. Steenge and B. Verspagen

More articles in Structural Change and Economic Dynamics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().