What do inventories tell us about news-driven business cycles?

Crouzet, Nicolas; Oh, Hyun-seung

doi:10.1016/j.jmoneco.2016.03.005

Cited by 22 publications

(15 citation statements)

References 21 publications

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“…Our results here may also guide future theoretical research on expectations‐driven business cycles. For instance, Crouzet and Oh () show in standard RBC models with inventories that a favorable news TFP shock generates an immediate decrease in inventories, since firms expect production costs to decrease when TFP increases in the future so that they meet the current demand by running down inventories. This discrepancy between the model prediction and our empirical finding deserves further investigation in the future…”

Section: Empirical Results On Optimism Shocksmentioning

confidence: 99%

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Mood Swings and Business Cycles: Evidence from Sign Restrictions

Nam¹,

Wang²

2018

J of Money Credit Banking

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This paper provides new evidence that bouts of optimism and pessimism are an important source of U.S. business cycles, using the identification schemes based on sign restrictions. We document that identified optimism and pessimism shocks account for about 30% of U.S. business‐cycle fluctuations in hours and output. In addition, our empirical findings are consistent with the intensive‐ and extensive‐margin adjustments in the U.S. labor market over business cycles, providing further support to optimism shocks being an important source of U.S. business cycles. The identified optimism shocks are at least partially rational as total factor productivity is found to rise 8–12 quarters after an initial bout of optimism. While this later finding is consistent with some previous findings in the news shock literature, we cannot rule out that such episodes reflect self‐fulfilling beliefs.

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Section: Empirical Results On Optimism Shocksmentioning

confidence: 99%

“…Crouzet and Oh's () models build on the supply‐side role of inventories: substituting for production, inventories are depleted to satisfy increases in sales. On the other hand, if inventory‐holding is motivated by satisfying the economy's future demand, inventories could increase immediately following a favorable news shock in such a model.…”

mentioning

confidence: 99%

Mood Swings and Business Cycles: Evidence from Sign Restrictions

Nam¹,

Wang²

2018

J of Money Credit Banking

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“…Our paper is most closely related to Crouzet and Oh (2016), who introduce inventories into a variant of the standard news-shock model of Jaimovich and Rebelo (2009), utilizing a reduced-form stockout-avoidance speci…cation. They show that, while this setup can generate positive comovement of investment, consumption, and hours in response to TFP news shocks, it fails to do so in the case of inventories.…”

Section: Introductionmentioning

confidence: 99%

“…The countercyclical inventory movement is then used to inform sign restrictions in a structural VAR to identify TFP news shocks. Given the unconditional procyclicality of inventory investment and the imposed negative sign restriction on this variable, Crouzet and Oh (2016) come to the conclusion that TFP news shocks are of limited importance for aggregate ‡uctuations. In contrast, we use a standard and widely used VAR methodology to identify the response of inventory movements to TFP news …rst.…”

Section: Introductionmentioning

confidence: 99%

Is There News in Inventories?

Görtz

Gunn

Lubik

2020

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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.

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“… To the best of my knowledge, Crouzet and Oh () is the only paper that investigates inventories dynamics in the context of the news literature; these authors document that the dynamics of the inventories‐to‐sales ratio is crucial for the identification of aggregate news shocks. However, they do not investigate sectoral components of aggregate news shock and the role of inventories in explaining these components. …”

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confidence: 99%

Sectoral Effects of News Shocks

Vukotic¹

2018

Oxf Bull Econ Stat

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This paper argues that an aggregate news shock reveals news about technological improvements in the durable goods sector. Better technological prospects translate into large responses of the fundamentals in the durable goods sector; much larger than the responses of the fundamentals in the non-durable goods sector. These better technological prospects, contrary to common belief, do not induce short-run comovement among fundamentals within either of the two sectors. The behaviour of inventories, an important margin that durable goods producers can use to buffer news shocks, proves to be crucial for reconciling the effects of news shocks in a two-sector model with the data.

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What do inventories tell us about news-driven business cycles?

Cited by 22 publications

References 21 publications

Mood Swings and Business Cycles: Evidence from Sign Restrictions

Mood Swings and Business Cycles: Evidence from Sign Restrictions

Is There News in Inventories?

Sectoral Effects of News Shocks

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