Inventory Behavior with Permanent Sales Shocks

Louis Maccini (), Bartholomew Moore and Huntley Schaller
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Bartholomew Moore: Fordham University

Fordham Economics Discussion Paper Series from Fordham University, Department of Economics

Abstract: Empirically, sales are I(1). Starting from this fact, we derive three startling results. First, the variance of production is equal to the variance of sales in the long run. Second, this result holds regardless of the strength of production smoothing, stockout avoidance, or cost shocks. Third, at business cycle horizons, the conditional variance of production is greater than that of sales. We explain -- analytically and intuitively -- four traditional inventory puzzles and three puzzles about inventories and monetary policy.

Keywords: Inventories; Production Smoothing; Stockout Avoidance; Cointegration; Monetary Policy Effects (search for similar items in EconPapers)
JEL-codes: E22 E23 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-mac
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Journal Article: Inventory behavior with permanent sales shocks (2015)
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