Input and Output Inventories in General Equilibrium

35 Pages Posted: 25 Nov 2011

See all articles by Matteo M. Iacoviello

Matteo M. Iacoviello

Federal Reserve Board - Trade and Financial Studies

Fabio Schiantarelli

Boston College - Department of Economics; IZA Institute of Labor Economics

Scott D. Schuh

Federal Reserve Bank of Boston - Research Department

Multiple version iconThere are 3 versions of this paper

Date Written: November 2011

Abstract

We build and estimate a two‐sector dynamic stochastic general equilibrium model with two types of inventories: Input inventories facilitate the production of finished goods, output inventories yield utility services. 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 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 small role in reducing the volatility of output.

Suggested Citation

Iacoviello, Matteo M. and Schiantarelli, Fabio and Schuh, Scott, Input and Output Inventories in General Equilibrium (November 2011). International Economic Review, Vol. 52, Issue 4, pp. 1179-1213, 2011. Available at SSRN: https://ssrn.com/abstract=1964490 or http://dx.doi.org/10.1111/j.1468-2354.2011.00664.x

Matteo M. Iacoviello (Contact Author)

Federal Reserve Board - Trade and Financial Studies ( email )

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Fabio Schiantarelli

Boston College - Department of Economics ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617-552-4512 (Phone)
617-552-2308 (Fax)

HOME PAGE: http://https://sites.google.com/a/bc.edu/fabio-schiantarelli/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Scott Schuh

Federal Reserve Bank of Boston - Research Department ( email )

600 Atlantic Ave.
Boston, MA 02210
United States
617-973-3941 (Phone)
617-619-7541 (Fax)

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