INVENTORIES AND THE 3 PHASES OF THE BUSINESS-CYCLE

This article demonstrates that recessions typically are followed by hi gh-growth recovery phases that push output back to its prerecession le vel. Thus postwar fluctuations in real output in the United States hav e consisted of three sequential phases rather than two-contractions, h igh-growth recoveries, and moderate-growth periods following recoverie s. Data from before World War II also exhibit this pattern. For the po stwar period, the three-phase pattern is shown to reflect swings in in ventory investment and suggests that output fluctuations have an impor tant transitory component. The evidence in this article supports DeLon g and Summers's output-gaps view and Friedman's ''plucking'' model vie w of fluctuations.