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Using LASSO-family models to estimate the impact of monetary policy on corporate investments

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  • Caraiani, Petre

Abstract

In this paper, I use LASSO-family models to select the relevant explanatory variables for the transmission of monetary policy shocks on investments and discuss the implications for the transmission mechanism of monetary policy. The results here point to the effect that Lasso techniques help select the relevant regressors. When the covariates are selected using this procedure, the impact of monetary policy shocks on corporate investments is about 20% lower than that for a baseline approach.

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  • Caraiani, Petre, 2022. "Using LASSO-family models to estimate the impact of monetary policy on corporate investments," Economics Letters, Elsevier, vol. 210(C).
    • Handle: RePEc:eee:ecolet:v:210:y:2022:i:c:s0165176521004420
    DOI: 10.1016/j.econlet.2021.110182
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    References listed on IDEAS

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    1. Ippolito, Filippo & Ozdagli, Ali K. & Perez-Orive, Ander, 2018. "The transmission of monetary policy through bank lending: The floating rate channel," Journal of Monetary Economics, Elsevier, vol. 95(C), pages 49-71.
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    4. Boivin, Jean & Kiley, Michael T. & Mishkin, Frederic S., 2010. "How Has the Monetary Transmission Mechanism Evolved Over Time?," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 8, pages 369-422, Elsevier.
    5. Nils Jannsen & Galina Potjagailo & Maik H. Wolters, 2019. "Monetary Policy during Financial Crises: Is the Transmission Mechanism Impaired?," International Journal of Central Banking, International Journal of Central Banking, vol. 15(4), pages 81-126, October.
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    7. Marek Jarociński & Peter Karadi, 2020. "Deconstructing Monetary Policy Surprises—The Role of Information Shocks," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(2), pages 1-43, April.
    8. Kock, Anders Bredahl, 2016. "Consistent And Conservative Model Selection With The Adaptive Lasso In Stationary And Nonstationary Autoregressions," Econometric Theory, Cambridge University Press, vol. 32(1), pages 243-259, February.
    9. James Cloyne & Clodomiro Ferreira & Maren Froemel & Paolo Surico, 2023. "Monetary Policy, Corporate Finance, and Investment," Journal of the European Economic Association, European Economic Association, vol. 21(6), pages 2586-2634.
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    Cited by:

    1. Samer Adra & Elie Menassa, 2023. "Uncertainty and corporate investments in response to the Fed's dual shocks," The Financial Review, Eastern Finance Association, vol. 58(3), pages 463-484, August.

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    More about this item

    Keywords

    Monetary policy; Investment channel; Corporate finance; Firm-level data; Statistical learning; Lasso;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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