Trend breaks in Finnish inventory intensities: a small open economy perspective

In this paper, we analyse econometrically the Finnish inventory to value added ratios (i.e., inventory intensities) within manufacturing and two subcategories, the wood and paper industry and manufacture of electrical products. The focus is on the period 1980‐2009. In addition to revealing the statistically significant break points in the inventory intensity, we estimate the numbers, timings and magnitudes of the structural breaks. After determining the break points, we connect them to transaction, buffering and speculative motives for holding inventories. The properties of the break points observed suggest that the motives continue to play a role in modern small open economies and, therefore, they can be utilised by managers when trying to forecast the behaviour of inventories.