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Title:Input and output inventories in general equilibrium PDF Logo
Authors:Iacoviello, Matteo
Schiantarelli, Fabio
Schuh, Scott
Issue Date:2007
Series/Report no.:Working paper series // Federal Reserve Bank of Boston 07-16
Abstract:We build and estimate a two-sector (goods and services) dynamic stochastic general equilibrium model with two types of inventories: materials (input) inventories facilitate the production of finished goods, while finished goods (output) inventories yield utility services. The model is estimated using Bayesian methods. The estimated model replicates the volatility and cyclicality of inventory investment and inventory-to-target ratios. Although inventories are an important element of the model's propagation mechanism, shocks to inventory efficiency or management are not an important source of business cycles. When the model is estimated over two subperiods (pre- and post-1984), changes in the volatility of inventory shocks, or in structural parameters associated with inventories play a minor role in reducing the volatility of output.
Subjects:Inventories
business cycles
output volatility
Bayesian estimation
Great Moderation
JEL:E22
E32
E37
Document Type:Working Paper
Appears in Collections:Working Paper Series, Federal Reserve Bank of Boston

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