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Inventories and Interest Rates: A Critique of the Buffer Stock Model

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  • Bivin, David G

Abstract

Economists generally test for the effect of interest rates on inventories by including some measure of the real interest rate in a standard flexible accelerator-buffer stock model. This paper presentsseveral reasons for concluding that this approach is incorrect and demonstrates how interest rate effects can be introduced into decisionrules derived under the assumption of optimizing behavior by firms. Decision rules for finished good inventories, output, and price are estimated using monthly observations on the food and kindred product industry. The results generally conform to the predictions of the theory. Copyright 1986 by American Economic Association.

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  • Bivin, David G, 1986. "Inventories and Interest Rates: A Critique of the Buffer Stock Model," American Economic Review, American Economic Association, vol. 76(1), pages 168-176, March.
  • Handle: RePEc:aea:aecrev:v:76:y:1986:i:1:p:168-76
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    Cited by:

    1. Louri, Helen, 1996. "Inventory investment in Greek manufacturing industry: Effects from participation in the European market," International Journal of Production Economics, Elsevier, vol. 45(1-3), pages 47-54, August.
    2. Fafchamps, Marcel & Gunning, Jan Willem & Oostendorp, Remco, 2000. "Inventories and Risk in African Manufacturing," Economic Journal, Royal Economic Society, vol. 110(466), pages 861-93, October.

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