Inventories, rational expectations and economic activities

This paper examines the role of inventories, when adjustments in output involve fixed employment costs (such as hiring and training costs). These costs force the firm to use inventories to stabilize output fluctuations. Contrary to the Blinder-Fisher model, unanticipated aggregate disturbances in the present model may have no subsequent impacts on the economy. The exchange between McCallum and Blinder-Frydman are also discussed in this context.