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Input And Output Inventories In General Equilibrium

  • Matteo Iacoviello
  • Fabio Schiantarelli
  • Scott Schuh

We build and estimate a two-sector (goods and services) dynamic general equilibrium model with two types of inventories: finished goods (output) inventories yield utility services while materials (input) inventories facilitate the production of goods. The model, which contains neutral and inventory-specific technology shocks and preference shocks, is estimated by Bayesian methods. The estimated model replicates the volatility and cyclicality of inventory investment and inventory-target ratios. When estimated over subperiods, the results suggest that changes in the volatility of inventory shocks, or in structural parameters associated with inventories, play a minor role in the reduction of the volatility of output.

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File URL: http://hdl.handle.net/10.1111/j.1468-2354.2011.00664.x
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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 52 (2011)
Issue (Month): 4 (November)
Pages: 1179-1213

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Handle: RePEc:ier:iecrev:v:52:y:2011:i:4:p:1179-1213
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