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What inventory behavior tells us about how business cycles have changed

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  • Sarte, Pierre-Daniel
  • Schwartzman, Felipe
  • Lubik, Thomas A.

Abstract

Beginning in the mid-1980s, U.S. business cycles changed in important ways, notably via distinctive shifts in the comovement and relative volatilities of labor productivity, hours, output, and inventories. Inventories provide additional information relative to aggregate investment regarding firms׳ intertemporal decisions, and thus additional insight in explaining business cycles. We show that variations in the discount factor estimated using inventories, which may be interpreted as fluctuations in a generalized investment wedge, play a key role in explaining the shifts in U.S. business cycles observed after the mid-1980s. Moreover, these variations correlate well with independent measures of credit market frictions.

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  • Sarte, Pierre-Daniel & Schwartzman, Felipe & Lubik, Thomas A., 2015. "What inventory behavior tells us about how business cycles have changed," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 264-283.
    • Handle: RePEc:eee:moneco:v:76:y:2015:i:c:p:264-283
    DOI: 10.1016/j.jmoneco.2015.09.007
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    Cited by:

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    3. Mitra, Aruni, 2024. "The productivity puzzle and the decline of unions," Journal of Economic Dynamics and Control, Elsevier, vol. 159(C).
    4. Christoph Görtz & Christopher Gunn & Thomas Lubik, 2018. "Taking Stock of TFP News Shocks: The Inventory Comovement Puzzle," Carleton Economic Papers 18-05, Carleton University, Department of Economics, revised 14 Jul 2018.
    5. Richard Higgins, C., 2020. "Financial frictions and changing macroeconomic volatility," Journal of Macroeconomics, Elsevier, vol. 64(C).
    6. Schwartzman, Felipe, 2014. "Time to produce and emerging market crises," Journal of Monetary Economics, Elsevier, vol. 68(C), pages 37-52.
    7. Sarte, Pierre-Daniel & Schwartzman, Felipe & Lubik, Thomas A., 2015. "What inventory behavior tells us about how business cycles have changed," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 264-283.
    8. Dmitriy Aleksandrovich Endovitskiy & Nikolay Petrovich Lyubushin & Nadezhda Evaldovna Babicheva & Tatyana Alekseevna Pozhidaeva, 2017. "The Quantitative Assessment of the Cyclical Development in Modern Conditions," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 13(4), pages 109-119.
    9. Yépez, Carlos A., 2017. "Financial conditions and labor productivity over the business cycle," Economics Letters, Elsevier, vol. 150(C), pages 34-38.
    10. Adam Copeland & George Hall & Louis J. Maccini, 2019. "Interest Rates and the Market for New Light Vehicles," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(5), pages 1137-1168, August.
    11. Christoph Gortz & Christopher Gunn & Thomas Lubik, 2022. "Split Personalities: The Changing Nature of Technology Shocks," Carleton Economic Papers 22-06, Carleton University, Department of Economics.
    12. Julia Thomas & Aubhik Khan, 2016. "(S,s) insights into the role of inventories in business cycles and high frequency fluctuations," 2016 Meeting Papers 662, Society for Economic Dynamics.
    13. Wagner Joel, 2019. "What does a relative price of investment wedge reveal about the role of investment-specific technology?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 19(2), pages 1-20, June.
    14. Ogawa, Shogo, 2022. "Capital and inventory investments under quantity constraints: A microfounded Metzlerian model," MPRA Paper 111906, University Library of Munich, Germany.

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    More about this item

    Keywords

    Business cycles; Inventories; Investment wedge; Financial frictions;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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