Inventories and the role of goods-market frictions for business cycles

Den Haan, Wouter J. (2013) Inventories and the role of goods-market frictions for business cycles. CFM discussion paper series, CFM-DP2014-2. Centre For Macroeconomics , London, UK.

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Abstract

Changes in the stock of inventories are important for �fluctuations in aggregate output. However, the possibility that firms do not sell all produced goods and inventory accumulation are typically ignored in business cycle models. This paper captures this with a goods-market friction. Using US data, "goods-market efficiency" is shown to be strongly procyclical. By including both a goods-market friction and a standard labor-market search friction, the model developed can substantially magnify and propagate shocks. Despite its simplicity, the model can also replicate key inventory facts. However, when these inventory facts are used to discipline parameter values, then goods-market frictions are quantitatively not very important.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://www.centreformacroeconomics.ac.uk/Home.aspx
Additional Information:	© 2014 The Author
Library of Congress subject classification:	H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Journal of Economic Literature Classification System:	E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E12 - Keynes; Keynesian; Post-Keynesian E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E24 - Macroeconomics: Employment; Unemployment; Wages; Intergenerational Income Distribution (includes wage indexation) E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
Sets:	Collections > Economists Online Research centres and groups > Centre for Macroeconomics
Identification Number:	CFM-DP2014-2
Funders:	ESRC
Date Deposited:	24 Jul 2014 13:30
URL:	http://eprints.lse.ac.uk/58231/

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