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Using Inventories to Help Explain Post-1984 Business Cycles, No. 16-06

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Using Inventories to Help Explain Post-1984 Business Cycles, No. 16-06

DATE: June 2016

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ABSTRACT: Real business cycle (RBC) models have been highly successful at explaining business cycles that occurred before 1984. But since then, shifts in comovements and relative volatilities of key economic aggregates have challenged their preeminence. One possible refinement of the standard RBC model is to include multiple stages of production. This extension allows researchers to use inventory data to estimate the discount rate that firms use to assess future income streams. The results indicate that variations in the discount rate reflect financial frictions that have become significant drivers of business cycles.

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Lubik, Thomas A. , Rhodes, Karl , Sarte, Pierre-Daniel , Schwartzman, Felipe Farah, 1981- and Federal Reserve Bank of Richmond. "Using Inventories to Help Explain Post-1984 Business Cycles, No. 16-06," Economic Brief (June 2016). https://fraser.stlouisfed.org/title/6034/item/583949, accessed on August 17, 2022.

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