ABSTRACT
Stocks or inventories are the difficult component of GDP - difficult to measure and difficult to forecast. Can the use of business survey data give us valuable insights into firms' behaviour regarding stocks? This paper looks at how firms behave when their expectations are not met. In particular it looks at how errors in expectations about output and costs influence stocks of finished goods. Results suggest that stocking responses are influenced by demand conditions, but not by supply conditions. An unexpected fall in output will result in higher than expected stocks, but an unexpected change in costs will not influence the stocks outcome.
