Working Paper
Production and inventory behavior of capital
Abstract: This paper provides a dynamic optimization model of durable good inventories to study the interactions between investment demand and production of capital goods. There are three major findings: First, capital suppliers' inventory behavior makes investment demand more volatile in equilibrium; Second, equilibrium price of capital is characterized by downward stickiness; Third, the responses of the capital market to interest rate and other environmental changes are asymmetric. All are the results of equilibrium interactions between demand and supply.
Keywords: Production (Economic theory); Business cycles; Investments;
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Bibliographic Information
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2005
Number: 2005-044