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Monetary policy and the role of inventory investment

Rubio, Margarita; Schuh, Scott

Authors

Scott Schuh



Abstract

In this paper, we develop a dynamic stochastic general equilibrium model (DSGE) with sticky prices and inventory investment to explore the relationship between inventories and monetary policy. We use the traditional inventory literature as a basis to motivate this extension of the benchmark model and propose inventories as a factor of production. Within this setting, we test the empirical results in Irvine and Schuh (2005), who find that, since the mid-80s, monetary policy changed its target towards the inventory component of GDP. We explore this idea in our theoretical model and conclude through simulations that this is a plausible complementary explanation for the reduction in output volatility that was observed during the Great Moderation period.

Journal Article Type Article
Journal Applied Economics Letters
Print ISSN 1350-4851
Electronic ISSN 1466-4291
Publisher Taylor & Francis (Routledge)
Peer Reviewed Peer Reviewed
Volume 24
Issue 21
APA6 Citation Rubio, M., & Schuh, S. (in press). Monetary policy and the role of inventory investment. Applied Economics Letters, 24(21), https://doi.org/10.1080/13504851.2017.1363855
DOI https://doi.org/10.1080/13504851.2017.1363855
Keywords DSGE, sticky prices, inventories, monetary policy, Great Moderation
Publisher URL http://www.tandfonline.com/doi/abs/10.1080/13504851.2017.1363855
Copyright Statement Copyright information regarding this work can be found at the following address: http://eprints.nottingh.../end_user_agreement.pdf

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Copyright Statement
Copyright information regarding this work can be found at the following address: http://eprints.nottingham.ac.uk/end_user_agreement.pdf





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