Inventory dynamics and business cycles
Subtitle: what has changed?
By: Jonathan McCarthy and Egon Zakrajšek.
Contributors: Zakrajšek, Egon; Federal Reserve Bank of New York.
Series: Staff reports ;; no. 156; Staff reports (Federal Reserve Bank of New York : Online) ;; no. 156.
Publisher: Federal Reserve Bank of New York
Published: 2002
Place of publication: [New York, N.Y.]
Language: eng
Format: Electronic resource
Subjects: Inventory control -- United States.; Business cycles -- United States.; Inventories.
Description: "By historical standards, the U.S. economy has experienced a period of remarkable stability since the mid-1980s.  One explanation attributes the diminished variability of economic activity to information-technology-led improvements in inventory management.  Our results, however, indicate that the changes in inventory dynamics since the mid-1980s played a reinforcing--rather than a leading--role in the volatility reduction.  A decomposition of the reduction in the volatility of manufacturing output shows that it almost entirely reflects a decline in the variance of the growth contribution of shipments.  And although the volatility of total inventory investment has fallen, the decline occurred well before the mid-1980s and was driven by the reduced variability of materials and supplies.  Our analysis does show that since the mid-1980s, inventory dynamics have played a role in stabilizing manufacturing production: Inventory 'imbalances' are corrected more rapidly, and the quicker response of inventories to aggregate shocks--at all stages of fabrication--buffers production from fluctuations in sales to a greater extent.  But more extensive production smoothing and faster dissolution of inventory imbalances appear to be a consequence of changes in the way industry-level sales and aggregate economic activity respond to shocks, rather than a cause of changes in macroeconomic behavior"--Federal Reserve Bank of New York web site.
Notes: Includes bibliographical references.
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Mode of access: World Wide Web.