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Business Fixed Investment: Evidence of a Financial Accelerator in Europe

  • Vermeulen, Philip

Financial accelerator theories imply that weak balance sheets can amplify adverse shocks on firm investment. This effect should be asymmetric, stronger in downturns than in upturns and stronger for small firms than for large firms. This paper provides empirical evidence of the presence of a financial accelerator in the four largest euro area economies: Germany, France, Italy and Spain. Using annual firm balance sheet data over the period 1983 - 1997 it is shown that weak balance sheets are more important in explaining investment during downturns than during upturns. It is further shown that the effects of the accelerator are largest for small firms. JEL Classification: E22, E44

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Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics & Statistics.

Volume (Year): 64 (2002)
Issue (Month): 3 (July)
Pages: 217-35

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Handle: RePEc:bla:obuest:v:64:y:2002:i:3:p:217-35
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  1. Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
  2. Luigi Guiso & Anil K. Kashyap & Fabio Panetta & Daniele Terlizzese, 2000. "Will a Common European Monetary Policy Have Asymmetric Effects?," Temi di discussione (Economic working papers) 384, Bank of Italy, Economic Research and International Relations Area.
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  15. Alessandra Guariglia, . "The Effects of Financial Constraints on Inventory Investment: Evidence from a Panel of UK Firms," Economics Discussion Papers 462, University of Essex, Department of Economics.
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