Modeling inventories over the business cycle
By: Aubhik Khan and Julia K. Thomas.
Contributors: Thomas, Julia K.
Series: Working paper ;; no. 04-13; Working paper (Federal Reserve Bank of Philadelphia : Online) ;; no. 04-13.
Publisher: Federal Reserve Bank of Philadelphia
Published: 2004
Place of publication: Philadelphia, PA
Language: eng
Format: Electronic resource
Subjects: Inventories -- United States -- Econometric models.; Business cycles -- United States -- Econometric models.
Description: "We search for useful models of aggregate  fluctuations with inventories.  We focus exclusively on dynamic stochastic  general equilibrium models that endogenously give rise to inventory investment  and evaluate two leading candidates: the (S,s) model and the stockout avoidance  model.  Each model is examined under both technology shocks and preference  shocks, and its performance gauged by its ability to explain the observed  magnitude of inventories in the U.S.  economy, alongside other empirical  regularities, such as the procyclicality of inventory investment and its  positive correlation with sales.  We find that the (S,s) model is far more  consistent with the behavior of aggregate inventories in the postwar U.S.  when  aggregate fluctuations arise from technology, rather than preference, shocks.   The converse is true for the stockout avoidance model.  Overall, while the (S,s)  model performs well with respect to the inventory facts and other business  cycle regularities, the stockout avoidance model does not.  There, the essential  motive for stocks is insufficient to generate inventory holdings near the data  without destroying the model's performance along other important margins.   Finally, the stockout avoidance model appears incapable of sustaining  inventories alongside capital.  This suggests a fundamental problem in using  reduced-form inventory models with stocks rationalized by this motive"--Federal Reserve Bank of Philadelphia web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 1/26/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.