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

Posted: 14 Jul 2021

See all articles by Luca Benati

Luca Benati

affiliation not provided to SSRN

Thomas Lubik

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: 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.

Suggested Citation

Benati, Luca and Lubik, Thomas, Sales, Inventories, and Real Interest Rates: A Century of Stylized Facts (2012). Available at SSRN: https://ssrn.com/abstract=3886216

Luca Benati (Contact Author)

affiliation not provided to SSRN

No Address Available

Thomas Lubik

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

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

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