TY  - JOUR
AU  - Ramey,Valerie A.
AU  - West,Kenneth D.
TI  - Inventories
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6315
PY  - 1997
Y2  - December 1997
UR  - http://www.nber.org/papers/w6315
L1  - http://www.nber.org/papers/w6315.pdf
N1  - Author contact info:
Valerie A. Ramey
Department of Economics, 0508
University of California, San Diego
9500 Gilman Drive
La Jolla, CA 92093-0508
Tel: 858/534-2388
Fax: 858/534-7040
E-Mail: VRAMEY@UCSD.EDU

Kenneth D. West
Department of Economics
University of Wisconsin
1180 Observatory Drive
Madison, WI  53706
Tel: 608/262-0033
Fax: 608/262-2033
E-Mail: kdwest@wisc.edu
AB  - We review and interpret recent work on inventories, emphasizing empirical and business cycle aspects.  We begin by documenting two empirical regularities about inventories.  The first is the well-known one that inventories move procyclically.  The second is that inventory movements are quite persistent, even conditional on sales.  To consider explanations for the two facts, we present a linear-quadratic model.  The model can rationalize the two facts in many ways, but two stylized explanations are simple enough and have support support from a number of papers. Both assume that there are persistent shocks to demand for the good in question, and that marginal production cost slopes up.  The first explanation assumes as well that there are highly persistent shocks to the cost of production.  The second assumes that there are strong costs of adjusting production and a strong accelerator motive. Research to to date, however, has not reached a consensus on whether one of these two, or some third, alternative provides a satisfactory explanation of inventory behavior.  We suggest several directions for future research that promise to improve our understanding of inventory behavior and thus of business cycles.
ER  -