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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.

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

Journal Article Type Article
Acceptance Date Aug 1, 2017
Online Publication Date Aug 9, 2017
Deposit Date Aug 2, 2017
Publicly Available Date Feb 10, 2019
Journal Applied Economics Letters
Print ISSN 1350-4851
Electronic ISSN 1466-4291
Publisher Taylor & Francis (Routledge)
Peer Reviewed Peer Reviewed
Volume 24
Issue 21
DOI https://doi.org/10.1080/13504851.2017.1363855
Keywords DSGE, sticky prices, inventories, monetary policy, Great Moderation
Public URL http://eprints.nottingham.ac.uk/id/eprint/44563
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.nottingham.ac.uk/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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