Intensity of Disequilibrium and Changes in Inventories

Welfe, A. (1986). Intensity of Disequilibrium and Changes in Inventories. IIASA Collaborative Paper. IIASA, Laxenburg, Austria: CP-86-007

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Abstract

It is usually accepted in economic theory that one of the main reasons for keeping inventories is to balance supply and demand. However, the experiences of the recent years in Poland indicate that inventories play this role only in a limited way. The present paper is devoted to an interesting problem concerning the possibilities of using the changes of stocks of inventories as disequilibrium indicator for particular commodity markets. The analysis covers the changes of inventories in a socialized trade; the study, however, is of a more general character and the conclusions also apply to the inventories of finished products in enterprises, and to materials and semi-manufactured goods in the production process. The first part is an introduction into the problem of disequilibrium modeling. The changes of inventories in relation to the changes of market disequilibrium are analyzed in the second part. The third part contains a mathematical presentation of the above relationships and the proposal of building a model where the changes of inventories would serve as the disequilibrium indicator.

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