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Credit Conditions and the Cyclical Behavior of Inventories

Credit Conditions and the Cyclical Behavior of Inventories Abstract This paper examines micro data on U. S. manufacturing firms' inventory behavior during different macroeconomic episodes. Much of the analysis focuses on the 1981–1982 recession, which was apparently caused in large part by tight monetary policy. We find that the inventory investment of firms without access to public bond markets is significantly liquidity-constrained during this period. A similar pattern emerges during the 1974–1975 recession, in which tight money also appears to have played a role. In contrast, such liquidity constraints are largely absent during periods of looser monetary policy in the 1970s and 1980s. * This research is supported by the Federal Reserve Bank of Chicago, the IBM Faculty Research Fund, the National Science Foundation, the Massachusetts Institute of Technology's International Financial Services Research Center, and Batterymarch Financial Management. Thanks also to Ben Bernanke, Eugene Fama, Mark Gertler, David Scharfstein, Andrei Shleifer, Robert Vishny, two anonymous referees, seminar participants at numerous institutions for helpful comments and suggestions, and Maureen O'Donnell for assistance in the preparation of the manuscript. This content is only available as a PDF. © 1994 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Quarterly Journal of Economics Oxford University Press

Credit Conditions and the Cyclical Behavior of Inventories

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References (29)

Publisher
Oxford University Press
Copyright
© 1994 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
ISSN
0033-5533
eISSN
1531-4650
DOI
10.2307/2118414
Publisher site
See Article on Publisher Site

Abstract

Abstract This paper examines micro data on U. S. manufacturing firms' inventory behavior during different macroeconomic episodes. Much of the analysis focuses on the 1981–1982 recession, which was apparently caused in large part by tight monetary policy. We find that the inventory investment of firms without access to public bond markets is significantly liquidity-constrained during this period. A similar pattern emerges during the 1974–1975 recession, in which tight money also appears to have played a role. In contrast, such liquidity constraints are largely absent during periods of looser monetary policy in the 1970s and 1980s. * This research is supported by the Federal Reserve Bank of Chicago, the IBM Faculty Research Fund, the National Science Foundation, the Massachusetts Institute of Technology's International Financial Services Research Center, and Batterymarch Financial Management. Thanks also to Ben Bernanke, Eugene Fama, Mark Gertler, David Scharfstein, Andrei Shleifer, Robert Vishny, two anonymous referees, seminar participants at numerous institutions for helpful comments and suggestions, and Maureen O'Donnell for assistance in the preparation of the manuscript. This content is only available as a PDF. © 1994 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Journal

The Quarterly Journal of EconomicsOxford University Press

Published: Aug 1, 1994

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