Working Paper: NBER ID: w3408
Authors: Alan S. Blinder; Louis J. Maccini
Abstract: Recent empirical and theoretical research on business inventories is surveyed and critically evaluated. While most inventory research has had macroeconomic motivations, we focus on its microtheoretic basis and on potential conflicts between theory and evidence. The paper asks two principal questions. First, how can inventories, which are allegedly used by firms to stabilize production, nonetheless be a destabilizing factor at the macroeconomic level? Second, why, if firms are following the production-smoothing model, is production more variable than sales in many industries? We suggest that the so-called (S,s) model may help answer both questions.
Keywords: inventory behavior; business cycles; production smoothing; macroeconomics
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 behavior (L81) | macroeconomic stability (E60) |
| inventory changes (G31) | macroeconomic performance (E66) |
| production variability (L15) | sales variability (C29) |
| inventory management practices (L81) | production and sales volatility (L11) |