Inventories, Stockouts, and ToTEM
AbstractInventory investment is an important component of the Canadian business cycle. Despite its small average size – less than 1 per cent of output -- it exhibits volatile procyclical fluctuations, accounting for almost one-third of output variance. Procyclicality of inventories is somewhat smaller than that of sales, resulting in a counter-cyclical aggregate inventory-sales ratio. These salient inventory facts are matched in a partialequilibrium version of Kryvtsov and Midrigan’s (2010) model in which firms hold stocks of goods to buffer against stockouts. In booms, firms boost their inventories to avoid stocking out due to the rise in demand. The model combines the real marginal cost estimated by ToTEM with the convex cost of adjusting inventories to match the dynamics of the inventory-sales ratio in the data.
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Bibliographic InfoPaper provided by Bank of Canada in its series Discussion Papers with number 10-8.
Length: 29 pages
Date of creation: 2010
Date of revision:
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Business fluctuations and cycles; Transmission of monetary policy;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-06 (All new papers)
- NEP-BEC-2010-08-06 (Business Economics)
- NEP-CBA-2010-08-06 (Central Banking)
- NEP-MAC-2010-08-06 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Aguirregabiria, Victor, 1999. "The Dynamics of Markups and Inventories in Retailing Firms," Review of Economic Studies, Wiley Blackwell, vol. 66(2), pages 275-308, April.
- Oleksiy Kryvtsov & Yang Zhang, 2010. "Inventories in ToTEM," Discussion Papers 10-9, Bank of Canada.
- Oleksiy Kryvtsov & Virgiliu Midrigan, 2011. "Inventories, Markups and Real Rigidities in Sticky Price Models of the Canadian Economy," Working Papers 11-9, Bank of Canada.
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