Inventory Investment and the Business Cycle

23 Pages Posted: 21 Nov 2012

Date Written: 1998

Abstract

Inventory investment, one of the more volatile components of gross domestic product, is often considered to be a major contributor to aggregate fluctuation. A review of previous work by Blinder and Maccini (1991) on the stylized facts of inventory investment confirms that, over the business cycle, production is more volatile than sales, and inventory investment increases with sales. Contrary to conventional wisdom, however, it does not appear that inventory investment contributes substantially to fluctuations of output over the business cycle. For shorter-term fluctuations, however, inventory investment accounts for a substantial part of output volatility.

Suggested Citation

Hornstein, Andreas, Inventory Investment and the Business Cycle (1998). FRB Richmond Economic Quarterly, vol. 84, no. 2, Spring 1998, pp. 49-71. Available at SSRN: https://ssrn.com/abstract=2126280

Andreas Hornstein (Contact Author)

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States
804-697-8266 (Phone)
804-697-8255 (Fax)

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