The Interest Rate and Credit Channels in Belgium: An Investigation with Micro-Level Firm Data

54 Pages Posted: 17 Dec 2002

See all articles by Paul Butzen

Paul Butzen

National Bank of Belgium

Catherine Fuss

National Bank of Belgium

Philip Vermeulen

European Central Bank (ECB)

Andreas Worms

Deutsche Bundesbank, Economics Department

Multiple version iconThere are 2 versions of this paper

Date Written: December 2001

Abstract

This paper investigates the effects of monetary policy on firms' investment behaviour. The analysis relies on a comprehensive database of Belgian firms covering all sectors of economic activity and firms of all sizes. We proceed in two steps. First, we estimate a reduced-form investment equation derived from the neo-classical model, augmented by cash flow. This equation is estimated by the Arellano and Bond (1991) GMM procedure. Second, we compute the elasticity of the user cost of capital and the cash flow/capital ratio to the policy-controlled interest rate. We estimate the model for various sample splits according to sectors and sizes. Our results indicate that small firms are more sensitive to monetary policy than large firms, and that services are almost unaffected. Since the impact differs across sectors and sizes, we can conclude that monetary policy produces distributional effects.

Keywords: Investment, Monetary transmission, Credit channel, Panel data

JEL Classification: C23, D21, E50

Suggested Citation

Butzen, Paul and Fuss, Catherine and Vermeulen, Philip and Worms, Andreas, The Interest Rate and Credit Channels in Belgium: An Investigation with Micro-Level Firm Data (December 2001). ECB Working Paper No. 107. Available at SSRN: https://ssrn.com/abstract=356680

Paul Butzen

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

Catherine Fuss

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

Philip Vermeulen (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Andreas Worms

Deutsche Bundesbank, Economics Department ( email )

Wilhelm-Epstein-Strasse 14
60431 Frankfurt am Main
Germany

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