What do inventories tell us about news-driven business cycles?

Nicolas Crouzet, Hyunseung Oh*

*Corresponding author for this work

Research output: Contribution to journalArticle

4 Scopus citations

Abstract

There is widespread disagreement over the quantitative contribution of news shocks to business-cycle fluctuations. This paper provides a simple identifying restriction, based on inventory dynamics, that tightly pins down this contribution. Structural models predict that finished-good inventories should fall when there is an increase in consumption and investment induced by news shocks. A structural VAR with these sign restrictions indicates that news shocks account for at most 20 percent of output volatility. Since inventories comove positively with consumption and investment in the data, shocks that generate negative comovement cannot account for the bulk of fluctuations.

Original languageEnglish (US)
Pages (from-to)49-66
Number of pages18
JournalJournal of Monetary Economics
Volume79
DOIs
StatePublished - May 1 2016

Keywords

  • Business cycles
  • Intertemporal substitution
  • Inventories
  • Investment
  • News shocks

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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