Understanding the macroeconomic effects of working capital in the United Kingdom

Emilio Fernandez-Corugedo, Michael McMahon, Stephen Millard and Lukasz Rachel

No 270765, Economic Research Papers from University of Warwick - Department of Economics

Abstract: In this paper we first document the behaviour of working capital over the business cycle stressing the large negative effect of the recent credit contraction on UK firms working capital positions. In order to understand the effects of working capital on macroeconomic variables, we solve and calibrate an otherwise standard flexibleprice DSGE model that introduces an explicit role for the components of working capital as well as a banking sector which intermediates credit. We find that financial intermediation shocks, similar to those experienced post-2007, have persistent negative effects on economic activity; these effects are reinforced by reductions in trade credit. Our model admits a crucial role for monetary policy to offset such shocks.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 40
Date: 2011-07-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
https://ageconsearch.umn.edu/record/270765/files/twerp_959.pdf (application/pdf)
https://ageconsearch.umn.edu/record/270765/files/twerp_959.pdf?subformat=pdfa (application/pdf)

Related works:
Working Paper: Understanding the macroeconomic effects of working capital in the United Kingdom (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:uwarer:270765

DOI: 10.22004/ag.econ.270765

Access Statistics for this paper

More papers in Economic Research Papers from University of Warwick - Department of Economics
Bibliographic data for series maintained by AgEcon Search ().