We study the implications of a stockout constraint in a dynamic general equilibrium model, which can explain both RBC and inventory facts well. Under the stockout constraint, inventories and demand are complements in generating sales, and hence the optimal level of inventories increases in...

We review and interpret recent work on inventories, emphasizing empirical and business cycle aspects. We begin by documenting two empirical regularities about inventories. The first is the well-known one that inventories move procyclically. The second is that inventory movements are quite...