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Inventories and Real Rigidities in New Keynesian Business Cycle Models

Oleksiy Kryvtsov () and Virgiliu Midrigan ()

Staff Working Papers from Bank of Canada

Abstract: Kryvtsov and Midrigan (2008) study the behavior of inventories in an economy with menu costs, fixed ordering costs and the possibility of stock-outs. This paper extends their analysis to a richer setting that is capable of more closely accounting for the dynamics of the US business cycle. We find that the original conclusion survives in this setting: namely, the model requires an elasticity of real marginal cost to output approximately equal to the inverse intertemporal elasticity of substitution in consumption in order to account for the countercyclicality of the aggregate inventory-to-sales ratio in the data.

Keywords: Business fluctuations and cycles; Transmission of monetary policy (search for similar items in EconPapers)
JEL-codes: E31 F12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cba, nep-dge, nep-mac and nep-opm
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:09-9

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