UNCERTAINTY IN SALES AND INVENTORY BEHAVIOR IN THE UNITED-STATES TRADE SECTORS

This paper investigates uncertainty in sales and inventory behaviour for the U.S. wholesale and retail trade sectors. First, using a vector error correction model with GARCH-M, we find that the uncertainty measured by forecast error variance in sales does not affect inventory behaviour in both trade sectors. Second, using forecast error variance decomposition and estimated permanent components, we observe that the uncertainty may be attributed more to demand shocks than to cost shocks.