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Title:Adjustment costs, inventories and output PDF Logo
Authors:Danziger, Leif
Issue Date:2008
Series/Report no.:CESifo working paper 2244
Abstract:This paper analyzes the optimal adjustment strategy of an inventory-holding firm facing price- and quantity-adjustment costs in an inflationary environment. The model nests both the original menu-cost model that allows production to be costlessly adjusted, and the later model that includes price- and quantity-adjustment costs, but rules out inventory holdings. It is shown that the firm’s optimal adjustment strategy may involve stockouts. At low inflation rates, output is inversely related to the inflation rate, and the length of time demand is satisfied increases with the demand elasticity but decreases with the storage cost and the real interest rate.
Subjects:menu costs
quantity-adjustment costs
inventories
stockouts
output
inflation
JEL:D21
D24
L23
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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