This paper examines the cyclical behavior of small versus large manufacturing firms and their responses to monetary policy. The authors find that small firms are more sensitive to macroeconomic conditions and monetary policy changes than large firms. Following tight monetary policy, small firms experience a faster decline in sales compared to large firms, and bank lending to small firms contracts while it increases for large firms. Monetary policy indicators, such as M2, have greater predictive power for small firms than for large firms. Additionally, small firms are more sensitive to lagged movements in GNP. These findings suggest that credit market imperfections play a significant role in the business cycle and monetary transmission mechanism. The paper also explores the differential responses of small and large firms to various monetary policy indicators, including the risk spread and the mix variable. The results indicate that small firms are more affected by credit market conditions, while large firms are more influenced by commercial paper market conditions. The authors conclude that small firms are an important component of the economy and that credit market imperfections have macroeconomic relevance.This paper examines the cyclical behavior of small versus large manufacturing firms and their responses to monetary policy. The authors find that small firms are more sensitive to macroeconomic conditions and monetary policy changes than large firms. Following tight monetary policy, small firms experience a faster decline in sales compared to large firms, and bank lending to small firms contracts while it increases for large firms. Monetary policy indicators, such as M2, have greater predictive power for small firms than for large firms. Additionally, small firms are more sensitive to lagged movements in GNP. These findings suggest that credit market imperfections play a significant role in the business cycle and monetary transmission mechanism. The paper also explores the differential responses of small and large firms to various monetary policy indicators, including the risk spread and the mix variable. The results indicate that small firms are more affected by credit market conditions, while large firms are more influenced by commercial paper market conditions. The authors conclude that small firms are an important component of the economy and that credit market imperfections have macroeconomic relevance.