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Inventories and Interest Rates: A Stage of Fabrication Approach

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  • Bivin David G

    (Indiana University-Purdue University Indianapolis)

Abstract

Maccini, Moore, and Schaller (2004, hereafter MMS) recently uncovered a long-run inverse relationship between interest rates and finished goods in a number of nondurables industries and the nondurables sector overall. Their primary innovation is a regime-switching model of the real interest rate. This paper extends that model to include work-in-process and raw material inventories as well as industries that produce to order. A cointegrating model similar to that of MMS is then estimated for all three types of inventories and all industries in both the durables and nondurables sectors. The results reinforce the MMS conclusion of a long-run inverse relationship between the real interest rate and finished goods during the 1967-1997 period. But the results for the durables sectors, work-in-process and raw materials, and the 1997-2007 period are generally much less supportive. Moreover, results for the manufacturing aggregates suggest that the overall responses are small.

Suggested Citation

  • Bivin David G, 2010. "Inventories and Interest Rates: A Stage of Fabrication Approach," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-32, October.
    • Handle: RePEc:bpj:bejmac:v:10:y:2010:i:1:n:29
    DOI: 10.2202/1935-1690.2097
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    References listed on IDEAS

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