Title: Inventories and the business cycle
Description: "We develop an equilibrium business cycle model where producers of final goods pursue generalized (S,s) inventory policies with respect to intermediate goods due to nonconvex factor adjustment costs.  When calibrated to reproduce the average inventory-to-sales ratio in postwar U.S.  data, our model explains over half of the cyclical variability of inventory investment.  Moreover, inventory accumulation is strongly procyclical, and production is more volatile than sales, as in the data"--Federal Reserve Bank of Minneapolis web site.
Subjects: Business cycles, Econometric models, Inventories
Places: United States