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

31 Pages Posted: 23 Oct 2019

See all articles by Christoph Görtz

Christoph Görtz

University of Birmingham - Department of Economics

Christopher Gunn

Carleton University - Department of Economics

Thomas Lubik

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: 2019

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: C320, E220, E320, G310

Suggested Citation

Görtz, Christoph and Gunn, Christopher and Lubik, Thomas, What Drives Inventory Accumulation? News on Rates of Return and Marginal Costs (2019). CESifo Working Paper No. 7891. Available at SSRN: https://ssrn.com/abstract=3474197

Christoph Görtz (Contact Author)

University of Birmingham - Department of Economics ( email )

United States

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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