Sales, Inventories, and Real Interest Rates: A Century of Stylized Facts

FRB Richmond Working Paper No. 12-02

45 Pages Posted: 20 Dec 2012

See all articles by Luca Benati

Luca Benati

University of Bern

Thomas Lubik

Federal Reserve Banks - Federal Reserve Bank of Richmond

Multiple version iconThere are 2 versions of this paper

Date Written: April 1, 2012

Abstract

We use Bayesian time-varying parameters structural VARs with stochastic volatility to investigate changes in both the reduced-form and the structural correlations between business inventories and either sales growth or the real interest rate in the United States during both the interwar and the post-WWII periods. We identify four structural shocks by combining a single long-run restriction to identify a permanent output shock as in Blanchard and Quah (1989), with three sign restrictions to identify demand- and supply-side transitory shocks. We produce several new stylized facts which should inform the development of new models of inventories. In particular, we show that (i) during both the interwar and the post-WWII periods, the structural correlation between inventories and the real interest rate conditional on identified interest rate shocks is systematically positive; (ii) the reduced-form correlation between the two series is positive during the post-WWII period, but in line with the predictions of theory it is robustly negative during the interwar era; and (iii) during the interwar era, the correlations between inventories and either of the two other series exhibits a remarkably strong co-movement with output at the business-cycle frequencies.

Keywords: Bayesian VARs, stochastic volatility, time-varying parameters, structural VARs, long-run restrictions, sign restrictions, inventories, monetary policy, monetary regimes

JEL Classification: C11, C32, E32

Suggested Citation

Benati, Luca and Lubik, Thomas, Sales, Inventories, and Real Interest Rates: A Century of Stylized Facts (April 1, 2012). FRB Richmond Working Paper No. 12-02, Available at SSRN: https://ssrn.com/abstract=2191180 or http://dx.doi.org/10.2139/ssrn.2191180

Luca Benati

University of Bern ( email )

Gesellschaftsstrasse 49
Bern, BERN 3001
Switzerland

Thomas Lubik (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
26
Abstract Views
593
PlumX Metrics