Investment and Monetary Policy in the Euro Area

Posted: 21 May 2002

See all articles by Benoit Mojon

Benoit Mojon

Banque de France

Frank Smets

European Central Bank (ECB); KU Leuven - Center for Economic Studies

Philip Vermeulen

European Central Bank (ECB)

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Abstract

This paper analyses the effects of a change in monetary policy on firms' investment in Germany, France, Italy and Spain using a data set which provides aggregated balance sheet and profit and loss account data for 17 different industries and 3 different size classes. The main findings are twofold. First, in each of the four countries a change in the user cost of capital, which in turn is affected by interest rates, has both statistically and economically significant effects on investment. Second, while the average interest rate on debt is generally higher for small firms than for large firms, there is little evidence that the effects of monetary policy on small firms are larger.

Keywords: Investment, firm panels, monetary policy

JEL Classification: E52, E50

Suggested Citation

Mojon, Benoit and Smets, Frank and Vermeulen, Philip, Investment and Monetary Policy in the Euro Area. Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=303802

Benoit Mojon (Contact Author)

Banque de France ( email )

Paris
France

Frank Smets

European Central Bank (ECB) ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
+49 69 1344 6550 (Phone)
+49 69 1344 6575 (Fax)

KU Leuven - Center for Economic Studies ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Philip Vermeulen

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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