Understanding the macroeconomic effects of working capital in the United Kingdom
Fernandez-Corugedo, Emilio, McMahon, Michael F., Millard, S. (Stephen) and Rachel, Lukasz (2011) Understanding the macroeconomic effects of working capital in the United Kingdom. Working Paper. Coventry: University of Warwick. Dept. of Economics. Warwick economics research paper series (TWERPS), Vol.2011 (No.959).
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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 flexible-price 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.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HB Economic Theory|
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Working capital -- Great Britain, Working capital -- Econometric models, Business cycles, Financial crises|
|Series Name:||Warwick economics research paper series (TWERPS)|
|Publisher:||University of Warwick. Dept. of Economics|
|Place of Publication:||Coventry|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
Abramovitz, M. (1950): Inventories and business cycles, with special reference to man-
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