Inventory Investment in ‘Commodity’ Exports

Abstract

The notation in this section is generic; it is made specific in its applications below to inventory investment in the exportable ‘commodity’ (whose production level is X_c), and later in Chapter 19 to inventory investment in the domestic good (whose output is Y_D). for current purposes, define

$$S = Stock\;of\;inventories\;at\;the\;end\;of\;the\;current\;quarter;$$

((17.1.1a))

$${F_S} = flow\;of\;inventories\;during\;the\;current\;quarter;$$

((17.1.1b))

where F_s > 0 implies a build up, and F_s < 0 a run down. Under the assumption that physical depreciation/deterioration is negligible, the identity linking inventory investment F_s to stocks is

$${F_S}(t) + S(t - 1) = S(t)$$

((17.1.2))

, where S(t) is the outgoing stock at the end of quarter t, and F_s(t) is the flow during that quarter.