Abstract
This paper briefly reviews and extends the evidence on the importance of inventory investment in business cycles. A method for combining high-frequency observations with forecasts of a conventional quarterly econometric model is then proposed. The method is applied to the Michigan Quarterly Econometric Model of the U.S. Economy to see if improved forecasts of inventory investment can be obtained. The use of a small set of monthly indicators is found to yield improved forecasts of real GNP but are of little help in forecasting inventory investment. A more comprehensive set of monthly indicators including inventory and sales may be needed to obtain improved estimates of quarterly inventory investment.
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