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Monetary transmission: empirical evidence from Luxembourg firm-level data

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Author Info
Patrick Lünnemann ()
Thomas Mathä ()

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Abstract

This paper investigates the transmission of monetary policy in Luxembourg. It is the first empirical analysis conducted for Luxembourg firm-level data. The results indicate that the sales accelerator may be at work. A very robust result is the negative effect of the user cost of capital on firms' investment ratio. Changes in user cost are significantly affected by changes in the monetary policy indicator. In addition, firm specific balance sheet characteristics, such as the lagged cash stock to capital ratio influence the investment behaviour according to the broad credit channel theory. It is shown that young firms, in particular, are more sensitive to user cost changes, sales growth and the lagged cash to capital ratio.

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File URL: http://www.bcl.lu/fr/publications/cahiers_etudes/5/working_paper_5.pdf
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Paper provided by Central Bank of Luxembourg in its series BCL working papers with number 5.

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Length: 28
Date of creation: Oct 2002
Date of revision:
Publication status: published as Monetary Transmission: Empirical Evidence from Luxembourg Firm-level Data, in I. Angeloni, A. Kashyap and B. Mojon, (eds),.): Monetary Policy Transmission in the Euro Area, Cambridge Univ. Press., 2003, Ch.8, pp. Chapter 12, pp. 212 - -220.
Handle: RePEc:bcl:bclwop:cahier_etude_5

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Web page: http://www.bcl.lu/

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Related research
Keywords: Investment; User Cost of Capital; Credit Channel; Panel Data;

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Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

References listed on IDEAS
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  1. Dedola, Luca & Lippi, Francesco, 2000. "The Monetary Transmission Mechanism: Evidence from the Industries of Five OECD Countries," CEPR Discussion Papers 2508, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Sevestre, P. & Trognon, A., 1985. "A note on autoregressive error components models," Journal of Econometrics, Elsevier, vol. 28(2), pages 231-245, May. [Downloadable!] (restricted)
  3. Bernanke, Ben & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Working Papers 95-15, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
    Other versions:
  4. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 2000. "Investment-Cash Flow Sensitivities Are Useful: A Comment On Kaplan And Zingales," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 695-705, May. [Downloadable!] (restricted)
  5. Kaplan, Steven N & Zingales, Luigi, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 169-215, February.
  6. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
  7. Philip Vermeulen, 2000. "Business fixed investment: evidence of a financial accelerator in Europe," Working Paper Series 37, European Central Bank. [Downloadable!]
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  8. Michael Ehrmann & Leonardo Gambacorta & Jorge Martinez-Pages & Patrick Sevestre & Andreas Worms, 2001. "Financial systems and the role of banks in monetary policy transmission in the Euro area," Working Paper Series 105, European Central Bank. [Downloadable!]
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  9. Steven N. Kaplan & Luigi Zingales, 2000. "Investment-Cash Flow Sensitivities are not Valid Measures of Financing Constraints," NBER Working Papers 7659, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February. [Downloadable!] (restricted)
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  11. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March. [Downloadable!] (restricted)
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  12. Mishkin, Frederic S, 1995. "Symposium on the Monetary Transmission Mechanism," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 3-10, Fall. [Downloadable!] (restricted)
  13. Stephen Bond & Julie Elston & Jacques Mairesse & Benoit Mulkay, 1997. "Financial Factors and Investment in Belgium, France, Germany and the UK:A Comparison Using Company Panel Data," NBER Working Papers 5900, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1988-1), pages 141-206. [Downloadable!]
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  15. Benoit Mojon & Frank Smets & Philip Vermeulen, 2001. "Investment and monetary policy in the Euro area," Working Paper Series 078, European Central Bank. [Downloadable!]
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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 Department. [Downloadable!]
  2. Chatelain, J-B. & Generale, A. & Hernando, I. & Von Kalckreuth, U. & Vermeulen, P., 2002. "Firm Investment and Monetary Policy Transmission in the Euro Area," Documents de Travail 97, Banque de France. [Downloadable!]
    Other versions:
  3. Paul Butzen & Catherine Fuss & Philip Vermeulen, 2001. "The interest rate and credit channels in Belgium: an investigation with micro-level firm data," Research series 2001-12, National Bank of Belgium. [Downloadable!]
    Other versions:
  4. Jean-Bernard Chatelain & Andrea Generale & Ignacio Hernando & Philip Vermeulen & Ulf Von Kalckreuth, 2003. "New Findings on Firm Investment and Monetary Policy Transmission in the Euro Area," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00119490_v1, HAL. [Downloadable!]
  5. Jean-Bernard Chatelain & Andrea Generale & Philip Vermeulen & Michael Ehrmann & Jorge Martínez-Pagés & Andreas Worms, 2003. "Monetary policy transmission in the euro area: New evidence from micro data on firms and banks," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00119489_v2, HAL. [Downloadable!]
    Other versions:
  6. Ignazio Angeloni & Benoit Mojon & Anil K. Kashyap & Daniele Terlizzese, 2002. "Monetary transmission in the Euro Area: where do we stand?," Working Paper Series 114, European Central Bank. [Downloadable!]
  7. Ignacio Hernando & André Tiomo, 2002. "Financial constraints and investment in France and Spain: a comparison using firm level data," Banco de España Working Papers 0214, Banco de España. [Downloadable!]
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