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Inventories, Sticky Prices and the Propogation of Nominal Shocks

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  • Martin Boileau
  • Marc-André Letendre

Abstract

Post-war business cycle fluctuations of output and inflation are remarkably persistent. Many recent sticky-price monetary business cycle models, however, grossly underpredict this persistence. We assess whether adding inventories to a standard sticky-price model raises the persistence of output and inflation. For this addition, we consider three different frameworks: a linear-quadratic inventory model, a factor of production model, and a shopping-cost model. We find that adding inventories increases the persistence of output and inflation, but that the increase is smaller for inflation. Overall, the shopping-cost model best explains the persistence of output and inflation.

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File URL: http://socserv.mcmaster.ca/econ/rsrch/papers/archive/2004-03.pdf
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Bibliographic Info

Paper provided by McMaster University in its series Department of Economics Working Papers with number 2004-03.

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Length: 44 pages
Date of creation: Mar 2004
Date of revision:
Handle: RePEc:mcm:deptwp:2004-03

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Cited by:
  1. Matteo Iacoviello & Fabio Schiantarelli & Scott Schuh, 2010. "Input and output inventories in general equilibrium," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 1004, Board of Governors of the Federal Reserve System (U.S.).
  2. Martin Menner, 2005. "A Search-Theoretic Monetary Business Cycle Model With Capital Formation," Economics Working Papers, Universidad Carlos III, Departamento de Economía we056634, Universidad Carlos III, Departamento de Economía.
  3. Richard Mash, 2004. "Optimising Microfoundations for Inflation Persistence," Economics Series Working Papers, University of Oxford, Department of Economics 183, University of Oxford, Department of Economics.
  4. Shibayama Katsuyuki & Chadha Jagjit S., 2014. "Inventories and the stockout constraint in general equilibrium," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 14(1), pages 48, January.

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