On the German Monetary Transmission Mechanism: Interest Rate and Credit Channels for Investment Spending

49 Pages Posted: 12 Feb 2003

See all articles by Robert S. Chirinko

Robert S. Chirinko

University of Illinois at Chicago, Department of Finance; CESifo (Center for Economic Studies and Ifo Institute)

Ulf von Kalckreuth

Deutsche Bundesbank

Date Written: January 2003

Abstract

The transmission channels through which monetary policy affects business investment remain opaque. This paper examines the importance of the interest rate and credit channels on business fixed investment in Germany. We have at our disposal three uniquely rich datasets -- a panel of financial statement data for 6,408 firms (44,345 datapoints) supplemented with user costs of capital and confidential measures of creditworthiness. We uncover a statistically significant interest rate channel. Its economic significance can be sizeable, but depends on auxiliary assumptions. Sorting firms with our direct measure of creditworthiness, we find that credit constraints are important for a subset of firms. Sortings by firm size or dividend payout ratios shed some light on continuing debates in the literature.

JEL Classification: E5, E22

Suggested Citation

Chirinko, Robert S. and von Kalckreuth, Ulf, On the German Monetary Transmission Mechanism: Interest Rate and Credit Channels for Investment Spending (January 2003). CESifo Working Paper Series No. 838. Available at SSRN: https://ssrn.com/abstract=378521

Robert S. Chirinko (Contact Author)

University of Illinois at Chicago, Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States

HOME PAGE: http://tigger.uic.edu/~chirinko/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Ulf Von Kalckreuth

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Strasse 14
Frankfurt/Main D-60431
Germany

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