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Inventories and the role of goods-market frictions for business cycles

Author

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  • Den Haan, Wouter J.

Abstract

Changes in the stock of inventories are important for fluctuations in aggregate output. However, the possibility that firms do not sell all produced goods and inventory accumulation are typically ignored in business cycle models. This paper captures this with a goods-market friction. Using US data, "goods-market efficiency" is shown to be strongly procyclical. By including both a goods-market friction and a standard labor-market search friction, the model developed can substantially magnify and propagate shocks. Despite its simplicity, the model can also replicate key inventory facts. However, when these inventory facts are used to discipline parameter values, then goods-market frictions are quantitatively not very important.

Suggested Citation

  • Den Haan, Wouter J., 2014. "Inventories and the role of goods-market frictions for business cycles," LSE Research Online Documents on Economics 58231, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:58231
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    File URL: http://eprints.lse.ac.uk/58231/
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    Citations

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    Cited by:

    1. Petrosky-Nadeau, Nicolas & Wasmer, Etienne & Zeng, Shutian, 2016. "Shopping time," Economics Letters, Elsevier, vol. 143(C), pages 52-60.
    2. Petrosky-Nadeau, Nicolas & Wasmer, Etienne, 2015. "Macroeconomic dynamics in a model of goods, labor, and credit market frictions," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 97-113.
    3. David M. Arseneau & Ryan Chahrour & Sanjay K. Chugh & Alan Finkelstein Shapiro, 2015. "Optimal Fiscal and Monetary Policy in Customer Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(4), pages 617-672, June.
    4. repec:hal:wpspec:info:hdl:2441/1787nsa6d1927a90u4bkkombn4 is not listed on IDEAS
    5. Mirko Abbritti & Tommaso Trani, 2014. "Search and Bargaining in the Product Market and Price Rigidities," Faculty Working Papers 09/14, School of Economics and Business Administration, University of Navarra.
    6. Blouri, Yashar & Ehrlich, Maximilian V., 2020. "On the optimal design of place-based policies: A structural evaluation of EU regional transfers," Journal of International Economics, Elsevier, vol. 125(C).
    7. repec:hal:spmain:info:hdl:2441/1787nsa6d1927a90u4bkkombn4 is not listed on IDEAS
    8. repec:hal:spmain:info:hdl:2441/3bi2m7jdvh8ft9m3o2c19do3i8 is not listed on IDEAS
    9. Özge Dilaver & Robert Calvert Jump & Paul Levine, 2018. "Agent‐Based Macroeconomics And Dynamic Stochastic General Equilibrium Models: Where Do We Go From Here?," Journal of Economic Surveys, Wiley Blackwell, vol. 32(4), pages 1134-1159, September.
    10. repec:hal:spmain:info:hdl:2441/3odkm6d3q58fepe1bcv0u5jjpn is not listed on IDEAS
    11. repec:hal:spmain:info:hdl:2441/5l6uh8ogmqildh09h481l2tb5 is not listed on IDEAS
    12. repec:hal:wpspec:info:hdl:2441/3odkm6d3q58fepe1bcv0u5jjpn is not listed on IDEAS
    13. repec:hal:spmain:info:hdl:2441/2lcqvok1m996m9pb3ctnmerhpq is not listed on IDEAS
    14. repec:hal:spmain:info:hdl:2441/5por5bt92h8l0bc7ls4elmcc0b is not listed on IDEAS
    15. Abbritti, Mirko & Aguilera-Bravo, Asier & Trani, Tommaso, 2021. "Long-term business relationships, bargaining and monetary policy," Economic Modelling, Elsevier, vol. 101(C).

    More about this item

    Keywords

    matching models; search frictions; magnification propagation;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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