A Bank of Canada paper published in July says firms tend to stock up on inventories when marginal costs are low, despite the large impact of fluctuations on demand and output.

The paper notes that inventory investment in Canada, while less than 1% of output, is an important component of the business cycle, as it exhibits volatile procyclical fluctuations, accounting for almost one-third of output variance. In booms, firms boost their inventories to avoid running out of stock due to the rise in