Is the working capital channel of the monetary policy quantitatively relevant? A structural estimation approach

Hamilton Galindo Gil

Macroeconomic Dynamics, 2025, vol. 29, -

Abstract: Is the working capital channel big, and does it vary across industries? To answer this question, I estimate a dynamic stochastic macro-finance model using firm-level data. In aggregate, I find a partial channel —about three-fourths of firms’ labor bill are borrowed. However, the strength of this channel varies across industries, reaching as low as one-half for retail firms and as high as one for agriculture and construction. This provides evidence that monetary policy could have varying effects across industries through the working capital channel.

Date: 2025
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