Economists have spent more than a century trying to understand the fluctuations of the business cycle. Theories have abounded, but Economics Professor Chris Gunn and collaborators recognized that data on the inventories held by firms were notably absent from these studies.

“Macroeconomists have known for some time that despite inventory levels being a small proportion of aggregate output on average, fluctuations in inventory levels typically comprise a major part of the variation in output during business cycle fluctuations,” wrote Gunn. “It is puzzling, then, that most academic business cycle models neglect them. In this project we address this gap.”

Gunn has received a $72,386 grant from the Social Sciences and Humanities Research Council (SSHRC) to pursue this research, in collaboration with Thomas Lubik at the Federal Reserve Bank of Richmond and Christoph Gortz at the University of Birmingham.

The goals for the project include:

• Empirically investigating the connection between inventory-behaviour and hours-worked over the business cycle in response to expected and unexpected shifts in productivity.
• Empirically investigating the transmission mechanism leading to the response in inventories due to these changes in technology.
• Developing a theoretical model that can account for the empirical results.

Tuesday, July 21, 2020 in , ,
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