Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/68073
Authors: 
Shibayama, Katsuyuki
Year of Publication: 
2008
Series/Report no.: 
Department of Economics Discussion Paper, University of Kent 08,04
Abstract: 
This paper investigates a rational dynamic stochastic general equilibrium model with a stockout constraint and a production chain. Our model shows that both stockout avoidance and cost shock mechanisms replicate stylised inventory facts
Subjects: 
production is more volatile than sales and inventory investment is procyclical. In addition, production smoothing also works at very high frequencies. Note that the cost shock and production smoothing mechanisms are naturally embedded in our micro-founded general equilibrium framework. Moreover, as a by-product, the production chain causes the slow adjustment of inventories in aggregate. Consequently, our model generates (a) high labour volatility and (b) low correlation between labour productivity and output
the standard RBC cannot produce these two empirical findings. Finally, our model yields inventory cycles.
JEL: 
E32
C68
Document Type: 
Working Paper

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