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

29 Pages Posted: 8 Oct 2009

See all articles by Eleni Angelopoulou

Eleni Angelopoulou

Bank of Greece

Heather D. Gibson

Bank of Greece; Athens University of Economics and Business

Abstract

This paper examines the cash flow sensitivity of investment using a panel of UK manufacturing firms to investigate the existence of a balance sheet channel. In addition to examining the impact of cash flow in different subsamples based on company size or financial policy, we investigate the extent to which investment becomes more sensitive to cash flow in periods of monetary tightness by employing a narrative indicator constructed for the United Kingdom. The results indicate that cash flow sensitivity in financially constrained firms is higher during periods of tight monetary policy and that financial constraints weaken with financial market sophistication.

Suggested Citation

Angelopoulou, Eleni and Gibson, Heather D., The Balance Sheet Channel of Monetary Policy Transmission: Evidence from the United Kingdom. Economica, Vol. 76, Issue 304, pp. 675-703, October 2009, Available at SSRN: https://ssrn.com/abstract=1484179 or http://dx.doi.org/10.1111/j.1468-0335.2008.00710.x

Eleni Angelopoulou (Contact Author)

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

Heather D. Gibson

Bank of Greece ( email )

21 E. Venizelos Avenue
GR-10250 Athens
Greece
+301 32 35 803 (Phone)
+301 32 33 025 (Fax)

Athens University of Economics and Business

76 Patission Street
Athens, 104 34
Greece

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