Credit constraints, farm characteristics, and the farm economy: Differential impacts on feeder cattle and beef cow inventories

A recurrent topic in the macroeconomic literature is the financial accelerator-the notion that informational asymmetries introduce inefficiencies to financial markets which amplify and propagate the effects of real or monetary shocks. With the purpose of finding empirical evidence that is consistent with a financial accelerator operating in the cattle sector, inventory investment models are estimated with an appended cash flow variable. The inclusion of cash flow is motivated by the notion that investment by credit-constrained farms should be sensitive to movements in internal funds. Results are consistent with the financial accelerator operating in the feeder cattle but not in the cow-calf sector.