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Inventories, business cycles, and variable capital utilization

Inventories, business cycles, and variable capital utilization Abstract Bils and Kahn (Bils, M., and J. A. Kahn. 2000. “What Inventory Behavior Tells us about Business Cycles.” American Economic Review 90, 458–481.) conjectured that a competitive technology-driven business cycle model could not generate countercyclical inventory-sales ratios. Khan and Thomas (Khan, A., and J. Thomas. 2007a. “Explaining Inventories: A Business Cycle Assessment of the Stockout Avoidance and (s,s) Motives.” Macroeconomic Dynamics 11(5): 638–664. Khan, A., and J. K. Thomas. 2007b. “Inventories and the Business Cycle: An Equilibrium Analysis of (s,s) Policies.” American Economic Review 94(4): 1165–1188.) developed a model that disproved this conjecture. However, as this paper shows, that model underperforms a baseline model without inventories for many important moments. However, when variable utilization is added to the model, many of these moments perform better in the full model than in the baseline. The results suggest important interactions between variable utilization and inventory dynamics. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Studies in Nonlinear Dynamics & Econometrics de Gruyter

Inventories, business cycles, and variable capital utilization

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Publisher
de Gruyter
Copyright
Copyright © 2014 by the
ISSN
1081-1826
eISSN
1558-3708
DOI
10.1515/snde-2012-0078
Publisher site
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Abstract

Abstract Bils and Kahn (Bils, M., and J. A. Kahn. 2000. “What Inventory Behavior Tells us about Business Cycles.” American Economic Review 90, 458–481.) conjectured that a competitive technology-driven business cycle model could not generate countercyclical inventory-sales ratios. Khan and Thomas (Khan, A., and J. Thomas. 2007a. “Explaining Inventories: A Business Cycle Assessment of the Stockout Avoidance and (s,s) Motives.” Macroeconomic Dynamics 11(5): 638–664. Khan, A., and J. K. Thomas. 2007b. “Inventories and the Business Cycle: An Equilibrium Analysis of (s,s) Policies.” American Economic Review 94(4): 1165–1188.) developed a model that disproved this conjecture. However, as this paper shows, that model underperforms a baseline model without inventories for many important moments. However, when variable utilization is added to the model, many of these moments perform better in the full model than in the baseline. The results suggest important interactions between variable utilization and inventory dynamics.

Journal

Studies in Nonlinear Dynamics & Econometrics – de Gruyter

Published: May 1, 2014

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    Shapiro
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    Justiniano
  • Output Fluctuations at the Plant Level of
    Bresnahan
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    Krusell
  • Can News about the Future Drive the Cycle
    Jaimovich
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