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Input and Output Inventory Dynamics

  • Yi Wen
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This paper develops an analytically tractable general equilibrium model of inventory dynamics based on a precautionary stockout-avoidance motive. The model's predictions are broadly consistent with the US business cycle and key features of inventory behavior. It is also shown that technological improvement of inventory management can increase, rather than decrease, the volatility of aggregate output. Key to this seemingly counterintuitive result is that a stockout-avoidance motive leads to a procyclical shadow value of inventories, which acts as an automatic stabilizer that discourages sales in booms and encourages demand in recessions, thereby reducing the variability of GDP. (JEL D92, E22, E23, E32, G31)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mac.3.4.181
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Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 3 (2011)
Issue (Month): 4 (October)
Pages: 181-212

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Handle: RePEc:aea:aejmac:v:3:y:2011:i:4:p:181-212
Note: DOI: 10.1257/mac.3.4.181
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  1. Alan S. Blinder, 1984. "Can The Production Smoothing Model of Inventory Behavior be Saved?," NBER Working Papers 1257, National Bureau of Economic Research, Inc.
  2. Ramey, Valerie A, 1991. "Nonconvex Costs and the Behavior of Inventories," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 306-34, April.
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  5. Humphreys, Brad R. & Maccini, Louis J. & Schuh, Scott, 2001. "Input and output inventories," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 347-375, April.
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  18. Yi Wen, 2011. "Input and Output Inventory Dynamics," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(4), pages 181-212, October.
  19. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November.
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  29. Pengfei Wang & Yi Wen, 2009. "Inventory accelerator in general equilibrium," Working Papers 2009-010, Federal Reserve Bank of St. Louis.
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