Is the Working Capital Channel of the Monetary Policy Quantitatively Relevant? A Structural Estimation Approach

33 Pages Posted: 30 Mar 2021 Last revised: 31 Mar 2021

See all articles by Hamilton Galindo Gil

Hamilton Galindo Gil

Arizona State University (ASU), W.P. Carey School of Business

Date Written: February 7, 2021

Abstract

How big is the working capital channel? To answer this question, I estimate a dynamic model of investment with a working capital channel. I study this question for all firms listed in Compustat and for seven industries. For all the sample, I find that the working capital channel is not full as commonly is assumed in macroeconomic models, but it is still quantitatively important since its estimated value is 0.76. Analysis by industry suggests that the Retail Trade sector has the lowest working capital channel (0.48), the biggest sector in terms of number of firms -Manufacturing- has a strong one (0.7), and Agriculture and Construction sectors have a full working capital channel (1). These results provide microeconomic evidence on the quantitative relevance of working capital channel with a potential effect on macroeconomic models and monetary policy.

Keywords: Working capital channel, monetary policy, structural estimation

JEL Classification: E43, G32, C18

Suggested Citation

Galindo Gil, Hamilton, Is the Working Capital Channel of the Monetary Policy Quantitatively Relevant? A Structural Estimation Approach (February 7, 2021). Available at SSRN: https://ssrn.com/abstract=3781175 or http://dx.doi.org/10.2139/ssrn.3781175

Hamilton Galindo Gil (Contact Author)

Arizona State University (ASU), W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States

HOME PAGE: http://www.hamiltongalindo.com

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