Monetary Policy and Intangible Investment

52 Pages Posted: 9 Jun 2020 Last revised: 23 Jun 2020

See all articles by Robin Döttling

Robin Döttling

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM)

Lev Ratnovski

International Monetary Fund; European Central Bank, Financial Research Division

Multiple version iconThere are 2 versions of this paper

Date Written: May 27, 2020

Abstract

We contrast how monetary policy affects intangible relative to tangible investment. We document that the stock prices of firms with more intangible assets react less to monetary policy shocks, as identified from Fed Funds futures movements around FOMC announcements. Consistent with the stock price results, instrumental variable local projections confirm that the total investment in firms with more intangible assets responds less to monetary policy, and that intangible investment responds less to monetary policy compared to tangible investment. We identify two mechanisms behind these results. First, firms with intangible assets use less collateral, and therefore respond less to the credit channel of monetary policy. Second, intangible assets have higher depreciation rates, so interest rate changes affect their user cost of capital relatively less.

Keywords: Intangible Investment, Monetary Policy, Stock Returns, Heterogeneity

JEL Classification: E22, E52, G32

Suggested Citation

Döttling, Robin and Ratnovski, Lev, Monetary Policy and Intangible Investment (May 27, 2020). Available at SSRN: https://ssrn.com/abstract=3612304 or http://dx.doi.org/10.2139/ssrn.3612304

Robin Döttling (Contact Author)

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-46
3000 DR Rotterdam, 3000 DR
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Lev Ratnovski

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://ratnovski.googlepages.com

European Central Bank, Financial Research Division

Germany

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