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Inventories and the Business Cycle: Testing a Sequential Trading Model

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  • Benjamin Eden

    (University of Haifa)

Abstract

The uncertain and sequential trading (UST) model of inventories behavior with iid shocks predicts that (a) the beginning of period inventories is a sufficient statistic for past variables and (b) an increase in the beginning of period inventories reduces output, employment, hours per employee, and effort. I find empirical support for the second hypothesis but not for the first. The rejection of the first hypothesis is rather informative and points in the direction of adjustment costs and/or serially correlated shocks. (Copyright: Elsevier)

Suggested Citation

  • Benjamin Eden, 2001. "Inventories and the Business Cycle: Testing a Sequential Trading Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(3), pages 562-574, July.
    • Handle: RePEc:red:issued:v:4:y:2001:i:3:p:562-574
    DOI: 10.1006/redy.2000.0125
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    References listed on IDEAS

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    1. Ramey, Valerie A. & West, Kenneth D., 1999. "Inventories," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 13, pages 863-923, Elsevier.
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    3. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    4. Eden, Benjamin, 1994. "The Adjustment of Prices to Monetary Shocks When Trade Is Uncertain and Sequential," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 493-509, June.
    5. Eden, Benjamin, 1990. "Marginal Cost Pricing When Spot Markets Are Complete," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1293-1306, December.
    6. Bental, Benjamin & Eden, Benjamin, 1993. "Inventories in a Competitive Environment," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 863-886, October.
    7. Robert E. Lucas, Jr. & Michael Woodford, 1993. "Real Effects of Monetary Shocks in an Economy with Sequential Purchases," NBER Working Papers 4250, National Bureau of Economic Research, Inc.
    8. Woodford, Michael, 1996. "Loan commitments and optimal monetary policy," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 573-605, June.
    9. Christiano, Lawrence J., 1988. "Why does inventory investment fluctuate so much?," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 247-280.
    10. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    11. Prescott, Edward C, 1975. "Efficiency of the Natural Rate," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1229-1236, December.
    12. Alan S. Blinder, 1981. "Retail Inventory Behavior and Business Fluctuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(2), pages 443-520.
    13. Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 465-491.
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    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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