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Credit Conditions and the Cyclical Behavior of Inventories: A Case Studyof the 1981-82 Recession

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  • Anil K Kashyap
  • Owen A. Lamont
  • Jeremy C. Stein

Abstract

This paper examines micro data on U.S. firms' inventories during different macroeconomic episodes. Much of the analysis focuses on the 1981-82 recession, a recession that was apparently precipitated by tight monetary policy. We find important cross-sectional effects in this period: firms that were "bank-dependent" were much more prone to shed inventories than their non-bank-dependent counterparts. In contrast, such cross-sectional differences are largely absent during a period of "loose" monetary policy later in the 1980s. Our findings are consistent with the view that 1) there is a bank lending channel of monetary policy transmission; 2) the lending channel is likely to be particularly important in explaining inventory fluctuations during downturns.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4211.

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Date of creation: Nov 1992
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Publication status: published as Quarterly Journal of Economics, 1994, vol CIX, no 3, pp 566-592
Handle: RePEc:nbr:nberwo:4211

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  1. Takeo Hoshi & David S. Scharfstein & Kenneth J. Singleton, 1993. "Japanese Corporate Investment and Bank of Japan Guidance of Commercial Bank Lending," NBER Chapters, National Bureau of Economic Research, Inc, in: Japanese Monetary Policy, pages 63-94 National Bureau of Economic Research, Inc.
  2. Mark L. Gertler & R. Glenn Hubbard, 1988. "Financial Factors in Business Fluctuations," NBER Working Papers 2758, National Bureau of Economic Research, Inc.
  3. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
  4. Anil K. Kashyap & Jeremy C. Stein & David W. Wilcox, 1991. "Monetary policy and credit conditions: evidence from the composition of external finance," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 154, Board of Governors of the Federal Reserve System (U.S.).
  5. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, American Economic Association, vol. 71(3), pages 393-410, June.
  6. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(1), pages 33-60, February.
  7. Otto Eckstein & Allen Sinai, 1986. "The Mechanisms of the Business Cycle in the Postwar Era," NBER Chapters, National Bureau of Economic Research, Inc, in: The American Business Cycle: Continuity and Change, pages 39-122 National Bureau of Economic Research, Inc.
  8. King, Stephen R, 1986. "Monetary Transmission: Through Bank Loans or Bank Liabilities?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 18(3), pages 290-303, August.
  9. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, American Economic Association, vol. 79(1), pages 14-31, March.
  10. Franco Modigliani, 1975. "The Monetary Mechanism and Its Interaction with Real Phenomena," NBER Chapters, National Bureau of Economic Research, Inc, in: The State Of Monetary Economics, pages 79-107 National Bureau of Economic Research, Inc.
  11. Jaffee, Dwight M & Russell, Thomas, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 90(4), pages 651-66, November.
  12. Alan S. Blinder & Louis J. Maccini, 1991. "Taking Stock: A Critical Assessment of Recent Research on Inventories," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 5(1), pages 73-96, Winter.
  13. Christina D. Romer & David H. Romer, 1990. "New Evidence on the Monetary Transmission Mechanism," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1), pages 149-214.
  14. James Tobin, 1987. "Financial Intermediaries," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 817, Cowles Foundation for Research in Economics, Yale University.
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Cited by:
  1. Glenn Hoggarth & Ricardo Reis & Victoria Saporta, 2001. "Costs of banking system instability: some empirical evidence," Bank of England working papers, Bank of England 144, Bank of England.

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