Input and output inventory dynamics

Yi Wen

No 2011-008, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper develops an analytically tractable general-equilibrium model of inventory dynamics based on a precautionary stockout-avoidance motive. The model?s predictions are broadly consistent with the U.S. business cycle and key features of inventory behavior. It is also shown that technological improvement of inventory management can increase, rather than decrease, the volatility of aggregate output. Key to this seemingly counterintuitive result is that a stockout-avoidance motive leads to a procyclical shadow value of inventories, which acts as an automatic stabilizer that discourages sales in booms and encourages demand in recessions, thereby reducing the variability of GDP.>

Keywords: Inventories; Business cycles (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-bec, nep-cba, nep-dge and nep-mac
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Citations: View citations in EconPapers (34)

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Related works:
Journal Article: Input and Output Inventory Dynamics (2011)
Working Paper: Input and output inventory dynamics (2009)
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DOI: 10.20955/wp.2011.008

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