The Multiplier: A General Equilibrium Analysis of Multi-Stage-Fabrication Economy with Inventories
Year: 2005
Type: report
Abstract: This paper provides a general equilibrium multi-stage production model to explain the co-existence and co-movement of output-and input-inventories.The model offers a neoclassical perspective on the propagation mechanism of demand uncertainty.It reveals that uncertainty in demand at downstream can be transmitted and amplified towards upstream by inventory investment at all stages of production via input-output linkages, leading to a chain-multiplier effect on aggregate output and employment.The model is capable of explaining several long-standing puzzles of the business cycle associated with inventories.
DOI: 10.20955/wp.2005.046
Author: Yi Wen
Institution: Cornell University
Language: English
Domain: Social Sciences
Open Access status: gold
OpenAlex ID: W2138557261