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The interest rate and crédit channels in Belgium: an investigation with micro-level firm data

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  • Paxil Butzen
  • Catherine Fuss
  • Philip Vermeulen

Abstract

This paper investigates the effects of monetary policy on firms' investment behaviour through the interest rate and credit channels. The analysis relies on a comprehensive database of Belgian firms covering all sectors of economic activity and firms of all sizes. We proceed in two steps. First, we estimate a reduced-form investment equation derived from the neoclassical model, augmented by cash flow. This equation gives us the sensitivity of investment to the user cost, sales and cash flow. This allows us to assess the relative importance of the interest rate and credit channels. We simulate the effect of a transitory change in the market interest rate on investment through changes in the user cost of capital and the cash flow-capital ratio. We additionally compute the long-run elasticity of the capital stock to the market interest rate. We perform both exercises for various sample splits according to sectors and sizes. Our results indicate that in the manufacturing and construction sector, small firms are more sensitive to monetary policy than large firms, that firms in the construction sector are more sensitive than firms in other sectors and that services firms are almost unaffected. The interest rate channel appears to be the dominant channel of monetary transmission; it accounts for 75% of the first-year effect of an interest rate change.

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Bibliographic Info

Article provided by ULB -- Universite Libre de Bruxelles in its journal Brussels economic review.

Volume (Year): 45 (2002)
Issue (Month): 3 ()
Pages: 5-36

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Handle: RePEc:bxr:bxrceb:y:2002:v:45:i:3:p:5-35

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Keywords: Investment; Monetary transmission; Credit channel; Panel data;

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References

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  1. Mark Doms & Timothy Dunne, 1994. "Capital Adjustment Patterns in Manufacturing Plants," Working Papers 94-11, Center for Economic Studies, U.S. Census Bureau.
  2. Guiso, Luigi, 1997. "High-Tech Firms and Credit Rationing," CEPR Discussion Papers 1696, C.E.P.R. Discussion Papers.
  3. Barran, Fernando & Peeters, Marga, 1998. "Internal finance and corporate investment: Belgian evidence with panel data," Economic Modelling, Elsevier, vol. 15(1), pages 67-89, January.
  4. R. Glenn Hubbard & Anil K Kashyap & Toni M. Whited, 1993. "Internal Finance and Firm Investment," NBER Working Papers 4392, National Bureau of Economic Research, Inc.
  5. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
  6. Stephen Bond & Julie Ann Elston & Jacques Mairesse & Beno�t Mulkay, 2003. "Financial Factors and Investment in Belgium, France, Germany, and the United Kingdom: A Comparison Using Company Panel Data," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 153-165, February.
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Cited by:
  1. Chatelain, Jean Bernard & Generale, Andrea & Hernando, Ignacio & Kalckreuth, Ulf von & Vermeulen, Philip, 2002. "Firm Investment and Monetary Policy Transmission in the Euro Area," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 A3-3, International Conferences on Panel Data.
  2. repec:hal:journl:halshs-00112522 is not listed on IDEAS
  3. repec:hal:journl:halshs-00119490 is not listed on IDEAS
  4. repec:hal:cesptp:halshs-00119490 is not listed on IDEAS
  5. Chatelain, Jean-Bernard & Tiomo, André, 2001. "Investment, the cost of capital, and monetary policy in the nineties in France: a panel data investigation," Working Paper Series 0106, European Central Bank.
  6. J. B. Chatelain & Andrea Generale & I. Hernando & U. von Kalckreuth & P. Vermeulen, 2001. "Firm investment and monetary transmission in the euro area," Temi di discussione (Economic working papers) 431, Bank of Italy, Economic Research and International Relations Area.
  7. repec:hal:cesptp:halshs-00119489 is not listed on IDEAS
  8. repec:hal:cesptp:halshs-00112540 is not listed on IDEAS
  9. repec:hal:cesptp:halshs-00112522 is not listed on IDEAS
  10. repec:hal:journl:halshs-00112540 is not listed on IDEAS
  11. Mojon, Benoît & Kashyap, Anil K. & Angeloni, Ignazio & Terlizzese, Daniele, 2002. "Monetary Transmission in the Euro Area : Where Do We Stand?," Working Paper Series 0114, European Central Bank.
  12. Jean-Bernard Chatelain & Michael Ehrmann & Andrea Generale & Jorge Martínez-Pagés & Philip Vermeulen & Andreas Worms, 2003. "Monetary Policy Transmission in the Euro Area: New Evidence From Micro Data on Firms and Banks," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 731-742, 04/05.
  13. Taha Bahadir Sarac & OkYAY Ucan, 2013. "The Interest Rate Channel in Turkey: An Investigation with Kalman Filter Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 3(4), pages 874 - 884.
  14. repec:hal:journl:halshs-00112525 is not listed on IDEAS
  15. Nagahata, Takashi & Sekine, Toshitaka, 2005. "Firm investment, monetary transmission and balance-sheet problems in Japan: an investigation using micro data," Japan and the World Economy, Elsevier, vol. 17(3), pages 345-369, August.
  16. repec:hal:journl:halshs-00119489 is not listed on IDEAS

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