The Behavior of Inventories over the Business Cycle: Evidence across Levels of Development

Juan Manuel Rodriguez Repeti and Danilo Trupkin
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Juan Manuel Rodriguez Repeti: IIEP-UBA
Danilo Trupkin: UDESA

No 405, Working Papers from Red Nacional de Investigadores en Economía (RedNIE)

Abstract: This paper documents how inventory dynamics vary across levels of development and how they respond to real and financial shocks. Using a balanced panel of 72 small open economies over 1993–2022, spanning advanced to low-income economies, we show that inventories are strongly procyclical in advanced economies but become acyclical at lower income levels, while volatility and persistence rise as development declines. Using local projections, we estimate inventory responses to a long-run productivity shock and to a financial shock identified from the spread between U.S. corporate bond yields and Treasury yields. Productivity shocks generate temporary inventory accumulation across all groups, with smoother adjustment in advanced economies and more irregular cycles in emerging and developing economies. Financial shocks trigger decumulation followed by a rebound in higher-income groups, but a delayed, unreversed decline in low-income economies.

Keywords: Inventories; Business Cycles; Productivity Shocks; Financial Shocks; Local Projections; Emerging Economies (search for similar items in EconPapers)
JEL-codes: C33 E22 E32 E44 F41 O11 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2026-08
New Economics Papers: this item is included in nep-fdg and nep-his
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Persistent link: https://EconPapers.repec.org/RePEc:aoz:wpaper:405

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