Input and output inventories

Brad Humphreys, Louis Maccini () and Scott Schuh

No 97-7, Working Papers from Federal Reserve Bank of Boston

Abstract: This paper builds and estimates a new model of firm behavior that includes decisions to order, use, and stock input materials in a stage-of-fabrication environment with either gross production or value added technology. The model extends the traditional linear-quadratic model of output (finished goods) inventories by incorporating delivery and usage of input materials plus input inventory investment - features which largely have been ignored in the literature. Stylized facts indicate that input inventories are empirically more important than output inventories, especially in business cycle fluctuations. Firms simultaneously choose input and output inventories; thus, the model exhibits feedback between stocks induced by dynamic stage-of-fabrication linkages. Estimation of inventory decision rules shows the model is reasonably consistent with data in nondurable and durable goods industries. The results reveal inventory stock interaction, convex costs, and viability of gross production and value added specifications, industrial differences, and input inventory-saving technology.

Keywords: Inventories (search for similar items in EconPapers)
Date: 1997
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Citations: View citations in EconPapers (5)

Published in Journal of Monetary Economics (May 2001)

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Related works:
Journal Article: Input and output inventories (2001)
Working Paper: Input and Output Inventories (2000)
Working Paper: Input and Output Inventories (1997)
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