Abstract

This paper provides a dynamic optimization model of durable goods inventories to study the interactions between investment demand and the 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; and third, the responses of the capital market to interest rate and other environmental changes are asymmetric. All are the result of equilibrium interactions between demand and supply.

Full Text
Published version (Free)

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call