THE INVENTORY CYCLE - FROM THEORY TO EMPIRICAL-EVIDENCE

Nonlinear endogenous theories of the business cycle have been rarely subject to statistical estimation and testing. This paper is an attempt to overcome the difficulties in deriving a univariate reduced form from the disequilibrium inventory model of Laroque (1989). This reduced form is fitted to the quarterly U.S. GNP series over the after war period using full information maximum likelihood. The results are encouraging: the model reproduces the pattern of the observed cycles. But the data seem not to be informative enough to statistically discriminate between the present reduced form and a linear specification.