IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Inventory dynamics and business cycles: what has changed?

  • Jonathan McCarthy
  • Egon Zakrajsek

By historical standards, the U.S. economy has experienced a period of remarkable stability since the mid-1980s. One explanation attributes the diminished variability of economic activity to information-technology-led improvements in inventory management. Our results, however, indicate that the changes in inventory dynamics since the mid-1980s played a reinforcing - rather than a leading - role in the volatility reduction. A decomposition of the reduction in the volatility of manufacturing output shows that it almost entirely reflects a decline in the variance of the growth contribution of shipments. And although the volatility of total inventory investment has fallen, the decline occurred well before the mid-1980s and was driven by the reduced variability of materials and supplies. Our analysis does show that since the mid-1980s, inventory dynamics have played a role in stabilizing manufacturing production: Inventory "imbalances" are corrected more rapidly, and the quicker response of inventories to aggregate shocks - at all stages of fabrication - buffers production from fluctuations in sales to a greater extent. But more extensive production smoothing and faster dissolution of inventory imbalances appear to be a consequence of changes in the way industry-level sales and aggregate economic activity respond to shocks, rather than a cause of changes in macroeconomic behavior.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.newyorkfed.org/research/staff_reports/sr156.html
Download Restriction: no

File URL: http://www.newyorkfed.org/research/staff_reports/sr156.pdf
Download Restriction: no

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 156.

as
in new window

Length:
Date of creation: 2002
Date of revision:
Handle: RePEc:fip:fednsr:156
Contact details of provider: Postal: 33 Liberty Street, New York, NY 10045-0001
Web page: http://www.newyorkfed.org/
Email:


More information through EDIRC

Order Information: Web: http://www.ny.frb.org/rmaghome/staff_rp/ 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.:

as in new window
  1. Hall, Alastair R & Sen, Amit, 1999. "Structural Stability Testing in Models Estimated by Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(3), pages 335-48, July.
  2. Jushan Bai, 1997. "Estimation Of A Change Point In Multiple Regression Models," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 551-563, November.
  3. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," NBER Working Papers 5146, National Bureau of Economic Research, Inc.
  4. Richard Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," NBER Working Papers 6442, National Bureau of Economic Research, Inc.
  5. Marvin J. Barth III & Valerie A. Ramey, 2002. "The Cost Channel of Monetary Transmission," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 199-256 National Bureau of Economic Research, Inc.
  6. Karl Whelan, 2000. "A guide to the use of chain aggregated NIPA data," Finance and Economics Discussion Series 2000-35, Board of Governors of the Federal Reserve System (U.S.).
  7. Ivanov, Ventzislav & Kilian, Lutz, 2001. "A Practitioner's Guide to Lag-Order Selection for Vector Autoregressions," CEPR Discussion Papers 2685, C.E.P.R. Discussion Papers.
  8. Hansen, Bruce E, 1997. "Approximate Asymptotic P Values for Structural-Change Tests," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(1), pages 60-67, January.
  9. Jeffrey A. Miron & Stephen P. Zeldes, . "Production, Sales and the Change in Inventories: An Identity that Doesn't Add Up," Rodney L. White Center for Financial Research Working Papers 20-87, Wharton School Rodney L. White Center for Financial Research.
  10. Margaret M. McConnell & Patricia C. Mosser & Gabriel Perez Quiros, 1999. "A decomposition of the increased stability of GDP growth," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 5(Aug).
  11. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers 943, Cowles Foundation for Research in Economics, Yale University.
  12. Chang-Jin Kim & Charles Nelson & Jeremy Piger, 2001. "The less volatile U.S. economy: a Bayesian investigation of timing, breadth, and potential explanations," International Finance Discussion Papers 707, Board of Governors of the Federal Reserve System (U.S.).
  13. repec:cup:cbooks:9780521423083 is not listed on IDEAS
  14. Kilian, Lutz, 2001. "Impulse Response Analysis in Vector Autoregressions with Unknown Lag Order," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 20(3), pages 161-79, April.
  15. James H. Stock & Mark W. Watson, 2002. "Has the Business Cycle Changed and Why?," NBER Working Papers 9127, National Bureau of Economic Research, Inc.
  16. M. V. Cacdac Warnock & Francis E. Warnock, 2000. "The declining volatility of U.S. employment: was Arthur Burns right?," International Finance Discussion Papers 677, Board of Governors of the Federal Reserve System (U.S.).
  17. Donald P. Morgan, 1991. "Will just-in-time inventory techniques dampen recessions?," Economic Review, Federal Reserve Bank of Kansas City, issue Mar, pages 21-33.
  18. Jean Boivin & Marc Giannoni, 2002. "Has monetary policy become less powerful?," Staff Reports 144, Federal Reserve Bank of New York.
  19. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
  20. Brad R. Humphreys & Louis J. Maccini & Scott Schuh, 1997. "Input and output inventories," Working Papers 97-7, Federal Reserve Bank of Boston.
  21. Orphanides, Athanasios, 2004. "Monetary Policy Rules, Macroeconomic Stability, and Inflation: A View from the Trenches," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 151-75, April.
  22. Michael C. Lovell, 1959. "Manufacturers' Inventories, Sales Expectations, and the Acceleration Principle," Cowles Foundation Discussion Papers 86, Cowles Foundation for Research in Economics, Yale University.
  23. M Sensier & D van Dijk, 2001. "Short-term Volatility versus Long-term Growth: Evidence in US Macroeconomic Time Series," Centre for Growth and Business Cycle Research Discussion Paper Series 08, Economics, The Univeristy of Manchester.
  24. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  25. repec:cup:cbooks:9780521411462 is not listed on IDEAS
  26. Olivier Blanchard & John Simon, 2001. "The Long and Large Decline in U.S. Output Volatility," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 135-174.
  27. Valerie A. Ramey & Daniel J. Vine, 2004. "Tracking the Source of the Decline in GDP Volatility: An Analysis of the Automobile Industry," NBER Working Papers 10384, National Bureau of Economic Research, Inc.
  28. 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.
  29. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August.
  30. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
  31. Andrew J. Filardo, 1995. "Recent evidence on the muted inventory cycle," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 27-43.
  32. Donald S. Allen, 1995. "Changes in inventory management and the business cycle," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 17-26.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:fip:fednsr:156. 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: (Amy Farber)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.