Euro-monetary Transition

12 Pages 3038 Words

lyse the existence
of the broad credit channel. In doing so we make use of the sales accelerator model of
investment. The influence of the strength of firms’ balance sheets is proxied by the
inclusion of the cash level to capital ratio. Several sample splits are used to analyse the
presence of differential effects between firms. Samples are split with respect to age, size
and other characteristics such as the distinction between firms in the services sector and
firms operating within the industrial sector, as well as firms’ legal status.
The results suggest that the sales accelerator mechanism may be at work in the case of
Luxembourg firms. The estimated magnitude of the accelerator is, however, very small
This may be related to the short sample period of seven years, not capturing a full
business cycle. In line with a priori expectations, the coefficient of the user cost of capital
is negatively significant. This result is also remarkably robust to changes in the
specification and the definition of the user cost of capital. Wit...