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Is There News in Inventories?

Christoph Görtz (), Christopher Gunn () and Thomas Lubik
Additional contact information
Thomas Lubik: Federal Reserve Bank of Richmond

Discussion Papers from Department of Economics, University of Birmingham

Abstract: We identify total factor productivity (TFP) news shocks using standard VAR method- ology and document a new stylized fact: in response to news about future increases in TFP, inventories rise and comove positively with other major macroeconomic aggre- gates. We show that the standard theoretical model used to capture the effects of news shocks cannot replicate this fact when extended to include inventories. To explain the empirical inventory behavior, we therefore develop a framework that relies on the pres- ence of knowledge capital accumulated through a learning-by-doing process. The desire to take advantage of higher future TFP through knowledge capital drives output and hours choices on the arrival of news and leads to inventory accumulation alongside the other macroeconomic variables. The broad-based comovement we document supports the view that news shocks are an important driver of aggregate fluctuations.

Keywords: News shocks; business cycles; inventories; knowledge capital; VAR. (search for similar items in EconPapers)
JEL-codes: E2 E3 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2020-05
New Economics Papers: this item is included in nep-dge and nep-mac
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Working Paper: Is There News in Inventories? (2020) Downloads
Working Paper: Is There News in Inventories? (2020) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bir:birmec:20-07

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