Inventory growth cycles with debt-financed investment

Cycles de croissance et des stocks dans une économie financée par la dette

Matheus R Grasselli (1, 2) , Adrien Nguyen-Huu (3, 4)

1 Department of Mathematics and Statistics, McMaster University, Hamilton, Canada
2 Fields Institute for Research In Mathematical Sciences
3 LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée
4 CREST - Centre de Recherche en Économie et Statistique

We propose a continuous-time stock-flow consistent model for inventory dynamics in an economy with firms, banks, and households. On the supply side, firms decide on production based on adaptive expectations for sales demand and a desired level of inventories. On the demand side, investment is determined as a function of utilization and profitability and can be financed by debt, whereas consumption is independently determined as a function of income and wealth. Prices adjust sluggishly to both changes in labour costs and inventory. Disequilibrium between expected sales and demand is absorbed by unplanned changes in inventory. This results in a five-dimensional dynamical system for wage share, employment rate, private debt ratio, expected sales, and capacity utilization. We analyze two limiting cases: the long-run dynamics provides a version of the Keen model with effective demand and varying inventories, whereas the short-run dynamics gives rise to behaviour that we interpret as Kitchin cycles.

Mots clés: macroeconomic dynamics; business cycles; inventories; disequilibrium analysis

Domaines: Economies et finances; Systèmes dynamiques [math.DS]

Matheus R Grasselli, Adrien Nguyen-Huu. Inventory growth cycles with debt-financed investment. 2016. ⟨hal-01376201⟩