The magnitude of the speculative motive for holding inventories in a real business cycle model
The motive to hold inventories purely in the hope of profiting from a price increase is called the speculative motive. This motive has received considerable attention in the literature. However, existing studies do not have a clear implication for how large it is quantitatively. This paper incorporates the speculative motive for holding inventories into an otherwise standard real business cycle model and finds that empirically plausible parameterizations of the model result in an average inventory stock to output ratio that is virtually zero. For this reason, we conclude that the quantitative magnitude of the speculative role for holding inventories in this model is quite small. This suggests the possibility that the study of aggregate economic phenomena can safely abstract from inventory speculation.
|Date of creation:||1989|
|Date of revision:|
|Contact details of provider:|| Postal: 90 Hennepin Avenue, P.O. Box 291, Minneapolis, MN 55480-0291|
Phone: (612) 204-5000
Web page: http://minneapolisfed.org/
More information through EDIRC
|Order Information:|| Web: http://www.minneapolisfed.org/pubs/ Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
- Patricia B. Reagan, 1982. "Inventory and Price Behaviour," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 137-142.
- Kydland, Finn E & Prescott, Edward C, 1982.
"Time to Build and Aggregate Fluctuations,"
Econometric Society, vol. 50(6), pages 1345-70, November.
- Finn E. Kydland & Edward C. Prescott, 1982. "Web interface for "Time to Build and Aggregate Fluctuations"," QM&RBC Codes 4a, Quantitative Macroeconomics & Real Business Cycles.
- Finn E. Kydland & Edward C. Prescott, 1982. "Executable program for "Time to Build and Aggregate Fluctuations"," QM&RBC Codes 4, Quantitative Macroeconomics & Real Business Cycles.
- Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
- Barro, Robert J., 1974.
"Are Government Bonds Net Wealth?,"
3451399, Harvard University Department of Economics.
- Andrew B. Abel, 1985. "Inventories, Stock-Outs and Production Smoothing," Review of Economic Studies, Oxford University Press, vol. 52(2), pages 283-293.
- Kahn, James A, 1987. "Inventories and the Volatility of Production," American Economic Review, American Economic Association, vol. 77(4), pages 667-79, September.
- Christiano, Lawrence J., 1988. "Why does inventory investment fluctuate so much?," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 247-280.
When requesting a correction, please mention this item's handle: RePEc:fip:fedmem:10. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Janelle Ruswick)
If references are entirely missing, you can add them using this form.