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Input and Output Inventories in General Equilibrium

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  • Matteo Iacoviello

    ()
    (Boston College)

  • Fabio Schiantarelli

    ()
    (Boston College)

  • Scott Schuh

    ()
    (Federal Reserve Bank of Boston)

Abstract

We build and estimate a two-sector (goods and services) dynamic general equilibrium model with two types of inventories: finished goods (output) inventories yield utility services while materials (input) inventories facilitate the production of goods. The model, which contains neutral and inventory-specific technology shocks and preference shocks, is estimated by Bayesian methods. The estimated model replicates the volatility and cyclicality of inventory investment and inventory-target ratios. When estimated over subperiods, the results suggest that changes in the volatility of inventory shocks, or in structural parameters associated with inventories, play a minor role in the reduction of the volatility of output.

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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 658.

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Date of creation: 23 Mar 2007
Date of revision: 23 Oct 2009
Handle: RePEc:boc:bocoec:658

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Keywords: Inventories; business cycles; output volatility; Bayesian estimation;

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Cited by:
  1. Virgiliu Midrigan & Oleksiy Kryvtsov, 2008. "Inventories, Markups, and Real Rigidities in Menu Cost Models," 2008 Meeting Papers 487, Society for Economic Dynamics.
  2. Chang, Yongsung & Hornstein, Andreas & Sarte, Pierre-Daniel, 2009. "On the employment effects of productivity shocks: The role of inventories, demand elasticity, and sticky prices," Journal of Monetary Economics, Elsevier, vol. 56(3), pages 328-343, April.
  3. repec:mar:magkse:201123 is not listed on IDEAS
  4. Cesaroni, Tatiana & Maccini, Louis & Malgarini, Marco, 2011. "Business cycle stylized facts and inventory behaviour: New evidence for the Euro area," International Journal of Production Economics, Elsevier, vol. 133(1), pages 12-24, September.
  5. Leonardo Auernheimer & Danilo Trupkin, 2014. "The Role of Inventories and Capacity Utilization as Shock Absorbers," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(1), pages 70-85, January.
  6. Kryvtsov, Oleksiy & Midrigan, Virgiliu, 2010. "Inventories and real rigidities in New Keynesian business cycle models," Journal of the Japanese and International Economies, Elsevier, vol. 24(2), pages 259-281, June.
  7. Lee, Keun & Kim, Byung-Yeon & Park, Young-Yoon & Sanidas, Elias, 2013. "Big businesses and economic growth: Identifying a binding constraint for growth with country panel analysis," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 561-582.
  8. Lubik, Thomas A. & Sarte, Pierre-Daniel G. & Schwartzman, Felipe, 2014. "What Inventory Behavior Tells Us About How Business Cycles Have Changed," Working Paper 14-6, Federal Reserve Bank of Richmond.

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