Firm Investment and Monetary Policy Transmission in the Euro Area

• DOI: 10.2139/ssrn.1728706
• Publication Date: 2012-11-23T15:13:01Z
• Authors: Jean-Bernard Chat...; Andrea Generale; Ignacio Hernando; Ulf von Kalckreuth; Philip Vermeulen
• Keywords: 330; Frankreich; Italien; investment, monetary transmission channels, user cost of capital; jel:E22; Investment,Monetary Transmission Channels,User Cost of Capital; Monetäre Transmission; investment, monetary transmission, user cost of capital; Monetary Transmission Channels; E50; 0502 economics and business; Transmissionsmechanismus; User Cost of Capital; Deutschland; [SHS.ECO] Humanities and Social Sciences/Economics and Finance; Spanien; Investition,Monetäre Transmission,Kapitalnutzungskosten,investment,monetary transmission,user cost of capital; jel:E50; ddc:330; Investition; Investment, Monetary transmission channels, User cost of capital.; 05 social sciences; user cost of capital; investment; Kapitalkosten; [SHS.ECO]Humanities and Social Sciences/Economics and Finance; Kapitalnutzungskosten; 8. Economic growth; E22; monetary transmission; Investment

This paper presents a comparable set of results on the monetary transmission channels on firm investment (the interest rate channel and the broad credit channel) for the four largest euro-areacountries (Germany, France, Italy and Spain), using particularly rich micro datasets for eachcountry containing over 215,000 observations from 1985 to 1999. For each of those countries,investment relationships are estimated explaining investment by its user cost, sales and cash flow.A first result is that investment is sensitive to user cost changes in all those four countries. Thisimplies an operative interest channel in these euro-area countries. A second result is that investmentin all countries is quite sensitive to cash flow movements. However, only in Italy do smaller firmsreact more to cash flow movements than large firms, implying that a broad credit channel might notbe equally pervasive in all countries.