Production and inventory behavior of capital

Production and inventory behavior of capital

by Wen

Part of Working paper ;

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"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"--Federal Reserve Bank of St. Louis web site.

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