In the United States and a few European countries, inventory behavior is mainly the outcome of demand shocks: a standard buffer-stock model best characterizes these economies. But most European countries are described by a modified buffer-stock model where supply shocks dominate. In contrast to the United States, inventories boost growth with a one-year lag in Europe. Moreover, inventories provide limited information to improve growth forecasts particularly when a modified buffer-stock model characterizes inventory behavior.
information set. In Italy, adding inventories also improves growth forecasts for forecast horizons of four quarters or less. The beneficial effect on forecasting performance does not hold for unfiltered growth or for high frequencies of growth. At cyclical frequencies in France, however, adding inventories improves forecasts for horizons of four quarters or less. Of note, growth forecasts from perfect foresightinventorymodels are typically better than those of dynamically forecasted changes in inventories.
Table 6. Assessing the Information Content of Inventories in