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Balance sheet channel of monetary policy in Indonesian manufacturing firms

Author

Listed:
  • Muhammad Farid Alfarisy
  • Nopirin
  • Iswardono Sardjono Permono
  • Tri Widodo

    (Fakultas Ekonomika dan Bisnis, Universitas Gadjah Mad
    Fakultas Ekonomika dan Bisnis, Universitas Gadjah Mad
    Fakultas Ekonomika dan Bisnis, Universitas Gadjah Mad
    Fakultas Ekonomika dan Bisnis, Universitas Gadjah Mad)

Abstract

This paper aims to test the hypothesis in a period of monetary tightening. Firms that face liquidity constraint and have limited access from external sources of funds will lower its investment. We use the panel data analysis of Indonesian manufacturing firms and financial variables, LIQ as the ratio between the sum of cash and marketable securities to total assets, and the change in cash flows as a proxy of firm?s liquidity constraint. The result provides some supports for the view that inventory in Indonesian manufacturing firms is sensitive toward cash flow during the monetary tightening period, especially for the firms that produce durable goods.

Suggested Citation

  • Muhammad Farid Alfarisy & Nopirin & Iswardono Sardjono Permono & Tri Widodo, 2011. "Balance sheet channel of monetary policy in Indonesian manufacturing firms," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 3(3), pages 225-233, April.
    • Handle: RePEc:uii:journl:v:3:y:2011:i:3:p:225-233
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    References listed on IDEAS

    as
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    5. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
    6. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
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    More about this item

    Keywords

    Monetary tightening; liquidity constraint; inventory investment;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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