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Federal Reserve Bank of St. Louis
Working Papers
Revisiting Gertler-Gilchrist Evidence on the Behavior of Small and Large Firms
Marianna Kudlyak
Juan M. Sanchez
Abstract

Gertler and Gilchrist (1994) provide evidence for the prevailing view that adverse shocks are propagated via credit constraints of small firms. We revisit the behavior of small versus large firms during the episodes of credit disruption and recessions in the sample extended to cover the 2007-09 economic crisis. We find that large firms'' short-term debt and sales contracted relatively more than those of small firms during the 2007-09 episode. Furthermore, the short-term debt of large firms also contracted relatively more in the previous tight money episodes if one takes into account the longer period that it takes for large firms’ debt to reach its post-shock trough. Our findings challenge the view that propagation of shocks in the economy takes place via credit constraints of small firms.


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Marianna Kudlyak & Juan M. Sanchez, Revisiting Gertler-Gilchrist Evidence on the Behavior of Small and Large Firms, Federal Reserve Bank of St. Louis, Working Papers 2016-5, 30 Mar 2016.
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Keywords: Small and Large firms; Credit Constrains; Propagation of Shocks; Leverage
DOI: 10.20955/wp.2016.005
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