What Drives Inventory Accumulation? News on Rates of Return and Marginal Costs

30 Pages Posted: 22 Oct 2019

See all articles by Christoph Gortz

Christoph Gortz

University of Birmingham

Christopher Gunn

Carleton University - Department of Economics

Thomas Lubik

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: 2019-10-10

Abstract

We study the effects of news shocks on inventory accumulation in a structural VAR framework. We establish that inventories react strongly and positively to news about future increases in total factor productivity. Theory suggests that the transmission channel of news shocks to inventories works through movements in marginal costs, through movements in sales, or through interest rates. We provide evidence that changes in external and internal rates of return are central to the transmission for such news shocks. We do not find evidence of a strong substitution effect that shifts production from the present into the future.

Keywords: Structural VAR, News Shocks, Inventories

JEL Classification: C32, E22, E32, G31

Suggested Citation

Gortz, Christoph and Gunn, Christopher and Lubik, Thomas, What Drives Inventory Accumulation? News on Rates of Return and Marginal Costs (2019-10-10). FRB Richmond Working Paper No. 19-18. Available at SSRN: https://ssrn.com/abstract=3473124

Christoph Gortz (Contact Author)

University of Birmingham

Edgbaston, B15 2TT
United Kingdom

Christopher Gunn

Carleton University - Department of Economics ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
Canada

Thomas Lubik

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

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

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