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 1981-82 recession, which was apparently caused in large part by tight monetary policy. The authors 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 1974-75 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. Copyright 1994, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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