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The role of inventories for the propagation of aggregate fluctuations: lessons for Bulgaria (1999–2019)

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  • Aleksandar Vasilev

Abstract

Purpose - In this study, inventories are introduced as a productive input into a real-business-cycle (RBC) setup augmented with the government. Design/methodology/approach - The model is calibrated to Bulgarian data for the period 1999–2019. The quantitative importance of the presence of inventories is investigated. Findings - The quantitative effect of inventories is found to be important: decreasing consumption volatility and increasing employment variability. Those results, however, are at the expense of decreasing wage volatility and increasing investment volatility, and generally worsening the contemporaneous correlations of the main variables with output. Originality/value - Fluctuations in inventory levels matter for business cycle fluctuations in Bulgaria, which is a novel result. Still, there is a need for more research on the incorporation of inventories into RBC models to better fit the Bulgarian experience.

Suggested Citation

  • Aleksandar Vasilev, 2021. "The role of inventories for the propagation of aggregate fluctuations: lessons for Bulgaria (1999–2019)," Journal of Economic and Administrative Sciences, Emerald Group Publishing Limited, vol. 39(1), pages 175-183, June.
    • Handle: RePEc:eme:jeaspp:jeas-11-2020-0195
    DOI: 10.1108/JEAS-11-2020-0195
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    References listed on IDEAS

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    1. Blinder, Alan S. & Fischer, Stanley, 1981. "Inventories, rational expectations, and the business cycle," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 277-304.
    2. Ramey, Valerie A, 1989. "Inventories as Factors of Production and Economic Fluctuations," American Economic Review, American Economic Association, vol. 79(3), pages 338-354, June.
    3. Christiano, Lawrence J., 1988. "Why does inventory investment fluctuate so much?," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 247-280.
    4. Aleksandar Vasilev, 2016. "Progressive taxation and (in)stability in an endogenous growth model with human capital accumulation," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 59(2), pages 1-15.
    5. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
    6. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
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    More about this item

    Keywords

    Business cycles; Inventories; Bulgaria; E24; E32;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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