IDEAS home Printed from https://ideas.repec.org/p/fip/fednsr/53.html
   My bibliography  Save this paper

Trade inventories

Author

Listed:
  • Jonathan McCarthy
  • Egon Zakrajsek

Abstract

We examine the behavior of trade inventories using both industry-level and high-frequency firm-level data. The cost structure underlying the firm's optimization problem--convex delivery costs vs. fixed costs of ordering--provides the two competing hypotheses. In the presence of fixed costs (S,s) inventory policies are optimal, and steady-state reduced-form predictions regarding the dynamics of inventories and sales can be used to test the model. The alternative of convex delivery costs is provided by structural estimation of a linear-quadratic (L-Q) model. At the industry level, the results are consistent with the reduced-form predictions of the (S,s) model, and structural parameter estimates obtained from Euler equation estimation indicate that the L-Q model does not fit the data. At the firm level, however, estimates of the structural cost parameters are economically plausible, statistically significant, and generate observationally equivalent dynamics of inventories and deliveries as those predicted by the steady-state reduced-form probability relationships derived from the (S,s) model.

Suggested Citation

  • Jonathan McCarthy & Egon Zakrajsek, 1998. "Trade inventories," Staff Reports 53, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:53
    as

    Download full text from publisher

    File URL: https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr53.html
    Download Restriction: no

    File URL: https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr53.pdf
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jonathan McCarthy & Egon Zakrajsek, 2000. "Microeconomic inventory adjustment: evidence from U.S. firm-level data," Finance and Economics Discussion Series 2000-24, Board of Governors of the Federal Reserve System (U.S.).
    2. Jonathan McCarthy & Egon Zakrajsek, 1998. "Microeconomic inventory adjustment and aggregate dynamics," Staff Reports 54, Federal Reserve Bank of New York.
    3. Adam Fein, 2004. "The Myth of Decline: A New Perspective on the Supply Chain and Changing Inventory-Sales Ratios," Working Papers 04-18, Center for Economic Studies, U.S. Census Bureau, revised Feb 2005.
    4. Paula R. Worthington, 1998. "Inventories and output volatility," Working Paper Series WP-98-21, Federal Reserve Bank of Chicago.

    More about this item

    Keywords

    Inventories;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fednsr:53. 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). General contact details of provider: http://edirc.repec.org/data/frbnyus.html .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.