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Sales, Inventories, and Real Interest Rates: A Century of Stylized Facts

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  • Luca Benati

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  • Thomas A Lubik

    ()

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    Abstract

    We use Bayesian time-varying parameters structural VARs with stochastic volatility to investigate changes in both the reduced-form and the structural correlations between business inventories and either sales growth or the real interest rate in the United States during both the interwar and the post-WWII periods. We identify four structural shocks by combining a single long-run restriction to identify a permanent output shock as in Blanchard and Quah (1989), with three sign restrictions to identify demand- and supply-side transitory shocks. We produce several new stylized facts which should inform the development of new models of inventories. In particular, we show that (i ) during both the interwar and the post-WWII periods, the structural correlation between inventories and the real interest rate conditional on identied interest rate shocks is systematically positive; (ii ) the reduced-form correlation between the two series is positive during the post-WWII period, but in line with the predictions of theory it is robustly negative during the interwar era; and (iii ) during the interwar era, the correlations between inventories and either of the two other series exhibits a remarkably strong co-movement with output at the business-cycle frequencies.

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    File URL: http://cama.crawford.anu.edu.au/pdf/working-papers/2012/192012.pdf
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    Bibliographic Info

    Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2012-19.

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    Length: 47 pages
    Date of creation: May 2012
    Date of revision:
    Handle: RePEc:een:camaaa:2012-19

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