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What inventory behavior tells us about how business cycles have changed

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  • Sarte, Pierre-Daniel
  • Schwartzman, Felipe
  • Lubik, Thomas A.

Abstract

Beginning in the mid-1980s, U.S. business cycles changed in important ways, notably via distinctive shifts in the comovement and relative volatilities of labor productivity, hours, output, and inventories. Inventories provide additional information relative to aggregate investment regarding firms׳ intertemporal decisions, and thus additional insight in explaining business cycles. We show that variations in the discount factor estimated using inventories, which may be interpreted as fluctuations in a generalized investment wedge, play a key role in explaining the shifts in U.S. business cycles observed after the mid-1980s. Moreover, these variations correlate well with independent measures of credit market frictions.

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  • Sarte, Pierre-Daniel & Schwartzman, Felipe & Lubik, Thomas A., 2015. "What inventory behavior tells us about how business cycles have changed," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 264-283.
  • Handle: RePEc:eee:moneco:v:76:y:2015:i:c:p:264-283 DOI: 10.1016/j.jmoneco.2015.09.007
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    1. repec:mje:mjejnl:v:13:y:2017:i:4:p:109-119 is not listed on IDEAS
    2. Yépez, Carlos A., 2017. "Financial conditions and labor productivity over the business cycle," Economics Letters, Elsevier, vol. 150(C), pages 34-38.
    3. Schwartzman, Felipe, 2014. "Time to produce and emerging market crises," Journal of Monetary Economics, Elsevier, vol. 68(C), pages 37-52.
    4. Julia Thomas & Aubhik Khan, 2016. "(S,s) insights into the role of inventories in business cycles and high frequency fluctuations," 2016 Meeting Papers 662, Society for Economic Dynamics.
    5. Lubik, Thomas A. & Sarte, Pierre-Daniel G. & Schwartzman, Felipe, 2014. "What Inventory Behavior Tells Us About How Business Cycles Have Changed," Working Paper 14-6, Federal Reserve Bank of Richmond.
    6. Sarte, Pierre-Daniel & Schwartzman, Felipe & Lubik, Thomas A., 2015. "What inventory behavior tells us about how business cycles have changed," Journal of Monetary Economics, Elsevier, pages 264-283.

    More about this item

    Keywords

    Business cycles; Inventories; Investment wedge; Financial frictions;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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