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.
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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)
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