Inventories and business cycle volatility: an analysis based on ISAE survey data
The paper looks at an often debated issue - the decline observed in business cycle volatility - from a rather original point of view represented by careful consideration of qualitative data deriving from Business Tendency Surveys. It first concentrates on the manufacturing sector, providing evidence that volatility slowdown is attributable to a break in the Data Generating Process rather than to a long trend decline. Moreover, it shows that lower variance of the ISAE Confidence Indicator is mostly explained by the behaviour of firms’ assessments of demand and inventories. In particular, inventories volatility has decreased, while volatility of production has instead increased with respect to that of demand. Both of these results are consistent with the claim that better inventories management should have a specific role in shaping the production decisions of the firms.
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