Abstract
Original language | English (US) |
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DOIs | |
State | Published - Nov 16 2017 |
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Keywords
- Credit Multiplier
- Working Capital
- Financing Frictions
Cite this
Understanding the Credit Multiplier : The Working Capital Channel. / Almeida, Heitor; Carvalho, Daniel R.; Kim, Taehyun.
2017.Research output: Working paper
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TY - UNPB
T1 - Understanding the Credit Multiplier
T2 - The Working Capital Channel
AU - Almeida, Heitor
AU - Carvalho, Daniel R.
AU - Kim, Taehyun
PY - 2017/11/16
Y1 - 2017/11/16
N2 - We provide novel evidence that frictions in the financing of working capital can lead firms to significantly amplify and propagate the effect of economic shocks over time. We propose a new approach to identify this firm credit multiplier that compares how a same firm responds to permanent shocks differently when these shocks are initiated in the period in which they are predicted to be most profitable (their “main quarter”). Our analysis implements this test with oil price shocks and provides extensive evidence supporting our identification strategy. Our results suggest that the financing of working capital can be an important channel for understanding how the credit multiplier affects economic activity.
AB - We provide novel evidence that frictions in the financing of working capital can lead firms to significantly amplify and propagate the effect of economic shocks over time. We propose a new approach to identify this firm credit multiplier that compares how a same firm responds to permanent shocks differently when these shocks are initiated in the period in which they are predicted to be most profitable (their “main quarter”). Our analysis implements this test with oil price shocks and provides extensive evidence supporting our identification strategy. Our results suggest that the financing of working capital can be an important channel for understanding how the credit multiplier affects economic activity.
KW - Credit Multiplier
KW - Working Capital
KW - Financing Frictions
U2 - 10.2139/ssrn.3071018
DO - 10.2139/ssrn.3071018
M3 - Working paper
BT - Understanding the Credit Multiplier
ER -