What Drives Inventory Accumulation? News on Rates of Return and Marginal Costs
39 Pages Posted: 9 Mar 2023
Date Written: September 2022
We study the determinants of inventory accumulation in a structural VAR framework with news shocks. Specifically, we investigate how news shocks affect two key determinants of inventory movements, namely rates of return and marginal costs. We establish that inventories react strongly and positively to news about future increases in total factor productivity. 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 for a dominant role of marginal costs.
Keywords: Structural VAR, News Shocks, Inventories, Cost of Capital
JEL Classification: C32, E22, E32, G31
Suggested Citation: Suggested Citation