Inventories and Asymmetric Business Cycle Fluctuations in the UK.

This paper shows that the behaviour of inventories is not symmetrical and that their modelling requires more than just a linear regression. Models of inventory behaviour are described and symmetric and non-symmetric-error-correction models are formulated which divide the changes in production into positive and negative components. Deepness and steepness tests are calculated for inventories of the disaggregate manufacturing sectors in the UK for evidence of the asymmetry. The resultsof the symmetric and the asymmetric error-correction models are presented and compared by a series of tests. Step response functions of the non-symmetric error-correction models are reported to show the full extent of this asymmetry.