• Media type: Report; E-Book
  • Title: Firms' precautionary savings and employment during a credit crisis
  • Contributor: Melcangi, Davide [Author]
  • Published: New York, NY: Federal Reserve Bank of New York, 2019
  • Language: English
  • Keywords: precautionary savings ; heterogeneous firms ; G01 ; E44 ; employment ; financial frictions ; G32 ; L25
  • Origination:
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  • Description: Can the macroeconomic effects of credit supply shocks be large even when a small share of firms are credit-constrained? I use U.K. firm-level accounting data to discipline a heterogeneous-firm model in which the interaction between real and financial frictions induces precautionary cash holdings. In the data, firms increased their cash ratios during the last recession, and cash-intensive firms displayed higher employment growth. A tightening of firms' credit conditions generates the same dynamics in the model. Unconstrained firms pre-emptively respond to credit supply shocks, and this precautionary channel crucially matters for the aggregate dynamics and the model fit with microeconomic data.
  • Access State: Open Access