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Inventories, Stockouts, and ToTEM

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  • Oleksiy Kryvtsov
  • Yang Zhang

Abstract

Inventory investment is an important component of the Canadian business cycle. Despite its small average size – less than 1 per cent of output -- it exhibits volatile procyclical fluctuations, accounting for almost one-third of output variance. Procyclicality of inventories is somewhat smaller than that of sales, resulting in a counter-cyclical aggregate inventory-sales ratio. These salient inventory facts are matched in a partialequilibrium version of Kryvtsov and Midrigan’s (2010) model in which firms hold stocks of goods to buffer against stockouts. In booms, firms boost their inventories to avoid stocking out due to the rise in demand. The model combines the real marginal cost estimated by ToTEM with the convex cost of adjusting inventories to match the dynamics of the inventory-sales ratio in the data.

Suggested Citation

  • Oleksiy Kryvtsov & Yang Zhang, 2010. "Inventories, Stockouts, and ToTEM," Discussion Papers 10-8, Bank of Canada.
    • Handle: RePEc:bca:bocadp:10-8
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    References listed on IDEAS

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    1. Victor Aguirregabiria, 1999. "The Dynamics of Markups and Inventories in Retailing Firms," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 66(2), pages 275-308.
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    Cited by:

    1. Oleksiy Kryvtsov & Yang Zhang, 2010. "Inventories in ToTEM," Discussion Papers 10-9, Bank of Canada.
    2. Oleksiy Kryvtsov & Virgiliu Midrigan, 2011. "Inventories, Markups and Real Rigidities in Sticky Price Models of the Canadian Economy," Staff Working Papers 11-9, Bank of Canada.

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    More about this item

    Keywords

    Business fluctuations and cycles; Transmission of monetary policy;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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