Inventory Investment and the Business Cycle : The usual Suspect
AbstractFrom quarterly postwar US and French data, this paper provides evidence of a bounce-back effect in inventory investment but not in final sales data. Actually, from a bounce-back augmented threshold model, it appears that i) the null hypothesis of no bounce-back effect is strongly rejected by the inventory investment data and ii) the one-step ahead forecasting performances of the models accounting for this bounce-back effect are well improved compared to linear or standard threshold autoregressions. This supports the conventional wisdom that inventory investment exacerbates aggregate fluctuations, in line with the recent theoretical models by, e.g., Wang and Wen (Wang, P., and Y. Wen. 2009. âInventory Accelerator in General Equilibrium.â Working Paper 010, Federal Reserve Bank of St. Louis) and Wang, Wen and Xu (Wang, P., Y. Wen, and Z. Xu. 2011. âWhen do Inventories Destabilize the Economy? An Analytical Approach to (s,s) Policies.â Working Paper 014, Federal Reserve Bank of St. Louis) which clearly predict a destabilizing role of inventory investment over the business cycle. By contrast, our empirical findings cast doubt on models based on the stockouts avoidance motive for holding inventories.
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Bibliographic InfoPaper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2012-09.
Date of creation: Apr 2012
Date of revision:
inventory investment; threshold models; bounce-back effects; asymmetric business cycles;
Other versions of this item:
- Bec Frédérique & Salem Melika Ben, 2013. "Inventory investment and the business cycle: the usual suspect," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 17(3), pages 335-343, May.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-22 (All new papers)
- NEP-BEC-2012-05-22 (Business Economics)
- NEP-MAC-2012-05-22 (Macroeconomics)
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