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Inventory Dynamics and Business Cycles: What Has Changed?
Author(s) -
McCARTHY JONATHAN,
ZAKRAJŠEK EGON
Publication year - 2007
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.0022-2879.2007.00037.x
Subject(s) - great moderation , volatility (finance) , business cycle , economics , monetary policy , monetary economics , inventory management , moderation , macroeconomics , econometrics , operations management , psychology , social psychology
To what extent can information‐technology led improvements in inventory management account for the apparent moderation of economic fluctuations in the United States since the mid‐1980s? We argue that changes in inventory dynamics played a reinforcing—rather than a leading—role in the reduction of output volatility. Since the mid‐1980s, inventory dynamics have changed in a manner consistent with a faster resolution of inventory imbalances. However, these changes appear to be a consequence of changes in the response of industry‐level sales and aggregate economic activity to monetary policy shocks. Our results suggest that it is the interaction between the changes in inventory behavior at the industry level and the macroeconomic environment—where the latter likely includes changes in the conduct of monetary policy and the responses of the economy to policy disturbances—rather than any single factor, that has contributed importantly to the observed decline in economic volatility.