Firms' Precautionary Savings and Employment during a Credit Crisis

Davide Melcangi

American Economic Journal: Macroeconomics, 2024, vol. 16, issue 1, 356-86

Abstract: Can the macroeconomic effects of credit supply shocks be large even when a small share of firms is credit constrained? I use UK firm-level accounting data to discipline a heterogeneous-firm model where the interaction between real and financial frictions induces precautionary cash holdings. In the data, firms increased their cash ratios during the Great Recession, and cash-intensive firms displayed higher employment growth. A tightening of firms' credit conditions generates the same dynamics in the model. Unconstrained firms preemptively respond to credit supply shocks; this precautionary channel, when appropriately quantified, crucially matters for the aggregate dynamics and firm-level patterns.

JEL-codes: D22 E24 E32 E44 G32 (search for similar items in EconPapers)
Date: 2024
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Related works:
Working Paper: Firms’ Precautionary Savings and Employment during a Credit Crisis (2019)
Working Paper: Firm’s precautionary savings and employment during a credit crisis (2016)
Working Paper: Firms’ precautionary savings and employment during a credit crisis (2016)
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DOI: 10.1257/mac.20210269

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