Why Do Real and Nominal Inventory-Sales Ratios Have Different Trends
9 Pages Posted: 4 Apr 2011 Last revised: 1 Oct 2022
Date Written: August 2004
This note explains the diverging trends between real and nominal aggregate inventory-sales ratios. The combined effect of two features of the data explains the divergence. First, while aggregate sales include both goods and services, inventories include only goods. Second, there has been a strong secular decrease in the relative price of goods. The combination of these two factors causes the real and nominal aggregate inventory-sales ratios to have different trends.
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