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Microeconomic inventory adjustment and aggregate dynamics

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  • J. McCarthy
  • E. Zakrajsek

Abstract

We examine microeconomic and aggregate inventory dynamics in the business sector of the U.S. economy. We employ high-frequency firm-level data and use an empirically tractable model, in which the aggregate dynamics are derived explicitly from the underlying microeconomic data. Our results show that the microeconomic adjustment function in both the manufacturing and trade sectors is nonlinear and asymmetric, results consistent with firms using (S,s)-type inventory policies. There are differences in the estimated adjustment functions between the two sectors as well as the durable and nondurable goods firms within each sector. The estimated adjustment function is remarkably stable across subperiods, indicating little change in the inventory adjustment process over time. As predicted by our model, higher moments of the cross-sectional distribution of inventory deviations affect aggregate inventory dynamics.

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  • J. McCarthy & E. Zakrajsek, 1999. "Microeconomic inventory adjustment and aggregate dynamics," BIS Working Papers 63, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:63
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    Cited by:

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    2. Higson, C. & Holly, S. & Kattuman, P. & S. Platis, 2001. "The Business Cycle, Macroeconomic Shocks and the Cross Section: The Growth of UK Quoted Companies," Cambridge Working Papers in Economics 0114, Faculty of Economics, University of Cambridge.
    3. Paula R. Worthington, 1998. "Inventories and output volatility," Working Paper Series WP-98-21, Federal Reserve Bank of Chicago.
    4. Chikán, Attila & Kovács, Erzsébet & Matyusz, Zsolt & Sass, Magdolna & Vakhal, Péter, 2016. "Long-term trends in inventory investment in traditional market and post-socialist economies," International Journal of Production Economics, Elsevier, vol. 181(PA), pages 14-23.

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