This paper develops an open-economy macroeconomic model which can be used to interpret the observed fluctuations in output, inventories,prices,and exchange rates in the medium-sized economies of the world. The model is consistent with the major empirical regularities that have been discovered in...

Firms respond to fluctuations in demand by changing their inventories and their levels of production. The relative magnitudes of the inventory and production responses have important implications for the overall cyclical behavior of the economy. Government policies that affect the costs of...

This paper examines micro data on U.S. firms' inventories during different macroeconomic episodes. Much of the analysis focuses on the 1981-82 recession, a recession that was apparently precipitated by tight monetary policy. We find important cross-sectional effects in this period: firms that...

In this paper we provide a framework to study the aggregate dynamic behavior of an economy where individual units follow (S,s) policies. We characterize structural and stochastic heterogeneities that ensure convergence of the economy's aggregate to that of its frictionless counterpart, determine...

This paper studies the dynamic properties of an imperfectly competitive economy with inventory holdings. In particular, we focus on the serial correlation in aggregate output and employment produced by the holding of inventories in one sector of the economy and the co-movement between sectors of...

The large, persistent fluctuations in international trade that can not be explained in standard models by changes in expenditures and relative prices are often attributed to trade wedges. We show that these trade wedges can reflect the decisions of importers to change their inventory holdings....

Manufacturers' finished goods inventories move less than shipments over the business cycle. We argue that this requires marginal cost to be more procyclical than is conventionally measured. We construct, for six manufacturing industries, alternative measures of marginal cost that attribute...

When empirical stock-adjustment models of manufacturers' inventories of finished goods are estimated, there appear to be two local minima in the sum of squared residuals functions. At one local minimum, the estimated adjustment speed is typically quite high; at the other, it is typically quite...

Empirical evidence has long shown that output varies more in the short-run than do all factor inputs, including employment and hours worked. There is also evidence that all factors, including capital, start adjusting within a few months, suggesting that production models should treat all...

This paper develops and applies a novel test of the Holt, et al.(1961) linear quadratic inventory model. It is shown that a central property of the model is that a certain weighted sum of variances and covariances of production, sales and inventories must be nonnegative. The weights are the...