Do interest rates lead real sales and inventories?

This paper uses spectral analysis to study aggregate sales, inventories, and interest rates from a macroeconomic perspective. It assumes countercyclical Federal Reserve policy acts on economic growth, sales, and inventories with a time lag of unknown duration. Interest rate changes affect sales first, and through sales, they indirectly influence inventories. Viewed from this perspective, changes in interest rates may be expected to have a leading long-run negative statistical association with sales. In addition, attempts to maintain proportionality between inventories and sales may explain a cyclical lead by sales on inventories and a positive correlation between these two variables. In turn, the lagged response of sales to interest rates and the comovement of sales and inventories may explain, albeit indirectly, why a moderate long-run negative statistical association of inventories to interest rates may also be expected.