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Financial pressure, monetary policy effects and inventory adjustment by UK and Spanish firms

  • Andrew Benito

    ()

    (Banco de España)

This paper examines the adjustment of inventories by firms in the UK and Spain. A widely-held view—but one which has not found much support in previous studies of inventories— is that a key channel for monetary policy is through influencing inventory accumulation. Using a large company-level panel dataset for both countries, significant effects associated with borrowing costs on inventories are estimated. Financial effects associated with liquidity and the borrowing ratio are estimated to be weaker in Spain than in the UK. Since the Spanish financial system is more clearly bank-based, this is interpreted as contrary to the ‘bank-dependence hypothesis’.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/02/Fic/dt0226e.pdf
File Function: First version, November 2002
Download Restriction: no

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0226.

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Length: 35 pages
Date of creation: Nov 2002
Date of revision:
Handle: RePEc:bde:wpaper:0226
Contact details of provider: Web page: http://www.bde.es/Email:


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  1. Andrew Benito & Garry Young, 2002. "Financial pressure and balance sheet adjustment by UK firms," Bank of England working papers 168, Bank of England.
  2. Nickell, S. & Nicolitsas, D., 1995. "How Does Financial Pressure Affect Firms," Economics Series Working Papers 99170, University of Oxford, Department of Economics.
  3. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
  4. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  5. Guariglia, Alessandra & Schiantarelli, Fabio, 1998. "Production Smoothing, Firms' Heterogeneity, and Financial Constraints: Evidence from a Panel of UK Firms," Oxford Economic Papers, Oxford University Press, vol. 50(1), pages 63-78, January.
  6. Guariglia, Alessandra, 1999. "The Effects of Financial Constraints on Inventory Investment: Evidence from a Panel of UK Firms," Economica, London School of Economics and Political Science, vol. 66(261), pages 43-62, February.
  7. Robert E. Carpenter & Steven M. Fazzari & Bruce C. Petersen, 1994. "Inventory (Dis)Investment, Internal Finance Fluctuations, and the Business Cycle," Macroeconomics 9401001, EconWPA.
  8. Anil K. Kashyap & Owen A. Lamont & Jeremy C. Stein, 1993. "Credit conditions and the cyclical behavior of inventories," Working Paper Series, Macroeconomic Issues 93-7, Federal Reserve Bank of Chicago.
  9. Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2002. "Funding growth in bank-based and market-based financial systems: evidence from firm-level data," Journal of Financial Economics, Elsevier, vol. 65(3), pages 337-363, September.
  10. Chatelain, Jean Bernard & Generale, Andrea & Hernando, Ignacio & Kalckreuth, Ulf von & Vermeulen, Philip, 2002. "Firm Investment and Monetary Policy Transmission in the Euro Area," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 A3-3, International Conferences on Panel Data.
  11. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  12. Ramey, Valerie A. & West, Kenneth D., 1999. "Inventories," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 13, pages 863-923 Elsevier.
  13. Andrew J. Filardo, 1995. "Recent evidence on the muted inventory cycle," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 27-43.
  14. Sharpe, Steven A, 1994. "Financial Market Imperfections, Firm Leverage, and the Cyclicality of Employment," American Economic Review, American Economic Association, vol. 84(4), pages 1060-74, September.
  15. Mark Bils & James A. Kahn, 1999. "What inventory behavior tells us about business cycles," Staff Reports 92, Federal Reserve Bank of New York.
  16. Richard Blundell & Steve Bond & Frank Windmeijer, 2000. "Estimation in dynamic panel data models: improving on the performance of the standard GMM estimator," IFS Working Papers W00/12, Institute for Fiscal Studies.
  17. Mojon, Benoît & Kashyap, Anil K. & Angeloni, Ignazio & Terlizzese, Daniele, 2002. "Monetary Transmission in the Euro Area : Where Do We Stand?," Working Paper Series 0114, European Central Bank.
  18. Demirguc-Kunt, Asli & Maksimovic, Vojislav, 1999. "Institutions, financial markets, and firm debt maturity," Journal of Financial Economics, Elsevier, vol. 54(3), pages 295-336, December.
  19. J. B. Chatelain & Andrea Generale & I. Hernando & U. von Kalckreuth & P. Vermeulen, 2001. "Firm investment and monetary transmission in the euro area," Temi di discussione (Economic working papers) 431, Bank of Italy, Economic Research and International Relations Area.
  20. Alonso-Borrego, Cesar, 1998. "Demand for labour inputs and adjustment costs: evidence from Spanish manufacturing firms," Labour Economics, Elsevier, vol. 5(4), pages 475-497, December.
  21. Martin Feldstein & Alan Auerbach, 1976. "Inventory Behavior in Durable-Goods Manufacturing: The Target-Adjustment Model," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(2), pages 351-408.
  22. Alonso-Borrego, Cesar & Bentolila, Samuel, 1994. "Investment and Q in Spanish Manufacturing Firms," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 56(1), pages 49-65, February.
  23. Kahn, James A, 1992. "Why Is Production More Volatile Than Sales? Theory and Evidence on the Stockout-Avoidance Motive for Inventory-Holding," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 481-510, May.
  24. Ángel Estrada & Javier Vallés, 1998. "Investment and financial structure in Spanish manufacturing firms," Investigaciones Economicas, Fundación SEPI, vol. 22(3), pages 337-359, September.
  25. Alan S. Blinder & Louis J. Maccini, 1991. "Taking Stock: A Critical Assessment of Recent Research on Inventories," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 73-96, Winter.
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