Firm Investment and Monetary Policy Transmission in the Euro Area
Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES); Paris School of Economics (PSE)
Bank of Italy
Bank of Spain
Ulf Von Kalckreuth
Deutsche Bundesbank - Economic Research Centre
European Central Bank (ECB)
ECB Working Paper No. 112; Deutsche Bundesbank, Economic Research Centre Discussion Paper No. 20/01
We present a comparable set of results on the monetary transmission channels on firm investment for the four largest euro-area countries (Germany, France, Italy and Spain). With particularly rich micro datasets for each country containing over 215,000 observations from 1985 to 1999, we explore what can be learned about the interest channel and the broad credit channel. For each of those countries, we estimate neo-classical investment relationships, explaining investment by its user cost, sales and cash flow. We find investment to be sensitive to user cost changes in all those four countries. This implies an operative interest channel in these euro-area countries. We also find investment in all countries to be quite sensitive to cash flow movements. However, only in Italy do smaller firms react more to cash flow movements than large firms, implying that a broad credit channel might not be equally pervasive in all countries.
Number of Pages in PDF File: 44
Keywords: investment, monetary transmission, user cost of capital
JEL Classification: E22, E50, D21working papers series
Date posted: March 11, 2002
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