Inventory investment and aggregate fluctuations with idiosyncratic shocks
Julia Thomas and
Aubhik Khan ()
No 782, 2010 Meeting Papers from Society for Economic Dynamics
An important insight of our analysis is that changes in the persistence and variability of idiosyncratic order costs and productivities alter the distribution of firms over inventory levels. This, in turn, affects the extent and speed of firms' responses to aggregate shocks, and thus the model's ability to reproduce high-frequency aspects of the aggregate data. When firms have greater certainty about their order costs, and when shifts in their relative productivities are transitory, they adjust their average inventory holdings faster following an aggregate shock. In such cases, the model succeeds not only with respect to the business cycle facts mentioned above, but also in reproducing two essential high-frequency observations, the negative correlation between sales and inventory investment and the greater volatility in sales relative to production.
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:red:sed010:782
Access Statistics for this paper
More papers in 2010 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().