Bayesian Estimation of a DSGE Model with Inventories

Marcel Foerster
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Marcel Foerster: University of Giessen

No 201123, MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: This paper introduces inventories in an otherwise standard Dynamic Stochastic General Equilibrium Model (DSGE) of the business cycle. Firms accumulate inventories to facilitate sales, but face a cost of doing so in terms of costly storage of intermediate goods. The paper’s main contribution is to present a DSGE model with inventories that is estimated using Bayesian methods. Based on U.S. data we show that accounting for inventory dynamics has a significant impact on parameter estimates and impulse responses. Our analysis also reveals that the contribution of structural shocks to variations in the observable variables changes significantly when we allow for inventories. Moreover, we find that inventories enter the Phillips curve as an additional and significant driving variable of inflation and make the inflation process less backward-looking.

Keywords: Inventories; Bayesian Estimation; DSGE model; Business Cycles (search for similar items in EconPapers)
JEL-codes: C13 E20 E30 (search for similar items in EconPapers)
Pages: 46pages
Date: 2011
New Economics Papers: this item is included in nep-dge and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:201123

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