Stabilization policies frequently aim to boost spending as a means to increase GDP. Spending does not necessarily translate into production, however, especially when inventories are involved. We look at the cash-for-clunkers program that helped finance the purchase of nearly 700,000 vehicles in...

Stabilization policies frequently aim to boost spending as a means to increase GDP. Spending does not necessarily translate into production, however, especially when inventories are involved. We look at the “cash-for-clunkers” program that helped finance the purchase of nearly 700,000...

This paper develops a model of the joint determination of production, inventories and pricing of a monopolistically competitive durable good.producer. The model gives rise to time-varying markups that interact with the inventory-sales ratio, even with flexible prices. Maximum likelihood...