Is There News in Inventories?

43 Pages Posted: 23 Jul 2020

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: May, 2020

Abstract

This paper identifies total factor productivity (TFP) news shocks using standard VAR methodology and documents a new stylized fact: in response to news about future increases in TFP, inventories rise and comove positively with other major macroeconomic aggregates. The authors show that the standard theoretical model used to capture the effects of news shocks cannot replicate this fact when extended to include inventories. To explain the empirical inventory behavior, they develop a framework that relies on the presence of knowledge capital accumulated through a learning-by-doing process. The desire to take advantage of higher future TFP through knowledge capital drives output and hours choices on the arrival of news and leads to inventory accumulation alongside other macroeconomic variables. The broad-based comovement the authors document supports the view that news shocks are an important driver of aggregate fluctuations.

JEL Classification: E2, E3

Suggested Citation

Gortz, Christoph and Gunn, Christopher and Lubik, Thomas, Is There News in Inventories? (May, 2020). FRB Richmond Working Paper No. 20-3, Available at SSRN: https://ssrn.com/abstract=3658579 or http://dx.doi.org/10.21144/wp20-03

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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