Monetary Transmission: Empirical Evidence from Luxembourg Firm-Level Data

38 Pages Posted: 21 Jul 2003

See all articles by Patrick Lunnemann

Patrick Lunnemann

Banque Central du Luxembourg

Thomas Mathä

Banque Centrale du Luxembourg

Date Written: December 2001

Abstract

This paper investigates the transmission of monetary policy using data from a panel of Luxembourg firms. The results indicate that the sales accelerator may be at work. A very robust result is the negative effect of the user cost of capital on firms' investment ratio. Changes in user costs are significantly affected by changes in the monetary policy indicator. In addition, firm specific balance sheet characteristics, such as the lagged cash stock to capital ratio influence the investment behaviour according to the broad credit channel theory. Using various sample splits, it is shown that young firms, in particular, are more sensitive to user cost changes, sales growth and the lagged cash to capital ratio.

Keywords: Investment, user cost of capital, credit channel, panel data

JEL Classification: D21, D92, E22, E52

Suggested Citation

Lunnemann, Patrick and Mathä, Thomas, Monetary Transmission: Empirical Evidence from Luxembourg Firm-Level Data (December 2001). ECB Working Paper No. 111. Available at SSRN: https://ssrn.com/abstract=356720

Patrick Lunnemann (Contact Author)

Banque Central du Luxembourg ( email )

2, boulevard Royal
L-2983 Luxembourg
Luxembourg

Thomas Mathä

Banque Centrale du Luxembourg ( email )

2, boulevard Royal
L-2983 Luxembourg
Luxembourg

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