What Inventory Behavior Tells Us About Business Cycles

49 Pages Posted: 9 Oct 2006

See all articles by Mark Bils

Mark Bils

University of Rochester - Department of Economics; National Bureau of Economic Research (NBER)

James A. Kahn

Yeshiva University; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: November 1999

Abstract

Manufacturers' finished goods inventories are less cyclical than shipments. This requires marginal cost to be more procyclical than is conventionally measured. In this paper, alternative marginal cost measures for six manufacturing industries are constructed. These measures, which attribute high-frequency productivity shocks to procyclical work effort, are more successful in accounting for inventory behavior. Evidence is also provided that the short-run slope of marginal cost arising from convexity of the production function is close to zero for five of the six industries. The paper concludes that countercyclical markups arising from a procyclical shadow price of labor are chiefly responsible for the sluggishness of inventories.

JEL Classification: E22, E32

Suggested Citation

Bils, Mark and Kahn, James A., What Inventory Behavior Tells Us About Business Cycles (November 1999). FRB of New York Staff Report No. 92. Available at SSRN: https://ssrn.com/abstract=935322 or http://dx.doi.org/10.2139/ssrn.935322

Mark Bils

University of Rochester - Department of Economics ( email )

Harkness Hall
Rochester, NY 14627-0158
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

James A. Kahn (Contact Author)

Yeshiva University ( email )

500 West 185th Street
New York, NY 10033
United States
212-340-7863 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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