CREDIT CONDITIONS AND THE CYCLICAL BEHAVIOR OF INVENTORIES

This paper examines micro data on U. S. manufacturing firms' inventory behavior during different macroeconomic episodes. Much of the analysi s focuses on the 1981-1982 recession, which was apparently caused in l arge part by tight monetary policy. We find that the inventory investm ent of firms without access to public bond markets is significantly li quidity-constrained during this period. A similar pattern emerges duri ng the 1974-1975 recession, in which tight money also appears to have played a role. In contrast, such liquidity constraints are largely abs ent during periods of looser monetary policy in the 1970s and 1980s.