Credit Conditions and the Cyclical Behavior of Inventories

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.

[1]  Robert E. Carpenter,et al.  Inventory (Dis)Investment, Internal Finance Fluctuations, and the Business Cycle , 1994 .

[2]  J. Stein,et al.  Monetary Policy and Bank Lending , 1993 .

[3]  K. Singleton,et al.  Japanese Corporate Investment and Bank of Japan Guidance of Commercial Bank Lending , 1993 .

[4]  Marvin Goodfriend,et al.  Interest Rate Policy and the Inflation Scare Problem: 1979-1992 , 1993 .

[5]  David W. Wilcox,et al.  Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance , 1992 .

[6]  M. Gertler,et al.  Monetary Policy, Business Cycles and the Behavior of Small Manufacturing Firms , 1991 .

[7]  Louis J. Maccini,et al.  Taking Stock: A Critical Assessment of Recent Research on Inventories , 1991 .

[8]  David W. Wilcox,et al.  Production and Inventory Control at the General Motors Corporation During the 1920's and 1930's , 1993 .

[9]  D. Romer,et al.  New Evidence on the Monetary Transmission Mechanism , 1991 .

[10]  B. Bernanke,et al.  The Federal Funds Rate and the Channels of Monetary Transnission , 1990 .

[11]  D. Scharfstein,et al.  Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups , 1991 .

[12]  B. Bernanke,et al.  Credit, Money, and Aggregate Demand , 1988 .

[13]  B. Bernanke,et al.  Agency Costs, Net Worth, and Business Fluctuations , 1988 .

[14]  Steven M. Fazzari,et al.  Financing Constraints and Corporate Investment , 1987 .

[15]  Stephen R. King Monetary Transmission: Through Bank Loans or Bank Liabilities? , 1986 .

[16]  O. Eckstein,et al.  The Mechanisms of the Business Cycle in the Postwar Era , 1986 .

[17]  J. Stiglitz,et al.  Credit Rationing in Markets with Imperfect Information , 1981 .

[18]  Thomas Russell,et al.  Imperfect Information, Uncertainty, and Credit Rationing , 1976 .

[19]  William C. Brainard Financial intermediaries and a theory of monetary control , 1965 .

[20]  F. Modigliani The Monetary Mechanism and Its Interaction with Real Phenomena , 1963 .

[21]  Allan H. Meltzer,et al.  The place of financial intermediaries in the transmission of monetary policy , 1963 .

[22]  M. Lovell Manufacturers' Inventories, Sales Expectations, and the Acceleration Principle , 1961 .