Is there news in inventories?

• We show in a structural VAR that TFP news shocks generate positive comovement of all macroeconomic aggregates and especially inventories. Standard shock models with inventories cannot explain this fact due to the strength intertemporal substitution channel. derive conditions required procyclical inventory response by using wedges approach. suggest develop framework knowledge capital these findings. This paper thus confirms importance as key determinant business cycles. identify total factor productivity (TFP) standard methodology document new stylized fact: about future increases TFP, rise comove positively other major aggregates. theoretical model used capture effects replicate when extended include To empirical behavior, we consider two mechanisms: sticky wages presence accumulated through learning-by-doing. Only latter moves qualitatively match behavior. The desire take advantage higher drives output hours choices on arrival leads accumulation alongside variables. broad-based can generate, supports view are an important driver aggregate fluctuations.