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Inventories and output volatility

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  • Paula R. Worthington
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    Analyzing disaggregate data on inventories and sales from the U.S. manufacturing and trade sector between 1960 and 1997 yields four main findings. First, I find that IS ratios are somewhat lower after 1984: 1 among durable goods manufacturers and durable goods retailers outside the motor vehicle industry. Second, I find that industries which have lowered their IS ratios tend to be those in which the variance of output relative to sale has declined. Third, by decomposing the variance of output into its components, I find that the variance of sales is less important, and the variance of inventory investment is more important, after 1984:1 than in earlier years for the overall manufacturing and trade sector. Finally, the evidence suggests that industries where IS ratios fell are those where inventory investment volatility played a smaller role in output volatility in the later period.

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    File URL: http://www.chicagofed.org/digital_assets/publications/working_papers/1998/wp98_21.pdf
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    Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-98-21.

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    Date of creation: 1998
    Handle: RePEc:fip:fedhwp:wp-98-21
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    1. Terry J. Fitzgerald, 1997. "Inventories and the business cycle: an overview," Economic Review, Federal Reserve Bank of Cleveland, issue Q III, pages 11-22.
    2. Jonathan McCarthy & Egon Zakrajsek, 1998. "Microeconomic inventory adjustment and aggregate dynamics," Staff Reports 54, Federal Reserve Bank of New York.
    3. Jonathan McCarthy & Egon Zakrajsek, 1998. "Trade inventories," Staff Reports 53, Federal Reserve Bank of New York.
    4. Hirsch, Albert A., 1996. "Has inventory management in the US become more efficient and flexible? A macroeconomic perspective," International Journal of Production Economics, Elsevier, vol. 45(1-3), pages 37-46, August.
    5. Alan S. Blinder & Louis J. Maccini, 1991. "Taking Stock: A Critical Assessment of Recent Research on Inventories," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 73-96, Winter.
    6. Andreas Hornstein, 1998. "Inventory investment and the business cycle," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 49-71.
    7. Melika Ben Salem & Jean-Francois Jacques, 1996. "About the stability of the inventory-sales ratio: an empirical study with US sectoral data," Applied Economics Letters, Taylor & Francis Journals, vol. 3(7), pages 467-469.
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