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

Author/Editor: Choi, Woon Gyu ; Kim, Yungsan
Publication Date: August 01, 2001
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: 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.
Series: Working Paper No. 01/122
Subject(s): Investment policy | United States | Liquidity controls

Author's Keyword(s): inventory investment | liquidity constraint | monetary policy | panel data
Publication Date: August 01, 2001
ISBN/ISSN: 1934-7073 Format: Paper
Stock No: WPIEA1222001 Pages: 41
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