A Financial Pressure, Monetary Policy Effects and Inventory Djustment by Uk and Spanish Firms

This paper examines the adjustment of inventories by firms in the UK and Spain. A widely-held view—but one which has not found much support in previous studies of inventories— is that a key channel for monetary policy is through influencing inventory accumulation. Using a large company-level panel dataset for both countries, significant effects associated with borrowing costs on inventories are estimated. Financial effects associated with liquidity and the borrowing ratio are estimated to be weaker in Spain than in the UK. Since the Spanish financial system is more clearly bank-based, this is interpreted as contrary to the ‘bank-dependence hypothesis’.