An ECM is derived from first order conditions of a factor demand model. Decisions on inventory stock and capacity utilization are (endogenously) modeled, by which a large system of equations results. Within this system the exogeneity of real factor prices as well as sales is tested. The role of...

This paper employs data for a panel of firms from France, Italy and the UK to study the effect of the recession of the early '90s on inventory investment, controlling for cyclical fluctuations at the firm level. The results clearly show some common patterns across countries, pointing to the...