A multi-country analysis of aggregate inventory behavior

Chikán, Attila; Horváth, Csaba

doi:10.1016/s0925-5273(98)00090-5

Cited by 11 publications

(2 citation statements)

References 5 publications

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“…Second, production is more volatile than sales. These two findings have been confirmed by Blinder and Maccini (1991), Hornstein (1998), Dimelis (2001), and Wen (2005) for the US, by Chikán and Tátrai (2003), Wen (2005), Chikán et al (2005), and Chikán and Kovács (2009) for OECD countries, by Wilkinson (1989), Christodoulakis et al (1995), and Dimelis (2001) for EU countries and by Chikán and Horváth (1999) for a group of 88 developed and developing countries. A recent strand of the literature including Carpenter et al (1998), Guariglia (1999), Brown and Haegler (2004), Bagliano and Sembenelli (2004), and Guariglia and Mateut (2010) rationalizes the procyclicality of inventory investment by linking the depletion of inventories to financing constraints which are rising during recessions and are becoming less binding during upswings.…”

Section: Introductionmentioning

confidence: 68%

Inventory Investment and Production in Europe: Is There a Pattern?

Abrahamsen

Hartwig

2011

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Inventory investment is positively correlated with changes in production and follows the latter with a time-lag of two to three quarters. Therefore, there is no evidence that inventory investment either drives or smoothes the business cycle. Very few countries -Austria, Greece, Spain, and Switzerland -diverge from the typical pattern. This might hint to problems with respect to data quality. Terms of use: Documents in EconStor may Keywords:Inventory investment, production, business cycle, "Great Recession" in Europe IntroductionResearch on inventory investment can be sorted along the micro-macro divide or along the theory-empirics divide. Theoretical research is usually microeconomic in nature and integrates inventory investment into the firm's profit-maximization calculus. Two main theory blocks have ensued from this strand of the literature: the production-smoothing model and the (S, s) inventory model (see Blinder and Maccini, 1991, Hornstein, 1998, Ramey and West, 1999. The production smoothing model starts from the assumptions that production is subject to increasing marginal cost and that firms are facing exogenous demand shocks. In this case, firms minimize cost by smoothing production. Hence, this theory predicts production to be less volatile than sales, and inventory investment should be negatively correlated with sales.The (S, s) inventory theory assumes that firms holding inventories are non-producing firms that order goods from producers. The ordering firm faces a trade-off between the reduced perunit order cost of increasing order sizes and the foregone interest income of the higher funds needed to pay for larger order sizes. The optimal strategy is then to place an order whenever the level of inventories falls below a critical level s. The order lifts inventories to level S from which sales will reduce it again to level s and so on. If orders are equal to production it follows from this theory that production will be more volatile than sales.The second strand of the literature is concerned with the empirics of inventory investment and is predominantly macroeconomic in nature. It asks which patterns between inventory investment, production, and sales can be found in the data. This research has uncovered a number of -as Ramey and West ( 3That production is more volatile than sales speaks against the production-smoothing model, although Fair (1989) and Krane and Braun (1991) claim to be able to vindicate the latter showing that production is...

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Section: Introductionmentioning

confidence: 68%

Inventory Investment and Production in Europe: Is There a Pattern?

Abrahamsen

Hartwig

2011

SSRN Journal

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“…The findings above show that the inventory equation is able to capture both lending and balance sheet views of transmission mechanism. In addition, Chikan and Horvath (1999) believe that inventory is known as the indicators and devices of short-term adaptation, both at individual-firm level and at macro level. Its movement is expected to be a major source of fluctuation in gross national product.…”

Section: Theoretical Modelsmentioning

confidence: 99%

Monetary Policy, Debt and the Cyclical Behavior of Inventories

Ismail

Bahari

2007

GADJAH MADA INT. J. BUS.

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An earlier study on the determinants of inventories investment has been proposed by Lovel (1961). However, the study fails to mention the effects of financial variables. The puzzle prevails on account of imperfect capital markets. This implies that interest rate generally affects inventory investment indirectly through the debt channel. For instance, in the period of tight monetary policy, increasing interest rates have a negative impact on the present value of firms’ collateralizable net worth. In addition, they also weaken firms’ balance sheets as interest expenses also rise up. In imperfect capital markets, this fact indicates an increase in the amount of external financing that firms need, a rise in the premium on external financing that they face, and a reduction in their accumulation of assets, their spending and their production. Given the low adjustment cost that characterizes firms, it will be inventories that firms will initially reduce. Therefore, this paper is contributes to the issue of monetary policy transmission in Malaysia. Our specific attention is limited to the channel of monetary policy on a firm’s inventory. Using micro data, we try to take into account the relevance of the firm’s balance sheet conditions in the transmission of monetary policy.

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