Monetary Policy, Investment and Firm Heterogeneity

50 Pages Posted: 7 Apr 2020

See all articles by Annalisa Ferrando

Annalisa Ferrando

European Central Bank (ECB)

Philip Vermeulen

European Central Bank (ECB)

Elena Durante

affiliation not provided to SSRN

Date Written: April, 2020

Abstract

This paper provides new evidence on the channels of monetary policy transmission combining 9 million observations on firm level investment and high-frequency identified monetary policy shocks. We show that the reaction of firms’ investment to a monetary policy shock is heterogeneous along dimensions that correspond to the two main channels of monetary policy transmission. First, we show that young firms are more sensitive to monetary policy shocks, supporting the existence of a credit channel of monetary policy. Second, we document large cross-sectional heterogeneity related to the industry the firm operates in. We find that firms producing durable goods react more than others, which is consistent with traditional interest rate channel effects of monetary policy. Third, we find that the effect of monetary policy shocks is longer lived for firms that are durable goods producers than for young firms indicating that demand effects last longer than credit effects.

Keywords: investment, monetary policy shocks, monetary policy transmission

JEL Classification: E22, E52

Suggested Citation

Ferrando, Annalisa and Vermeulen, Philip and Durante, Elena, Monetary Policy, Investment and Firm Heterogeneity (April, 2020). ECB Working Paper No. 2390, Available at SSRN: https://ssrn.com/abstract=3570577 or http://dx.doi.org/10.2139/ssrn.3570577

Annalisa Ferrando (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Philip Vermeulen

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Elena Durante

affiliation not provided to SSRN

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