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Taking Stock: A Critical Assessment of Recent Research on Inventories

  • Alan S. Blinder
  • Louis J. Maccini

Empirical and theoretical aspects of inventory behavior became hot topics in the 1950s and early 1960s. No one seemed to notice the tension that was developing between the emerging macroeconomic and microeconomic views of inventories. Macroeconomists routinely thought of inventories as a destabilizing factor, yet the prevailing micro theory viewed inventories as a stabilizing factor. It was a fascinating question that was barely explored. Instead somewhat inexplicably, interest in inventories dried up, as if inventories were of minor economic significance and little intrinsic interest. By the early 1980s, then, economists once again knew something they had known in the 1950s: that inventory investment is of first-order importance in business cycles. But they were also beginning to realize that the standard production-smoothing/buffer-stock model of inventories was in deep trouble. This paper focuses on developments since that realization.

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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 5 (1991)
Issue (Month): 1 (Winter)
Pages: 73-96

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Handle: RePEc:aea:jecper:v:5:y:1991:i:1:p:73-96
Note: DOI: 10.1257/jep.5.1.73
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  1. Bertola, G. & Caballero, R.J., 1990. "Kinked Adjustment Costs And Aggregate Dynamics," Discussion Papers 1990_20, Columbia University, Department of Economics.
  2. Eichenbaum, Martin S., 1984. "Rational expectations and the smoothing properties of inventories of finished goods," Journal of Monetary Economics, Elsevier, vol. 14(1), pages 71-96, July.
  3. Martin S. Eichenbaum, 1988. "Some Empirical Evidence on the Production Level and Production Cost Smoothing Models of Inventory Investment," NBER Working Papers 2523, National Bureau of Economic Research, Inc.
  4. Alan S. Blinder, 1984. "Can The Production Smoothing Model of Inventory Behavior be Saved?," NBER Working Papers 1257, National Bureau of Economic Research, Inc.
  5. John Haltiwanger & Louis Maccini, 1984. "A Model of Inventory and Layoff Behavior Under Uncertainty," UCLA Economics Working Papers 321, UCLA Department of Economics.
  6. Ray C. Fair, 1989. "The Production Smoothing Model Is Alive and Well," Cowles Foundation Discussion Papers 896, Cowles Foundation for Research in Economics, Yale University.
  7. Olivier J. Blanchard, 1982. "The Production and Inventory Behavior of the American Automobile Industry," NBER Working Papers 0891, National Bureau of Economic Research, Inc.
  8. Zabel, Edward, 1972. "Multiperiod monopoly under uncertainty," Journal of Economic Theory, Elsevier, vol. 5(3), pages 524-536, December.
  9. Maccini, Louis J, 1976. "An Aggregate Dynamic Model of Short-Run Price and Output Behavior," The Quarterly Journal of Economics, MIT Press, vol. 90(2), pages 177-96, May.
  10. Kahn, James A, 1987. "Inventories and the Volatility of Production," American Economic Review, American Economic Association, vol. 77(4), pages 667-79, September.
  11. Irvine, F Owen, Jr, 1981. "Retail Inventory Investment and the Cost of Capital," American Economic Review, American Economic Association, vol. 71(4), pages 633-48, September.
  12. Maccini, Louis J & Rossana, Robert J, 1984. "Joint Production, Quasi-Fixed Factors of Production, and Investement in Finished Goods Inventories," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(2), pages 218-36, May.
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