Credit Conditions and the Cyclical Behavior of Inventories: A Case Studyof the 1981-82 Recession

Anil Kashyap, Owen Lamont and Jeremy C. Stein

No 4211, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines micro data on U.S. firms' inventories during different macroeconomic episodes. Much of the analysis focuses on the 1981-82 recession, a recession that was apparently precipitated by tight monetary policy. We find important cross-sectional effects in this period: firms that were "bank-dependent" were much more prone to shed inventories than their non-bank-dependent counterparts. In contrast, such cross-sectional differences are largely absent during a period of "loose" monetary policy later in the 1980s. Our findings are consistent with the view that 1) there is a bank lending channel of monetary policy transmission; 2) the lending channel is likely to be particularly important in explaining inventory fluctuations during downturns.

Date: 1992-11
Note: ME CF
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Published as Quarterly Journal of Economics, 1994, vol CIX, no 3, pp 566-592

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