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

  • Eleni Angelopoulou

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

  • Heather D. Gibson


    (Bank of Greece)

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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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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