Inventory Change, Capacity Utilization and the Semiconductor Industry Cycle

This paper aims to investigate the relationship between inventory change and the industry cycle in a deeper way. The nonlinear, two-state, trivariate, Markov regime-switching model developed in this paper which includes inventory change, capacity utilization and chip sales not only obtains satisfactory out-of-sample forecasts of the probability of the industry being in recession, but also, through the regimes identified by the model, provides interesting stories of dynamics within the industry and new evidence that the change in semiconductor inventory is in fact countercyclical with respect to chip sales