Input and Output Inventories

Federal Reserve Bank of Boston WP 97-7

47 Pages Posted: 17 Mar 1998

See all articles by Brad R. Humphreys

Brad R. Humphreys

West Virginia University - Department of Economics

Louis J. Maccini

Johns Hopkins University - Department of Economics

Scott D. Schuh

Federal Reserve Bank of Boston - Research Department

Date Written: October 1997

Abstract

This paper builds and estimates a new model of firm behavior that includes decisions to order, use and stock input materials in a stage-of-fabrication environment with either gross production or value added technology. The model extends the traditional linear-quadratic model of output (finished goods) inventories by incorporating delivery and usage of input materials plus input inventory investment--features which largely have been ignored in the literature. Stylized facts indicate that input inventories are empirically more important than output inventories, especially in business cycle fluctuations. Firms simultaneously choose input and output inventories; thus, the model exhibits feedback between stocks induced by dynamic stage-of-fabrication linkages. Estimation of inventory decision rules shows the model is reasonably consistent with data in nondurable and durable goods industries. The results reveal inventory stock interaction, convex costs and viability of gross production and value added specifications, industrial differences and input inventory-saving technology.

JEL Classification: E22, E23

Suggested Citation

Humphreys, Brad R. and Maccini, Louis J. and Schuh, Scott, Input and Output Inventories (October 1997). Federal Reserve Bank of Boston WP 97-7. Available at SSRN: https://ssrn.com/abstract=67647 or http://dx.doi.org/10.2139/ssrn.67647

Brad R. Humphreys

West Virginia University - Department of Economics ( email )

Morgantown, WV 26506
United States

Louis J. Maccini

Johns Hopkins University - Department of Economics ( email )

3400 Charles Street
Baltimore, MD 21218-2685
United States
410-516-7601 (Phone)
410-516-7600 (Fax)

Scott Schuh (Contact Author)

Federal Reserve Bank of Boston - Research Department ( email )

600 Atlantic Ave.
Boston, MA 02210
United States
617-973-3941 (Phone)
617-619-7541 (Fax)

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