Inventory bounce

Inventory bounce is a term used in economics to describe an economy's bounce back to normal GDP levels after a recession. It is also sometimes called Inventory bounce-back.[1]

Firms usually keep a certain amount of inventory. When an economy faces a recession, sales might be unexpectedly low, which results in unexpectedly high inventory. In the next period, firms cut production so that inventory will drop to their desired levels, which results in even lower GDP. Subsequently, firms might increase the production back up to maintain the usual level of inventory, which causes the GDP to bounce back. This bounce back is called an inventory bounce. We care about it because if GDP recovers is only an inventory bounce, the recovery of GDP might not be sustained, which means that economy might not have truly recovered from the recession.[2]

References
  1. Blinder, Alan (1992). Roundtable Conversations on the State of the Economy and Economic Policy: Hearings Before the Joint Economic Committee, Congress of the United States, One Hundred Second Congress, First Session, July 11, July 18, and August 1, 1991. 2. United States, Congress, Joint Economic Committee. p. 3. Retrieved November 23, 2020.
  2. Krugman, Paul (2004). The Great Unraveling: Losing Our Way in the New Century. p. 74. ISBN 9780393071177. Retrieved November 23, 2020.

Other sources
  • P. Krugman, "That 1937 feeling," The New York Times, 2010
  • Mark D. Flood, '"Market structure and inefficiency in the foreign exchange market," Journal of International Money and Finance, Volume 13, Issue 2, April 1994, Pages 131-158, at Science Direct


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