The procyclicality of inventory investment is a central feature of US business cycles. As such, it provides a test for the recent literature on news shocks, which argues that anticipated changes in fundamentals are important sources of aggregate fluctuations. We show that, in a range of...

There is widespread disagreement on the quantitative contribution of news shocks to business- cycle fluctuations. This paper provides a simple identifying restriction, based on inventory dynamics, that tightly pins down the contribution of news shocks to business-cycle volatility. We show that...