Microeconomic Inventory Adjustment: Evidence from U.S. Firm-Level Data

We examine inventory adjustment in the U.S. manufacturing sector using quarterly rmlevel data over the period 1978{97. Our evidence indicates that the inventory investment process is nonlinear and asymmetric, results consistent with a nonconvex adjustment cost structure. The inventory adjustment process di ers over the business cycle: for a given level of excess inventories, rms disinvest more in recessions than they do in expansions. The inventory adjustment process has changed little between the 1980s and 1990s, suggesting that recent advances in inventory control have had little e ect on adjustment costs. Nevertheless, the optimal inventory-sales ratio in the durable goods sector has declined signi cantly during our sample period. JEL Classi cation: D24, E22, E37