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American Economic Review: Vol. 90 No. 3 (June 2000)

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What Inventory Behavior Tells Us about Business Cycles

Article Citation

Bils, Mark, and James A. Kahn. 2000. "What Inventory Behavior Tells Us about Business Cycles." American Economic Review, 90(3): 458-481.

DOI: 10.1257/aer.90.3.458

Abstract

The countercyclical pattern of inventory-sales ratios is a striking feature of inventory behavior. In a model where inventories are productive for sales, both the markup of price over marginal cost and expected changes in marginal cost are key determinants of that ratio. This paper argues that costly variation in factor utilization gives rise to countercyclical markups in production-to-stock manufacturing industries. Time markup turns out to be more important than intertemporal substitution in explaining the behavior of inventory-sales ratios.

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Authors

Bils, Mark (U Rochester and NBER)
Kahn, James A. (Federal Reserve Bank of New York)

JEL Classifications

E32: Business Fluctuations; Cycles
E22: Capital; Investment; Capacity


American Economic Review


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