How Expectations About Future Productivity Drive Inventories.

Economic Brief To what extent do expectations about future productivitydevelopments drive business cycles? Inventories are suitable as a new litmus test toestablish the relevance of expectations in drivingbusiness cycles for two reasons: * Inventories arguably respond strongly to news becauseaccumulating and holding goods for sale is costly andrequires forward planning. * Inventories are one of the key variables behindbusiness cycle fluctuations in the sense that reductionsin the level of goods in stock account for a substantialshare of the decline in GDP during recessions. [Extracted from the article]