Abstract: Identificating firms inventories' adjustment strategies exactly is the necessary condition of effectively managing inflation expectation. From the micro level, based on the Smooth transition panel error correction model with interactive effects, the specific characteristics of firms inventories adjustment in the different stages of inflation cycle are investigated in this paper. The empirical findings and the counterfactual comparative simulation experiments show that, the adjustment strategies of firms inventories are mainly affected by inflation expectation rather than actual inflation. Unlike the social experience, the adjustment of firms inventories owns the characteristic of counter-inflation cycle. To the most industries, the monetary policies are invalid in low inflation stage, owing to the income effect of inflation expectation surpasses the cost effect of firms inventories adjustment;under the background of high inflation period, the monetary policies have an effect on the adjustment of firms inventories, as a result of the weaker inflation expectation and the significant cost effect. The threshold of inflation mechanism is 3.4%, so setting 3.5% as the up-limit inflation adjustment accords with characteristics of firm market behaviors. The sensitivity of inventories strategies shows significant difference on monetary regulation and inflation expectation in different industries, the real estate, wholesale and retail, machinery and equipment industries are much more sensitive than the food service industry.

Key words: inventories, inflation cycle, financing constraints, price fluctuation