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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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    5. 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.
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    8. 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.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    inventories; business cycle;

    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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