Working Paper: NBER ID: w2664
Authors: Kenneth D. West
Abstract: Casual examination of annual postwar data on inventories and aggregate output for seven developed countries -- Canada, France, West Germany, Italy, Japan, United Kingdom, United States -- suggests that in these countries the primary function of aggregate inventories is not to smooth aggregate output in the face of aggregate demand shocks. Japan is a possible exception to this generalization.
Keywords: inventories; aggregate output; demand shocks; production smoothing
JEL Codes: E32; E22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in inventories (D25) | Aggregate output smoothing (E23) |
| Aggregate output variability (C29) | Aggregate final sales variability (C29) |
| Inventories (G31) | Production smoothing model (C51) |
| Inventories do not smooth output (D25) | Inventory investment procyclical (G31) |
| Positive sales shocks (E32) | Increase in inventories (D25) |