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Has Inventory Investment Been Liquidity-Constrained? Evidence From U.S. Panel Data

  • Yungsan Kim
  • Woon Gyu Choi

Based on an analysis of high-frequency panel data for U.S. firms, this paper finds that inventory investment has been liquidity-constrained in most periods during 1975-97, but less so, or not at all, during recessions. This result can be justified on the grounds that inventory fluctuations are largely attributable to unexpected sales shocks, and that firms increase liquid assets before recessions. Moreover, this results holds irrespective of whether the firm has a bond rating, contrary to the finding of Kashyap, Lamont, and Stein (1994) that inventory investment is liquidity-constrained during recessions only for firms without bond ratings.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 01/122.

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Length: 41
Date of creation: 01 Aug 2001
Date of revision:
Handle: RePEc:imf:imfwpa:01/122
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  16. Michael C. Lovell, 1959. "Manufacturers' Inventories, Sales Expectations, and the Acceleration Principle," Cowles Foundation Discussion Papers 86, Cowles Foundation for Research in Economics, Yale University.
  17. Olivier J. Blanchard, 1982. "The Production and Inventory Behavior of the American Automobile Industry," NBER Working Papers 0891, National Bureau of Economic Research, Inc.
  18. Krane, Spencer D & Braun, Stephen N, 1991. "Production Smoothing Evidence from Physical-Product Data," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 558-81, June.
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  28. Alan S. Blinder & Louis J. Maccini, 1991. "Taking Stock: A Critical Assessment of Recent Research on Inventories," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 73-96, Winter.
  29. Maccini, Louis J & Rossana, Robert J, 1981. "Investment in Finished Goods Inventories: An Analysis of Adjustment Speeds," American Economic Review, American Economic Association, vol. 71(2), pages 17-22, May.
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  33. Donald P. Morgan, 2000. "Bank commitment relationships, cash flow constraints, and liquidity management," Staff Reports 108, Federal Reserve Bank of New York.
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