The Federal Reserve Board eagle logo links to Board's home page

International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page Input and Output Inventories in General Equilibrium
Matteo Iacoviello, Fabio Schiantarelli, and Scott Schuh
2010-1004  (July 2010)

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, such as the input inventory to output ratio, play a small role in reducing the volatility of output.

Full paper (382 KB PDF) | Full paper (screen reader version)

Inventories, business cycles, output volatility, Bayesian estimation, great moderation

Related Material
Technical Appendix (165 KB PDF)   Technical Appendix - PDF File

Technical Appendix (81 KB HTM)   Technical Appendix - Screen Reader Version

PDF files: Adobe Acrobat Reader   ZIP files: PKWARE

Home | IFDPs | List of 2010 IFDPs
Accessibility | Contact Us
Last update: October 8, 2010