SOURCES OF INVENTORY FLUCTUATIONS - SOME INTERNATIONAL EVIDENCE

It is well-known that production is more variable than sales in the Un ited States. Our international evidence, however, shows that this styl ized fact in the United States is not necessarily universal, although a similar finding can be observed in most industrial countries. To acc ount for the findings, we regress the relative variability of producti on to sales on several economic variables. We find that the relative m agnitudes of cost shocks to demand shocks as well as serial correlatio ns in demand are important in explaining the relative variability of i nventory to production. We also find that inventory tends to be counte r-cyclical in the country where the weights of agriculture, mining, wh olesale-retail, and transportation-communication sectors are large.