What Inventory Behavior Tells Us about Business Cycles

Bils, Mark; Kahn, James R.

doi:10.2139/ssrn.935322

Cited by 70 publications

(160 citation statements)

References 16 publications

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“…Fig. 7 shows that changes in inventories are pro-cyclical whereas the inventories/sales ratio is counter-cyclical as we would expect by looking at the empirical literature (see Bils and Kahn, 2000). Usually, during a business downturn, firms let 29 This is consistent with economic reality where, despite the changes in agents' habits and 'animal spirits', the properties of the correlation structure of macroeconomic aggregates is fairly stable, thus justifying their adoption as a criteria to validate macroeconomic models.…”

Section: Macro-stylized Factsmentioning

confidence: 73%

Agent based-stock flow consistent macroeconomics: Towards a benchmark model

Caiani

Godin

Caverzasi

et al. 2016

Journal of Economic Dynamics and Control

265

167

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a b s t r a c tThe paper moves from a discussion of the challenges posed by the crisis to standard macroeconomics and the solutions adopted within the DSGE community. Although several recent improvements have enhanced the realism of standard models, we argue that major drawbacks still undermine their reliability. In particular, DSGE models still fail to recognize the complex adaptive nature of economic systems, and the implications of money endogeneity. The paper argues that a coherent and exhaustive representation of the inter-linkages between the real and financial sides of the economy should be a pivotal feature of every macroeconomic model and proposes a macroeconomic framework based on the combination of the Agent Based and Stock Flow Consistent approaches. The papers aims at contributing to the nascent AB-SFC literature under two fundamental respects: first, we develop a fully decentralized AB-SFC model with several innovative features, and we thoroughly validate it in order to check whether the model is a good candidate for policy analysis applications. Results suggest that the properties of the model match many empirical regularities, ranking among the best performers in the related literature, and that these properties are robust across different parameterizations. Second, the paper has also a methodological purpose in that we try to provide a set or rules and tools to build, calibrate, validate, and display AB-SFC models.& 2016 Elsevier B.V. All rights reserved. Is the economic crisis a crisis for macroeconomics?More than eight years since the onset of the global financial crisis we are still assessing how the crisis should change our view about macroeconomics. The crisis cast serious doubts on the plausibility of standard macroeconomic models -in particular of dynamic stochastic general equilibrium (DSGE) models -and their ability to provide effective policy advices to prevent the occurrence of large-scale economic turmoils, and to tackle their consequences.In a nutshell, the anatomy of the standard DSGE model presents an economy composed of different types of representative agents, such as households and firms, maximizing in a infinite lifetime horizon an objective function subject to an inter-temporal budget constraint. The first order conditions yield a fully state-contingent plan for the representative agents

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Section: Macro-stylized Factsmentioning

confidence: 73%

Agent based-stock flow consistent macroeconomics: Towards a benchmark model

Caiani

Godin

Caverzasi

et al. 2016

Journal of Economic Dynamics and Control

265

167

View full text Add to dashboard Cite

show abstract

“…Our work builds on a literature, exemplified by Bils and Kahn (2000), that uses inventory data to inform our understanding of business cycles. 2 Given a formal model with a multisector and multi-stage production structure inventories are informative about factors driving business cycles because they help distinguish between changes in investment induced by variations in (i) the physical return to fixed investment, typically governed by technological opportunities (Fisher, 2006;Greenwood, Hercowitz, and Krusell, 2000), and (ii) the discount rate used to assess future income streams.…”

Section: Introductionmentioning

confidence: 99%

“…Using the U.S. automobile industry as a case study, Ramey and Vine (2006) show that this can explain the changing behavior of US time series both in terms of volatility and comovement. More recent work, such as Chang, Hornstein, and Sarte (2009), has extended this line of work to account for changes in pricing behavior and mark-ups, building on Bils and Kahn (2000). inventories in that variations in the discount rate rather than changes in the valuation of leisure have become a significant driver of recent recessions.…”

Section: Introductionmentioning

confidence: 99%

What inventory behavior tells us about how business cycles have changed

Sarte

Schwartzman

Lubik

2015

Journal of Monetary Economics

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“…The first reason to hold inventories is the so-called stockout avoidance theory, stated in Kahn (1987), and has been recently examined by Kahn et al (2002), and Bils and Kahn (2000). Within this theory, production must be decided upon before demand is known, and if demand is correlated over time, firms will find it profitable to accumulate inventories anticipating future high demand.…”

Section: Economic Interpretationmentioning

confidence: 99%