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Frederique Bec and Marie Bessec
''Inventory Investment Dynamics and Recoveries: A Comparison of Manufacturing and Retail Trade Sectors''
( 2013, Vol. 33 No.3 )
This paper explores the existence of a bounce-back effect in inventory investment using the European Commission opinion survey on stocks of finished products in manufacturing and retail trade sectors for France, Germany and a European aggregate, from 1985q1 to 2011q4. Our empirical findings support the existence of a high recovery episode for inventory investment, during the quarters immediately following the recessions: it occurs later and lasts longer in manufacturing than in retail trade sector. Since a third phase of rapid recovery has not been found in final sales data so far, the rebound in inventories could in turn explain the GDP growth bounce-back pointed out in previous empirical studies. This calls for a careful modeling of the inventory investment behavior in any sensible theoretical explanation of aggregate business cycles.
Keywords: Threshold auto-regression, bounce-back effects, business cycles, inventory investment
JEL: E3 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
C2 - Single Equation Models; Single Variables: General
Manuscript Received : Jul 03 2012 Manuscript Accepted : Sep 03 2013

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