Input and Output Inventories in the UK

John Tsoukalas

MPRA Paper from University Library of Munich, Germany

Abstract: What is the role of inventories in UK manufacturing? We present and estimate a model of inventories that considers separately finished goods and input (i.e. the sum of raw materials and work-in-process) inventories. We estimate structural parameters which allows us to make inferences on the role of inventories in cyclical frequencies. Our results suggest that both types of inventories are used for production level (from demand shocks) and production cost (from cost shocks) smoothing. We identify a small but significant negative relationship between inventories and the real interest rate thus providing support for one of the textbook channels of the monetary policy transmission mechanism. Variance decompositions indicate that technology shocks are the dominant driving factor behind cyclical changes in inventories. These shocks account for over 35% of the forecast error variance at these frequencies.

Keywords: Inventories; Linear-quadratic model; Interest rates (search for similar items in EconPapers)
JEL-codes: C11 E22 E23 (search for similar items in EconPapers)
Date: 2009-04
New Economics Papers: this item is included in nep-mac
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Related works:
Journal Article: Input and Output Inventories in the UK (2011)
Working Paper: Input and Output Inventories in the UK (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:18695

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