American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Firms' Precautionary Savings and Employment during a Credit Crisis
American Economic Journal: Macroeconomics
vol. 16,
no. 1, January 2024
(pp. 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.Citation
Melcangi, Davide. 2024. "Firms' Precautionary Savings and Employment during a Credit Crisis." American Economic Journal: Macroeconomics 16 (1): 356–86. DOI: 10.1257/mac.20210269Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill