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American Economic Journal: Macroeconomics: Vol. 3 No. 4 (October 2011)
AEJ: Macro Volume. 3, Issue 4 | 
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AEJ: Macro Forthcoming Articles
Input and Output Inventory Dynamics
Article Citation
Wen, Yi. 2011. "Input and Output Inventory Dynamics."
American Economic Journal: Macroeconomics,
3(4): 181-212.
DOI: 10.1257/mac.3.4.181
DOI: 10.1257/mac.3.4.181
Abstract
This paper develops an analytically tractable general equilibrium model of inventory dynamics based on a precautionary stockout-avoidance
motive. The model's predictions are broadly consistent with the US business cycle and key features of inventory behavior. It is also shown that technological improvement of inventory management can increase, rather than decrease, the volatility of aggregate
output. Key to this seemingly counterintuitive result is that a stockout-avoidance motive leads to a procyclical shadow value of inventories,
which acts as an automatic stabilizer that discourages sales in booms and encourages demand in recessions, thereby reducing the variability of GDP. (JEL D92, E22, E23, E32, G31)
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Full-text Article
Additional Materials
Download Data Set (56.47 KB) | Online Appendix (96.66 KB)
Authors
Wen, Yi (Federal Reserve Bank of St Louis and Tsinghua U)
JEL Classifications
D92: Intertemporal Firm Choice and Growth, Financing, Investment, and Capacity
E22: Capital; Investment; Capacity
E23: Macroeconomics: Production
E32: Business Fluctuations; Cycles
G31: Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
E22: Capital; Investment; Capacity
E23: Macroeconomics: Production
E32: Business Fluctuations; Cycles
G31: Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
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