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The Balance Sheet Channel of Monetary Policy Transmission: Evidence from the UK

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Author Info

  • Eleni Angelopoulou

    (Bank of Greece and Athens University of Economics and Business)

  • Heather D. Gibson

    ()
    (Bank of Greece)

Abstract

This paper examines the sensitivity of investment to cash flow using a panel of UK firms in manufacturing with a view to shedding some light on the existence of a balance sheet channel or financial accelerator. In addition to examining the impact of cash flow in different subsamples based on company size or financial policy (dividend payouts, share issues and debt accumulation), we also investigate the extent to which investment becomes more sensitive to cash flow in periods of monetary tightness. To this end, we employ a monetary tightness indicator constructed for the UK using the narrative approach pioneered by Romer and Romer. The results provide some support for the view that UK firms show greater investment sensitivity to cash flow during periods of tight monetary policy.

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Bibliographic Info

Paper provided by Bank of Greece in its series Working Papers with number 53.

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Length: 29 pages
Date of creation: Jan 2007
Date of revision:
Handle: RePEc:bog:wpaper:53

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Web page: http://www.bankofgreece.gr
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Keywords: Financial Constraints; Balance Sheet Channel; Investment.;

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References

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Citations

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Cited by:
  1. Axel A Weber & Rafael Gerke & Andreas Worms, 2009. "Has the monetary transmission process in the euro area changed? Evidence vased on VAR estimates," BIS Working Papers 276, Bank for International Settlements.
  2. Zarko Lazarevic, 2008. "Banking Performance in South-Eastern Europe During the Interwar Period," Working Papers 79, Bank of Greece.
  3. Alexander Apostolides, 2008. "How Similar to South-Eastern Europe were the Islands of Cyprus and Malta in terms of Agricultural Output and Credit? Evidence during the Interwar Period," Working Papers 80, Bank of Greece.
  4. Uluc Aysun & Ryan Brady & Adam Honig, 2009. "Financial Frictions and Monetary Transmission Strength: A Cross-Country Analysis," Working papers 2009-24, University of Connecticut, Department of Economics, revised Jun 2010.
  5. Stephan Barisitz, 2008. "Banking Transformation (1989 - 2006) in Central and Eastern Europe - With Special Reference to Balkans," Working Papers 78, Bank of Greece.
  6. Peter Bernholz, 2008. "Government Bankruptcy of Balkan Nations and their Consequences for Money and Inflation before 1914: A Comparative Analysis," Working Papers 74, Bank of Greece.
  7. Roumen Avramov & Dragana Gnjatovic, 2008. "Stabilization Policies in Bulgaria and Yugoslavia During Communism's Terminal Years : 1980s Economic Visions in Retrospect," Working Papers 81, Bank of Greece.

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