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

Author

Listed:
  • 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.

Suggested Citation

  • Eleni Angelopoulou & Heather D. Gibson, 2007. "The Balance Sheet Channel of Monetary Policy Transmission: Evidence from the UK," Working Papers 53, Bank of Greece.
    • Handle: RePEc:bog:wpaper:53
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    References listed on IDEAS

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    3. Mariya A. Shchepeleva, 2020. "Modeling the Balance Sheet Channel of Monetary Transmission in Russia," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 2, pages 39-56, April.
    4. Apostolides, Alexander, 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”," MPRA Paper 9968, University Library of Munich, Germany.
    5. Hiona Balfoussia & Heather D. Gibson, 2019. "Firm investment and financial conditions in the euro area: evidence from firm-level data," Applied Economics Letters, Taylor & Francis Journals, vol. 26(2), pages 104-110, January.
    6. Muhammad Farid Alfarisy & Nopirin & Iswardono Sardjono Permono & Tri Widodo, 2011. "Balance sheet channel of monetary policy in Indonesian manufacturing firms," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 3(3), pages 225-233, April.
    7. 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.
    8. Jorge Mario Uribe Gil & Isabel Espinosa Castillo, 2018. "Efectos asimétricos de cambios en la tasa de interés sobre empresas del sector manufacturero colombiano," Revista Finanzas y Politica Economica, Universidad Católica de Colombia, vol. 10(1), pages 173-187, February.
    9. 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.
    10. 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.
    11. Stephan Barisitz, 2008. "Banking Transformation (1989 - 2006) in Central and Eastern Europe - With Special Reference to Balkans," Working Papers 78, Bank of Greece.
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    13. Zarko Lazarevic, 2008. "Banking Performance in South-Eastern Europe During the Interwar Period," Working Papers 79, Bank of Greece.

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    More about this item

    Keywords

    Financial Constraints; Balance Sheet Channel; Investment.;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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