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Revisiting Gertler-Gilchrist Evidence on the Behavior of Small and Large Firms

Listed author(s):
  • Kudlyak, Marianna

    ()

    (Federal Reserve Bank of Richmond)

  • Sanchez, Juan M.

    ()

    (Federal Reserve Bank of St. Louis)

Gertler and Gilchrist (1994) provide evidence for the prevailing view that adverse shocks are propagated via credit constraints of small firms. We revisit the behavior of small versus large firms during the episodes of credit disruption and recessions in the sample extended to cover the 2007-09 economic crisis. We find that large firms'' short-term debt and sales contracted relatively more than those of small firms during the 2007-09 episode. Furthermore, the short-term debt of large firms also contracted relatively more in the previous tight money episodes if one takes into account the longer period that it takes for large firms’ debt to reach its post-shock trough. Our findings challenge the view that propagation of shocks in the economy takes place via credit constraints of small firms.

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File URL: https://research.stlouisfed.org/wp/2016/2016-005.pdf
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File URL: https://dx.doi.org/10.20955/wp.2016.005
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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2016-5.

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Length: 40 pages
Date of creation: 30 Mar 2016
Handle: RePEc:fip:fedlwp:2016-005
DOI: 10.20955/wp.2016.005
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  1. Mark Gertler & Simon Gilchrist, 1994. "Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 309-340.
  2. Giuseppe Moscarini & Fabien Postel-Vinay, 2012. "The Contribution of Large and Small Employers to Job Creation in Times of High and Low Unemployment," American Economic Review, American Economic Association, vol. 102(6), pages 2509-2539, October.
  3. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February.
  4. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  5. Teresa C Fort & John Haltiwanger & Ron S Jarmin & Javier Miranda, 2013. "How Firms Respond to Business Cycles: The Role of Firm Age and Firm Size," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(3), pages 520-559, August.
  6. 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.
  7. Barlevy, Gadi, 2003. "Credit market frictions and the allocation of resources over the business cycle," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1795-1818, November.
  8. Wilford Isbell King, 1923. "Introduction to "Employment Hours and Earnings in Prosperity and Depression, United States, 1920-1922"," NBER Chapters,in: Employment Hours and Earnings in Prosperity and Depression, United States, 1920-1922, pages 9-21 National Bureau of Economic Research, Inc.
  9. Willford Isbell King, 1923. "Employment Hours and Earnings in Prosperity and Depression, United States, 1920-1922," NBER Books, National Bureau of Economic Research, Inc, number king23-1, November.
  10. Hetzel,Robert L., 2008. "The Monetary Policy of the Federal Reserve," Cambridge Books, Cambridge University Press, number 9780521881326, December.
  11. Giroud, Xavier & Mueller, Holger M, 2015. "Firm Leverage and Unemployment during the Great Recession," CEPR Discussion Papers 10539, C.E.P.R. Discussion Papers.
  12. Xavier Giroud & Holger M. Mueller, 2015. "Firm Leverage and Unemployment during the Great Recession," NBER Working Papers 21076, National Bureau of Economic Research, Inc.
  13. Smant, David / D.J.C., 2002. "Bank credit in the transmission of monetary policy: A critical review of the issues and evidence," MPRA Paper 19816, University Library of Munich, Germany.
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