Working Paper

Inventories and output volatility


Abstract: 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.

Keywords: Inventories;

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Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Working Paper Series

Publication Date: 1998

Number: WP-98-21