Journal Article

Do inventories moderate fluctuations in output?

Abstract: Inventories are widely believed to serve as a buffer stock against unexpected fluctuations in demand, allowing firms to plan production more efficiently. If so, we would expect production to vary less than sales and inventory to move in the opposite direction to sales. However, research finds that production varies more than sales and that there is a positive correlation between changes in inventory and changes in sales. These findings imply that inventories are not being used to smooth production and do not serve as a buffer for uncertain demand. Donald S. Allen examines firm-level data and finds that firms may use inventories to smooth production, but only partially.

Keywords: Inventories; Business cycles;

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Review

Publication Date: 1997

Issue: Jul

Pages: 39-50