Abstract: Recent empirical and theoretical research on business invertories is surveyed and critically evaluated. While most invertory research has had macroeconomic motivations, we focus on its microtheoretic basis and on potential conflicts between theory and evidence. The paper asks two principal questions. First, how can invertories, which are allegedly used by firms to stabilize production, nonetheless be a destabilizing factor at the macroeconomic level? Second, why, if firms are following the production-smoothing model, is production more variable than sales in many industries? We suggest that the so-called (S,s) model may help answer both questions.
Authors: Alan S. Blinder, Louis J. Maccini
