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Firm Investment and Monetary Policy Transmission in the Euro Area

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  • Jean-Bernard Chatelain

    (Banque de France)

  • Andrea Generale

    (Banca d’Italia)

  • Ignacio Hernando

    (Banco de España)

  • Ulf von Kalckreuth

    (Deutsche Bundesbank)

  • Philip Vermeulen

    (European Central Bank)

Abstract

We present a comparable set of results on the monetary transmission channels on firm investment for the four largest countries of the euro area (Germany, France, Italy and Spain). With particularly rich micro datasets for each country containing over 215,000 observations from 1985 to 1999, we explore what can be learned on the interest channel and broad credit channel. For each of those countries we estimate neo-classical investment relationships, explaining investment by its user cost, sales and cash flow. We find investment to be sensitive to user cost changes in all those four countries. This implies an operative interest channel in these euro area countries. We also find investment in all those countries to be quite sensitive to cash flow movements. However we find that only in Italy smaller firms react more to cash flow movements, implying that a broad credit channel might not be as pervasive in all countries.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/01/Fic/dt0119e.pdf
File Function: First version, 2001
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0119.

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Length: 38 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:bde:wpaper:0119

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Keywords: investment; monetary transmission channels; user cost of capital;

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