Is There News in Inventories?

Abstract

We identify total factor productivity (TFP) news shocks using standard VAR methodology and document a new stylized fact: in response to news about future increases in TFP, inventories rise and comove positively with other major macroeconomic aggregates. We show that the standard theoretical model used to capture the e¤ects of news shocks cannot replicate this fact when extended to include inventories. To explain the empirical inventory behavior, we therefore develop a framework that relies on the presence of knowledge capital accumulated through a learning-by-doing process. The desire to take advantage of higher future TFP through knowledge capital drives output and hours choices on the arrival of news and leads to inventory accumulation alongside the other macroeconomic variables. The broad-based comovement we document supports the view that news shocks are an important driver of aggregate ‡uctuations.

Rational Inattention and the Business Cycle Effects of Productivity and News Shocks

“…The conditional second moments can then be computed using the steady-state Kalman …lter, with state equation ( 8) and observation equation (11), and problem ( 7)-( 12) can be solved numerically in a straightforward way. 24…”

“…Görtz, Tsoukalas, and Zanetti (2020) also show that when they use the identi…cation assumptions of Barsky and Sims (2011) or Kurmann and Sims (2019) and focus on the data since the onset of the Great Moderation, they …nd that news shocks produce comovement. See also Görtz, Gunn, and Lubik (2020).…”

News Shocks under Financial Frictions

“…4 In the context of the VAR methodology, e.g. Beaudry and Portier (2006), Beaudry and Lucke (2010), Beaudry et al (2012) and Görtz et al (2020a) find that TFP news shocks account for a major fraction of macroeconomic fluctuations whereas and detect a limited role of TFP news shocks to aggregate fluctuations. More recently, Ben Zeev and Khan (2015) identify investment-specific news shocks as a major driver of U.S. business cycles, a finding supportive of the technology news interpretation of aggregate fluctuations.…”

News Shocks Under Financial Frictions

“…4 In the context of the VAR methodology, e.g. Beaudry and Portier (2006), Beaudry and Lucke (2010), Beaudry et al (2012) and Görtz et al (2020) nd that TFP news shocks account for a major fraction of macroeconomic uctuations whereas and detect a limited role of TFP news shocks to aggregate uctuations. More recently, Ben Zeev and Khan (2015) identify investment-specic news shocks as a major driver of U.S. business cycles, a nding supportive of the technology news interpretation of aggregate uctuations.…”