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What Drives Inventory Accumulation? News on Rates of Return and Marginal Costs

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Abstract

We study the effects of news shocks on inventory accumulation in a structural VAR framework. We establish that inventories react strongly and positively to news about future increases in total factor productivity. Theory suggests that the transmission channel of news shocks to inventories works through movements in marginal costs, through movements in sales, or through interest rates. We provide evidence that changes in external and internal rates of return are central to the transmission for such news shocks. We do not find evidence of a strong substitution effect that shifts production from the present into the future.

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  • Christoph Gortz & Christopher Gunn & Thomas A. Lubik, 2019. "What Drives Inventory Accumulation? News on Rates of Return and Marginal Costs," Working Paper 19-18, Federal Reserve Bank of Richmond.
    • Handle: RePEc:fip:fedrwp:19-18
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    Cited by:

    1. Görtz, Christoph & Gunn, Christopher & Lubik, Thomas A., 2022. "Is there news in inventories?," Journal of Monetary Economics, Elsevier, vol. 126(C), pages 87-104.
    2. Sedjro Aaron Alovokpinhou & Christopher Malikane & Tshepo Mokoka, 2022. "Inventory dynamics and endogenous persistence in a new Keynesian model," Applied Economics, Taylor & Francis Journals, vol. 54(17), pages 1957-1973, April.
    3. Christoph Gortz & Christopher Gunn & Thomas Lubik, 2022. "Split Personalities: The Changing Nature of Technology Shocks," Carleton Economic Papers 22-06, Carleton University, Department of Economics.

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    More about this item

    Keywords

    Structural VAR; News Shocks; Inventories;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • 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
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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