Microeconomic inventory adjustment and aggregate dynamics
AbstractWe examine the 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Federal Reserve Bank of New York in its series Staff Reports with number 54.
Date of creation: 1998
Date of revision:
Other versions of this item:
- J. McCarthy & E. Zakrajsek, 1999. "Microeconomic inventory adjustment and aggregate dynamics," BIS Working Papers 63, Bank for International Settlements.
- NEP-ALL-1999-01-25 (All new papers)
- NEP-MIC-1999-01-25 (Microeconomics)
- NEP-TID-1999-02-01 (Technology & Industrial Dynamics)
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.:
- Olivier J. Blanchard, 1982.
"The Production and Inventory Behavior of the American Automobile Industry,"
NBER Working Papers
0891, National Bureau of Economic Research, Inc.
- Blanchard, Olivier J, 1983. "The Production and Inventory Behavior of the American Automobile Industry," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 365-400, June.
- Valerie A. Ramey & Kenneth D. West, 1997.
NBER Working Papers
6315, National Bureau of Economic Research, Inc.
- Fisher, J.D.M. & Hornstein, A., 1995.
"(S,s)Inventory Policies in General Equilibrium,"
UWO Department of Economics Working Papers
9514, University of Western Ontario, Department of Economics.
- Jonas D.M. Fisher & Andreas Hornstein, 1996. "(S, s) inventory policies in general equilibrium," Working Paper Series, Macroeconomic Issues WP-96-24, Federal Reserve Bank of Chicago.
- Jonas D.M. Fisher & Andreas Hornstein, 1995. "(S,s) inventory policies in general equilibrium," Discussion Paper / Institute for Empirical Macroeconomics 104, Federal Reserve Bank of Minneapolis.
- Jonas D.M. Fisher & Andreas Hornstein, 1998. "(S,s) Inventory policies in general equilibrium," Working Paper 97-07, Federal Reserve Bank of Richmond.
- Kahn, James A, 1987. "Inventories and the Volatility of Production," American Economic Review, American Economic Association, vol. 77(4), pages 667-79, September.
- Krane, Spencer D, 1994. "The Distinction between Inventory Holding and Stockout Costs: Implications for Target Inventories, Asymmetric Adjustment, and the Effect of Aggregation on Production Smoothing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 117-36, February.
- Andrew J. Filardo, 1995. "Recent evidence on the muted inventory cycle," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 27-43.
- Athanasios Episcopos, 1996. "Testing the (S,s) model of inventory investment with Canadian wholesale trade data," Applied Economics Letters, Taylor & Francis Journals, vol. 3(3), pages 193-195.
- Mark Gertler & Simon Gilchrist, 1991.
"Monetary Policy, Business Cycles and the Behavior of Small Manufacturing Firms,"
NBER Working Papers
3892, National Bureau of Economic Research, Inc.
- Gertler, Mark & Gilchrist, Simon, 1994. "Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 309-40, May.
- Mark Gertler & Simon Gilchrist, 1993. "Monetary policy, business cycles and the behavior of small manufacturing firms," Finance and Economics Discussion Series 93-4, Board of Governors of the Federal Reserve System (U.S.).
- Trivedi, P. K., 1973. "Retail inventory investment behaviour," Journal of Econometrics, Elsevier, vol. 1(1), pages 61-80, March.
- Ricardo J. Caballero, 1991.
"Durable Goods: An Explanation for Their Slow Adjustment,"
NBER Working Papers
3748, National Bureau of Economic Research, Inc.
- Caballero, Ricardo J, 1993. "Durable Goods: An Explanation for Their Slow Adjustment," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 351-84, April.
- Caballero, R.J., 1990. "Durable Goods: An Explanation For Their Slow Adjustment," Discussion Papers 1990_49, Columbia University, Department of Economics.
- Krane, Spencer D & Braun, Stephen N, 1991.
"Production Smoothing Evidence from Physical-Product Data,"
Journal of Political Economy,
University of Chicago Press, vol. 99(3), pages 558-81, June.
- Spencer Krane & Steven Braun, 1990. "Production smoothing evidence from physical-product data," Working Paper Series / Economic Activity Section 103, Board of Governors of the Federal Reserve System (U.S.).
- Ray C. Fair, 1990.
"The Production Smoothing Model is Alive and Well,"
NBER Working Papers
2877, National Bureau of Economic Research, Inc.
- Alan S. Blinder, 1981. "Retail Inventory Behavior and Business Fluctuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(2), pages 443-520.
- Jonathan McCarthy & Egon Zakrajsek, 1998. "Trade inventories," Staff Reports 53, Federal Reserve Bank of New York.
- Paula R. Worthington, 1998. "The increasing importance of retailers' inventories," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 2-12.
- Michael C. Lovell, 1962. "Inventory Investment," Cowles Foundation Discussion Papers 131, Cowles Foundation for Research in Economics, Yale University.
- Donald S. Allen, 1995. "Changes in inventory management and the business cycle," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 17-26.
- Egon Zakrajsek, 1997. "Retail inventories, internal finance, and aggregate fluctuations," Research Paper 9722, Federal Reserve Bank of New York.
- Julio Rotemberg, 1987. "The New Keynesian Microfoundations," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 69-116 National Bureau of Economic Research, Inc.
- Robert E. Carpenter & Steven M. Fazzari & Bruce C. Petersen, 1998. "Financing Constraints And Inventory Investment: A Comparative Study With High-Frequency Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 513-519, November.
- Scott Schuh, 1996. "Evidence on the link between firm-level and aggregate inventory behavior," Finance and Economics Discussion Series 96-46, Board of Governors of the Federal Reserve System (U.S.).
- Caplin, Andrew S, 1985. "The Variability of Aggregate Demand with (S, s) Inventory Policies," Econometrica, Econometric Society, vol. 53(6), pages 1395-1409, November.
- Paula R. Worthington, 1998. "Inventories and output volatility," Working Paper Series WP-98-21, Federal Reserve Bank of Chicago.
- 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.
- C. Higson & S. Holly & P. Kattuman & S. Platis, 2004. "The Business Cycle, Macroeconomic Shocks and the Cross-Section: The Growth of UK Quoted Companies," Economica, London School of Economics and Political Science, vol. 71(281), pages 299-318, 05.
- Brown, Ward & Haegler, Urs, 2004. "Financing constraints and inventories," European Economic Review, Elsevier, vol. 48(5), pages 1091-1123, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Farber).
If references are entirely missing, you can add them using this form.