Shibayama, Katsuyuki
(2007)
Inventories in general equilibrium dynamics.
PhD thesis, London School of Economics and Political Science.
Abstract
This thesis analyses inventories empirically and theoretically. Inventories are important in miderstanding business cycles, not only because inventory investment accounts for a large share of GDP growth rate. This thesis also emphasises the cyclicality of inventories. Often, business cycles are regarded as exponential decays, i.e., successive deviations from the steady state and their returning processes. In contrast, this thesis offers a battery of evidence that economic variables, such as sales and inventories, follow damping oscillations, i.e., stable sine waves. This means that a boom is the seed of the recession that follows, and vice versa. This thesis also reveals inventories' role in such endogenous cycles. The first chapter presents empirical evidence of periodicity. VAR estimations find evidence of sine waves - namely, complex roots. Indeed, the detected complex roots seem to capture the actual business cycles; the estimated lengths of one business cycle are close to those of the post-war average in both Japan and the United States. This chapter also shows that peaks and bottoms of inventories lag behind those of production; such a time lag is called a phase shift. In addition, this chapter finds that the U.S. Federal Reserve anticipates inventory cycles, while the Bank of Japan does not. The second chapter constructs a theoretical model with a stockout constraint and a production chain in the rational dynamic general equilibrium framework, which quantitatively satisfies stylised inventory facts. Importantly, the model successfully mimics observed inventory cycles. Moreover, working hours are more volatile and the correlation between labour productivity and output is lower than in the standard real business cycle model. Finally, the third chapter offers a solution algorithm for linear rational expectation models under imperfect information. Inventories are closely related to imperfect information, and inventories are often regarded as buffers against unobserved demand shocks.
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