IDEAS home Printed from https://ideas.repec.org/p/fip/fedrwp/16-05.html
   My bibliography  Save this paper

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

Author

Listed:
  • Marianna Kudlyak
  • Juan M. Sanchez

Abstract

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 andrecessions 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.

Suggested Citation

  • Marianna Kudlyak & Juan M. Sanchez, 2016. "Revisiting Gertler-Gilchrist Evidence on the Behavior of Small and Large Firms," Working Paper 16-5, Federal Reserve Bank of Richmond.
  • Handle: RePEc:fip:fedrwp:16-05
    as

    Download full text from publisher

    File URL: https://www.richmondfed.org/-/media/richmondfedorg/publications/research/working_papers/2016/pdf/wp16-05.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Urban J. Jermann & Vincenzo Quadrini, 2006. "Financial innovations and macroeconomic volatility," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    10. 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, August.
    11. Hetzel,Robert L., 2008. "The Monetary Policy of the Federal Reserve," Cambridge Books, Cambridge University Press, number 9780521881326, October.
    12. Mueller, Holger & Giroud, Xavier, 2015. "Firm Leverage and Unemployment during the Great Recession," CEPR Discussion Papers 10539, C.E.P.R. Discussion Papers.
    13. Xavier Giroud & Holger M. Mueller, 2015. "Firm Leverage and Unemployment during the Great Recession," NBER Working Papers 21076, National Bureau of Economic Research, Inc.
    14. repec:hal:spmain:info:hdl:2441/59cr4u3mmr9pobrceptvua5g8c is not listed on IDEAS
    15. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Salem Abo‐Zaid & Anastasia Zervou, 2020. "Financing of Firms, Labor Reallocation, and the Distributional Role of Monetary Policy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(2), pages 790-823, April.
    2. Nicolas Crouzet & Neil Mehrotra, 2017. "Small and Large Firms over the Business Cycle," Working Papers 741, Federal Reserve Bank of Minneapolis.
    3. Grace Weishi Gu & Eswar Prasad, 2018. "New Evidence on Cyclical Variation in Labor Costs in the U.S," NBER Working Papers 24266, National Bureau of Economic Research, Inc.
    4. Neil Mehrotra, 2018. "Debt Sustainability in a Low Interest Rate World," 2018 Meeting Papers 285, Society for Economic Dynamics.
    5. Nicolas Crouzet, 2021. "Credit Disintermediation and Monetary Policy," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 69(1), pages 23-89, March.
    6. Nicolas Crouzet & Neil R. Mehrotra, 2018. "Small and Large Firms Over the Business Cycle," Working Papers 18-09, Center for Economic Studies, U.S. Census Bureau.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kudlyak, Marianna & Sánchez, Juan M., 2017. "Revisiting the behavior of small and large firms during the 2008 financial crisis," Journal of Economic Dynamics and Control, Elsevier, vol. 77(C), pages 48-69.
    2. Salem Abo‐Zaid & Anastasia Zervou, 2020. "Financing of Firms, Labor Reallocation, and the Distributional Role of Monetary Policy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(2), pages 790-823, April.
    3. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95.
    4. Jiménez, Gabriel & Ongena, Steven & Peydró, José-Luis & Saurina, Jesús, 2010. "Credit supply - Identifying balance-sheet channels with loan applications and granted loans," Working Paper Series 1179, European Central Bank.
    5. Banerjee, Ryan & Blickle, Kristian, 2021. "Financial frictions, real estate collateral and small firm activity in Europe," European Economic Review, Elsevier, vol. 138(C).
    6. Cooper Howes, 2019. "Financial Constraints, Sectoral Heterogeneity, and the Cyclicality of Investment," 2019 Meeting Papers 1581, Society for Economic Dynamics.
    7. Bougheas, Spiros & Mizen, Paul & Yalcin, Cihan, 2006. "Access to external finance: Theory and evidence on the impact of monetary policy and firm-specific characteristics," Journal of Banking & Finance, Elsevier, vol. 30(1), pages 199-227, January.
    8. Gareth Anderson & Saleem Bahaj & Matthieu Chavaz & Angus Foulis & Gabor Pinter, 2023. "Lending Relationships and the Collateral Channel," Review of Finance, European Finance Association, vol. 27(3), pages 851-887.
    9. Marco Bassetto & Marco Cagetti & Mariacristina De Nardi, 2015. "Credit Crunches and Credit Allocation in a Model of Entrepreneurship," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(1), pages 53-76, January.
    10. Esteban Gómez & Diego Vásquez & Camilo Zea, 2005. "Derivative Markets' Impact On Colombian Monetary Policy," Borradores de Economia 2277, Banco de la Republica.
    11. Singh, Aarti & Suda, Jacek & Zervou, Anastasia, 2021. "Heterogeneous labour market response to monetary policy: small versus large firms," Working Papers 2021-07, University of Sydney, School of Economics, revised Nov 2021.
    12. Nicolas Crouzet & Neil Mehrotra, 2017. "Small and Large Firms over the Business Cycle," Working Papers 741, Federal Reserve Bank of Minneapolis.
    13. Julien Champagne & Émilien Gouin-Bonenfant, 2022. "Monetary Policy, Credit Constraints and SME Employment," Staff Working Papers 22-49, Bank of Canada.
    14. Matteo Ciccarelli & Angela Maddaloni & Jose Luis Peydro, 2015. "Trusting the Bankers: A New Look at the Credit Channel of Monetary Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(4), pages 979-1002, October.
    15. Bahaj, Saleem Abubakr & Foulis, Angus & Pinter, Gabor & Surico, Paolo, 2018. "Employment and the collateral channel of monetary policy," LSE Research Online Documents on Economics 100934, London School of Economics and Political Science, LSE Library.
    16. Emin M. Dinlersoz & Henry Hyatt & Ṣebnem Kalemli-Özcan & Veronika Penciakova, 2019. "Leverage over the Firm Life Cycle, Firm Growth, and Aggregate Fluctuations," FRB Atlanta Working Paper 2019-18, Federal Reserve Bank of Atlanta.
    17. Bahaj, Saleem & Foulis, Angus & Pinter, Gabor & Surico, Paolo, 2022. "Employment and the residential collateral channel of monetary policy," Journal of Monetary Economics, Elsevier, vol. 131(C), pages 26-44.
    18. Bucă, Andra & Vermeulen, Philip, 2017. "Corporate investment and bank-dependent borrowers during the recent financial crisis," Journal of Banking & Finance, Elsevier, vol. 78(C), pages 164-180.
    19. Sebastian Dyrda, 2015. "Fluctuations in uncertainty, efficient borrowing constraints and firm dynamics," 2015 Meeting Papers 1243, Society for Economic Dynamics.
    20. Alex Clymo & Filip Rozsypal, 2022. "Firm Cyclicality and Financial Frictions," Discussion Papers 2207, Centre for Macroeconomics (CFM).

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedrwp:16-05. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Pascasio (email available below). General contact details of provider: https://edirc.repec.org/data/frbrius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.