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Fixed investment, liquidity constraint, and monetary policy: Evidence from Japanese manufacturing firm panel data

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  • Masuda, Koichi

Abstract

We empirically analyze the effects of monetary policy shocks on real fixed investment using panel data on Japanese manufacturing firms to examine the existence of a balance sheet channel. We find that contractionary monetary policy statistically significantly increases the firms’ liquidity constraint. Especially, the smaller the firm size, the greater the effects of contractionary monetary policy. Therefore, our estimation results support the presence of a balance sheet channel. In addition, the firms’ liquidity constraint decreases significantly during quantitative monetary easing policy (QMEP) period. Specifically, QMEP relaxes the liquidity constraint of large firms. Our evidence suggests that QMEP transmission works through the balance sheet channel and affects the real economy.

Suggested Citation

  • Masuda, Koichi, 2015. "Fixed investment, liquidity constraint, and monetary policy: Evidence from Japanese manufacturing firm panel data," Japan and the World Economy, Elsevier, vol. 33(C), pages 11-19.
    • Handle: RePEc:eee:japwor:v:33:y:2015:i:c:p:11-19
    DOI: 10.1016/j.japwor.2015.01.001
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    More about this item

    Keywords

    Monetary policy shock; Real fixed investment; Net worth;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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