TY - JOUR
T1 - Inventories, rational expectations, and the business cycle
AU - Blinder, Alan S.
AU - Fischer, Stanley
N1 - Funding Information:
*We are bat&l for helpful comments from Costas Azariadis. Robert Barre, Martin Eichenbum, Benjamin Friedman, John Helliwell, Bennett McCallum, and participants in seminars at the University of California, Davis, University of California, San Diego, University of Pennsylvania, Queen’s University, University of Rochester, and University of Virginia. The research reported here is part of the NBER’s research program in Economic Fluctuations. Financial support from the National Science Foundation and the Institute for Advanced Studies in Jerusalem is gratefully acknowledged, as is research assistance from Mark Bagnoh and Suzanne Hetier,, Any opiuioas,expmaed are those of the authors and not those of the National Bureau $of% +otnic Research. ( _ “&+$I&;&~* co I~!&p ie tt e;: bt:’ &nil&, a&y&of inventory behavior in a conventional non-sto&&c~ mtio model withortt rational expectations, see Blinder (1980). Brunner, Cukierman atrd Meker (1980) dso present a rational expectations model with inventories.
PY - 1981
Y1 - 1981
N2 - The simplest macroeconomic models in which markets clear instantaneously, and expectations are rational preclude the existence of 'business cycles', that is, of serially correlated deviations of output from trend. This paper studies one of several mechanisms that can be used to make these so-called 'new-classical' models produce business cycles; the mechanism is the gradual adjustment of inventory stocks. Two macroeconomic models of inventory holdings are formulated. Both imply, first, that current output should be a decreasing function of the stock of inventories and, second, that inventories, once perturbed from equilibrium levels, should adjust only gradually. These two features are then embedded into an otherwise standard macroeconomic model in which markets clear instantaneously and expectations are rational. Two principal conclusions are reached. First, disturbances such as unanticipated changes in money will set in motion serially correlated deviations of output from trend. Second, if desired inventories are sensitive to the real interest rate, then even fully anticipated changes in money can affect real variables.
AB - The simplest macroeconomic models in which markets clear instantaneously, and expectations are rational preclude the existence of 'business cycles', that is, of serially correlated deviations of output from trend. This paper studies one of several mechanisms that can be used to make these so-called 'new-classical' models produce business cycles; the mechanism is the gradual adjustment of inventory stocks. Two macroeconomic models of inventory holdings are formulated. Both imply, first, that current output should be a decreasing function of the stock of inventories and, second, that inventories, once perturbed from equilibrium levels, should adjust only gradually. These two features are then embedded into an otherwise standard macroeconomic model in which markets clear instantaneously and expectations are rational. Two principal conclusions are reached. First, disturbances such as unanticipated changes in money will set in motion serially correlated deviations of output from trend. Second, if desired inventories are sensitive to the real interest rate, then even fully anticipated changes in money can affect real variables.
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U2 - 10.1016/0304-3932(81)90012-X
DO - 10.1016/0304-3932(81)90012-X
M3 - Article
AN - SCOPUS:0001165172
SN - 0304-3932
VL - 8
SP - 277
EP - 304
JO - Journal of Monetary Economics
JF - Journal of Monetary Economics
IS - 3
ER -