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Inventories and real rigidities in New Keynesian business cycle models

  • Kryvtsov, Oleksiy
  • Midrigan, Virgiliu

Kryvtsov and Midrigan (2008) study the behavior of inventories in an economy with menu costs, fixed ordering costs and the possibility of stockouts. This paper extends their analysis to a richer setting that is capable of more closely accounting for the dynamics of the US business cycle. We find that the original conclusion survives in this setting: namely, the model requires an elasticity of real marginal cost to output approximately equal to the inverse intertemporal elasticity of substitution in consumption in order to account for the countercyclicality of the aggregate inventory-to-sales ratio in the data.

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Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 24 (2010)
Issue (Month): 2 (June)
Pages: 259-281

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Handle: RePEc:eee:jjieco:v:24:y:2010:i:2:p:259-281
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622903

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  3. Smets, Frank & Wouters, Rafael, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," CEPR Discussion Papers 6112, C.E.P.R. Discussion Papers.
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  8. Yongseung Jung & Tack Yun, 2005. "Monetary policy shocks, inventory dynamics, and price-setting behavior," Working Paper Series 2006-02, Federal Reserve Bank of San Francisco.
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  17. Christopher L. House, 2008. "Fixed Costs and Long-Lived Investments," NBER Working Papers 14402, National Bureau of Economic Research, Inc.
  18. Martin Eichenbaum & Jonas D.M. Fisher, 2004. "Evaluating the Calvo Model of Sticky Prices," NBER Working Papers 10617, National Bureau of Economic Research, Inc.
  19. Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April.
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  25. Yongsung Chang & Andreas Hornstein & Pierre-Daniel G. Sarte, 2006. "Understanding how employment responds to productivity shocks in a model with inventories," Working Paper 06-06, Federal Reserve Bank of Richmond.
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