SEASONAL CYCLES, BUSINESS CYCLES, AND THE COMOVEMENT OF INVENTORY INVESTMENT AND OUTPUT

The importance of inventory investment in the business cycle is well k nown. Its role in the seasonal cycle is less well known. We examine th e variation of inventory investment and its comovement with output ove r the seasonal and business cycles. We measure the deterministic and s tochastic seasonal components of monthly disaggregated inventory data and find seasonality contributes about 75 percent of the total varianc e, similar to the proportion found in GDP. We find that inventory inve stment and output exhibit high correlation, with similar magnitudes, a t seasonal and business cycle frequencies. These findings are consiste nt with the idea that seasonal cycles and business cycles are propagat ed through similar mechanisms and suggest that inventory investment ma y play as important a role in the seasonal cycle as it does in the bus iness cycle.