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What inventory behavior tells us about business cycles

Mark Bils and James Kahn ()

No 92, Staff Reports from Federal Reserve Bank of New York

Abstract: Manufacturers' finished goods inventories are less cyclical than shipments. This requires marginal cost to be more procyclical than is conventionally measured. In this paper, alternative marginal cost measures for six manufacturing industries are constructed. These measures, which attribute high-frequency productivity shocks to procyclical work effort, are more successful in accounting for inventory behavior. Evidence is also provided that the short-run slope of marginal cost arising from convexity of the production function is close to zero for five of the six industries. The paper concludes that countercyclical markups arising from a procyclical shadow price of labor are chiefly responsible for the sluggishness of inventories.

Keywords: Inventories; Business cycles (search for similar items in EconPapers)
JEL-codes: E22 E32 (search for similar items in EconPapers)
Date: 1999-11-01
New Economics Papers: this item is included in nep-dge and nep-tid
Note: For a published version of this report, see Mark Bils and James A. Kahn, "What Inventory Behavior Tells Us about Business Cycles," American Economic Review90, no.3 (June 2000): 458-81.
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Related works:
Journal Article: What Inventory Behavior Tells Us about Business Cycles (2000) Downloads
Working Paper: What Inventory Behavior Tells Us About Business Cycles (1999) Downloads
Working Paper: What inventory behavior tells us about business cycles (1998) Downloads
Working Paper: What Inventory Behavior Tells Us About Business Cycles (1996)
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