IDEAS home Printed from
   My bibliography  Save this paper

Inventories and Sticky Prices: More on the Microfoundations of Macroeconomics


  • Alan S. Blinder


The role of inventories in making prices "sticky" is studied by analyzing a dynamic linear-quadratic model of a monopoly firm facing stochastic demand, but able to store its finished goods in inventory. It is shown that, in contrast to the usual presumption, firms that exhibit the smallest output responses to demand fluctuations may also exhibit the smallest price fluctuations. Specifically, firms which have very flexible inventory storage facilities or are subjected to very transitory demand shocks will rely on inventories as buffers, and will change neither production nor price very much. On the other hand, firms which have very inflexible storage facilities or whose demand shocks are quite permanent will display large swings in both price and output. The standard assumption about inventory carrying costs that has been used in the literature (that they are linear) is shown to imply that production is impervious to fluctuations in demand. It is also established that prices may respond more strongly to positive demand shocks than to negative ones if it is impossible to hold negative inventories (i.e., to have unfilled orders). The model offers an explanation for "stickiness" in relative prices. However, under certain circumstances, it may help explain the persistence of inflation

Suggested Citation

  • Alan S. Blinder, 1981. "Inventories and Sticky Prices: More on the Microfoundations of Macroeconomics," NBER Working Papers 0620, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:0620
    Note: EFG

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. Louis Phlips, 1980. "Intertemporal Price Discrimination and Sticky Prices," The Quarterly Journal of Economics, Oxford University Press, vol. 94(3), pages 525-542.
    2. Louis J. Maccini, 1976. "An Aggregate Dynamic Model of Short-Run Price and Output Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 90(2), pages 177-196.
    3. Martin Feldstein & Alan Auerbach, 1976. "Inventory Behavior in Durable-Goods Manufacturing: The Target-Adjustment Model," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(2), pages 351-408.
    4. Zabel, Edward, 1972. "Multiperiod monopoly under uncertainty," Journal of Economic Theory, Elsevier, vol. 5(3), pages 524-536, December.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Access and download statistics


    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:nbr:nberwo:0620. 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: (). General contact details of provider: .

    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 CitEc recognized a reference but did not link an item in RePEc 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 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.