Multiple regimes in the US inventory time-series: A disaggregate analysis

Abstract

Switching models have been used previously to document the presence of multiple regimes in the growth rate of the US GDP. As fluctuations in inventory investment are known to play a major role in business cycles, it is likely that inventory growth patterns are also subject to alternating regimes. In the present paper, simple and Markov switching models are applied to inventory series at different levels of manufacturing and trade with a view to discovering the presence of multiple regimes. The findings suggest that the growth rate of retail inventories contains significant regime switches, and that these corresponds in all cases with switches in the GDP growth rate regime, though some extra switches are noted in the retail inventory series.