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Sales, Inventories, and Real Interest Rates: A Century of Stylized Facts

Luca Benati () and Thomas A Lubik

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We use Bayesian time-varying parameters structural VARs with stochastic volatility to investigate changes in both the reduced-form and the structural correlations between business inventories and either sales growth or the real interest rate in the United States during both the interwar and the post-WWII periods. We identify four structural shocks by combining a single long-run restriction to identify a permanent output shock as in Blanchard and Quah (1989), with three sign restrictions to identify demand- and supply-side transitory shocks. We produce several new stylized facts which should inform the development of new models of inventories. In particular, we show that (i ) during both the interwar and the post-WWII periods, the structural correlation between inventories and the real interest rate conditional on identified interest rate shocks is systematically positive; (ii ) the reduced-form correlation between the two series is positive during the post-WWII period, but in line with the predictions of theory it is robustly negative during the interwar era; and (iii ) during the interwar era, the correlations between inventories and either of the two other series exhibits a remarkably strong co-movement with output at the business-cycle frequencies.

Pages: 47 pages
Date: 2012-05
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Related works:
Journal Article: SALES, INVENTORIES AND REAL INTEREST RATES: A CENTURY OF STYLIZED FACTS (2014) Downloads
Working Paper: Sales, inventories, and real interest rates: a century of stylized facts (2012) Downloads
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