Working Paper: NBER ID: w2425
Authors: Russell Cooper; John Haltiwanger
Abstract: This paper studies the dynamic properties of an imperfectly competitive economy with inventory holdings. In particular, we focus on the serial correlation in aggregate output and employment produced by the holding of inventories in one sector of the economy and the co-movement between sectors of an economy over the cycle resulting from demand linkages. This model is then contrasted with a simple, competitive real business cycle model with inventories. We find that the predictions of these models with regards to the co-movement of employment may differ. Based on this, we present empirical evidence on the co-movement of employment over the business cycle which is consistent with the predictions of the model of imperfect competition with inventory holdings and demand linkages.
Keywords: Inventories; Sectoral Shocks; Employment Comovement; Imperfect Competition
JEL Codes: E32; E22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Inventory Holdings (Sector 1) (L60) | Reduced Production (Sector 1) (E23) |
| Reduced Production (Sector 1) (E23) | Decreased Demand (Sector 2) (R22) |
| Inventory Holdings (Sector 1) (L60) | Decreased Demand (Sector 2) (R22) |
| Demand linkages across sectors create output and employment movements (D57) | Price changes (P22) |
| Employment fluctuations are positively correlated across sectors (E32) | Model of imperfect competition with inventory holdings aligns with observed data (D43) |