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Federal Reserve Bank of Richmond
Richmond Fed Economic Brief
Using Inventories to Help Explain Post-1984 Business Cycles
Thomas A. Lubik
Karl Rhodes
Pierre-Daniel G. Sarte
Felipe Schwartzman
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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Thomas A. Lubik & Karl Rhodes & Pierre-Daniel G. Sarte & Felipe Schwartzman, "Using Inventories to Help Explain Post-1984 Business Cycles" , Federal Reserve Bank of Richmond, Richmond Fed Economic Brief, issue June, pages 1-5, 2016.
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