Inventories are one driver of the business cycle. A common argument is that the movement towards just-in-time inventories has reduced the inventory cycle, and hence reduced the amplitude of the business cycle. Although plausible, it is very difficult to distinguish this from a lessened amplitude of the business cycle causing less swings in inventories. Since inventory growth is part of investment, one could view it as a subset of the argument that investment trends drive the business cycle (in most cases; sufficiently stupid policy can always cause a recession).
(Note: this article is based on some charts and thinking on inventories that is a section in my manuscript on recessions. I am not posting the full text, as I think it has too much background information, and probably needs some serious editing.)Bond Economics
Comments On The Inventory Cycle
Brian Romanchuk
