Inventory Investment and the Real Interest Rate

7 Pages Posted: 18 Dec 2010

See all articles by Saqaquat H. Junayed

Saqaquat H. Junayed

affiliation not provided to SSRN

Hashmat Khan

Carleton University - Department of Economics

Date Written: 2009

Abstract

The relationship between inventory investment and the real interest rate has been difficult to assess empirically. Recent work has proposed a linear-quadratic inventory model with time-varying discount factor to identify the effects of the real interest rate on inventory investment. The authors show that this framework does not separately identify the effects of real interest rate on inventory investment from variables that determine the expected marginal cost of production. In other words, the model does not deliver a testable restriction on the impact of interest rates on inventory investment. The authors highlight the consequences for both short- and long-run empirical analyses. They conclude that understanding the relationship between inventory investment and the real interest rate continues to be a theoretical and empirical challenge for macroeconomists. --

Keywords: Inventory investment, real interest rate

JEL Classification: E22

Suggested Citation

Junayed, Saqaquat H. and Khan, Hashmat, Inventory Investment and the Real Interest Rate (2009). Economics: The Open-Access, Open-Assessment E-Journal, Vol. 3, 2009-34, Available at SSRN: https://ssrn.com/abstract=1726865 or http://dx.doi.org/10.5018/economics-ejournal.ja.2009-34

Saqaquat H. Junayed (Contact Author)

affiliation not provided to SSRN ( email )

No Address Available

Hashmat Khan

Carleton University - Department of Economics ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
Canada

HOME PAGE: http://www.carleton.ca/~hashkhan/