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The Behavior of Inventories over the Business Cycle: Evidence across Levels of Development

Author

Listed:
  • Juan Manuel Rodriguez Repeti

    (IIEP-UBA)

  • Danilo Trupkin

    (UDESA)

Abstract

This paper documents how inventory dynamics vary across levels of development and how they respond to real and financial shocks. Using a balanced panel of 72 small open economies over 1993–2022, spanning advanced to low-income economies, we show that inventories are strongly procyclical in advanced economies but become acyclical at lower income levels, while volatility and persistence rise as development declines. Using local projections, we estimate inventory responses to a long-run productivity shock and to a financial shock identified from the spread between U.S. corporate bond yields and Treasury yields. Productivity shocks generate temporary inventory accumulation across all groups, with smoother adjustment in advanced economies and more irregular cycles in emerging and developing economies. Financial shocks trigger decumulation followed by a rebound in higher-income groups, but a delayed, unreversed decline in low-income economies.

Suggested Citation

  • Juan Manuel Rodriguez Repeti & Danilo Trupkin, 2026. "The Behavior of Inventories over the Business Cycle: Evidence across Levels of Development," Working Papers 405, Red Nacional de Investigadores en Economía (RedNIE).
    • Handle: RePEc:aoz:wpaper:405
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    File URL: https://rednie.eco.unc.edu.ar/files/DT/405.pdf
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    Keywords

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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