IDEAS home Printed from
   My bibliography  Save this paper

Productivity, Employment, and Inventories: Smoothing Over Sticky Prices


  • Yongsung Chang
  • Andreas Hornstein


We present a simple sticky-price model with inventories and show that the employment response to a productivity shock depends crucially on the extent to which goods are storable. If firms hold inventories, then, in response to a favorable cost shock, firms can expand output relative to sales. They would do so to exploit low production costs as well as to increase inventory stocks up to higher anticipated levels of sales. For quantitatively reasonable calibrations, employment increases (decreases) when the depreciation rate on goods in storage is sufficiently low (high) following a productivity shock. We then estimate the employment response to productivity shocks from the disaggregate U.S. manufacturing data from 1958 to 1996. Consistent with our theory we find that an industry's employment response to productivity shift is strongly correlated with the inventory holdings and durability of products in the industry

Suggested Citation

  • Yongsung Chang & Andreas Hornstein, 2004. "Productivity, Employment, and Inventories: Smoothing Over Sticky Prices," 2004 Meeting Papers 415, Society for Economic Dynamics.
  • Handle: RePEc:red:sed004:415

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item


    Productivity; Employment; Inventory Investment; Sticky Prices;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity


    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:red:sed004:415. 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: (Christian Zimmermann). 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.

    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.