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Sales, Inventories, and Real Interest Rates: A Century of Stylized Facts

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  • Luca Benati
  • Thomas A Lubik

Abstract

We use Bayesian time-varying parameters structural VARs with stochastic volatility to investigate changes in both the reduced-form and the structural correlations between business inventories and either sales growth or the real interest rate in the United States during both the interwar and the post-WWII periods. We identify four structural shocks by combining a single long-run restriction to identify a permanent output shock as in Blanchard and Quah (1989), with three sign restrictions to identify demand- and supply-side transitory shocks. We produce several new stylized facts which should inform the development of new models of inventories. In particular, we show that (i ) during both the interwar and the post-WWII periods, the structural correlation between inventories and the real interest rate conditional on identified interest rate shocks is systematically positive; (ii ) the reduced-form correlation between the two series is positive during the post-WWII period, but in line with the predictions of theory it is robustly negative during the interwar era; and (iii ) during the interwar era, the correlations between inventories and either of the two other series exhibits a remarkably strong co-movement with output at the business-cycle frequencies.

Suggested Citation

  • Luca Benati & Thomas A Lubik, 2012. "Sales, Inventories, and Real Interest Rates: A Century of Stylized Facts," CAMA Working Papers 2012-19, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:camaaa:2012-19
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2021-06/19_benati_lubik_2012.pdf
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    References listed on IDEAS

    as
    1. Luca Benati, 2008. "The "Great Moderation" in the United Kingdom," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(1), pages 121-147, February.
    2. Luca Benati & Paolo Surico, 2008. "Evolving U.S. Monetary Policy and The Decline of Inflation Predictability," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 634-646, 04-05.
    3. Nathan Balke & Robert J. Gordon, 1986. "Appendix B: Historical Data," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages 781-850, National Bureau of Economic Research, Inc.
    4. Juan F. Rubio-Ramírez & Daniel F. Waggoner & Tao Zha, 2010. "Structural Vector Autoregressions: Theory of Identification and Algorithms for Inference," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(2), pages 665-696.
    5. Diego Comin & Mark Gertler, 2006. "Medium-Term Business Cycles," American Economic Review, American Economic Association, vol. 96(3), pages 523-551, June.
    6. Louis J. Maccini & Bartholomew J. Moore & Huntley Schaller, 2004. "The Interest Rate, Learning, and Inventory Investment," American Economic Review, American Economic Association, vol. 94(5), pages 1303-1327, December.
    7. Giorgio E. Primiceri, 2005. "Time Varying Structural Vector Autoregressions and Monetary Policy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(3), pages 821-852.
    8. Wen, Yi, 2005. "Understanding the inventory cycle," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1533-1555, November.
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