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Article: The role of inventories in the business cycle.
- Article from:
- Business Review (Federal Reserve Bank of Philadelphia)
- Article date:
- September 22, 2003
- Author:
CopyrightCOPYRIGHT 2003 Federal Reserve Bank of Philadelphia. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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Changes in the stock of firms' inventories are an important component of the business cycle. Alan Blinder, a former Governor of the Federal Reserve System, famously remarked that "the business cycle, to a surprisingly large degree, is an inventory cycle." Consistent with this perspective, much of the discussion about the timing of a recovery following economic recessions focuses on firms' stocks of inventories. Pundits suggest that production and employment cannot recover until firms' inventories fall, relative to their sales.
This article surveys the facts about inventory investment over the business cycle, then discusses two leading theories of inventory ...