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Firm investment and monetary transmission in the euro area

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Author Info
J. B. Chatelain (Banque de France, Economic Research Department.)
Andrea Generale () (Banca dÂ’Italia, Economic Research Department)
I. Hernando (Banco de España, Economic Research Department)
U. von Kalckreuth (Deutsche Bundesbank, Economic Research Department)
P. Vermeulen (European Central Bank, Research Department)

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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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Paper provided by Bank of Italy, Economic Research Department in its series Temi di discussione (Economic working papers) with number 431.

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Date of creation: Dec 2001
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Handle: RePEc:bdi:wptemi:td_431_01

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

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Find related papers by JEL classification:
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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  4. Fabio Schiantarelli, 1995. "Financial Constraints and Investment: A Critical Review of Methodological Issues and International Evidence," Boston College Working Papers in Economics 293., Boston College Department of Economics. [Downloadable!]
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  9. Ulf von Kalckreuth, 2001. "Monetary transmission in Germany: new perspectives on financial constraints and investment spending," Working Paper Series 109, European Central Bank. [Downloadable!]
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  10. Benoit Mulkay & Bronwyn H. Hall & Jacques Mairesse, 2001. "Firm Level Investment and R&D in France and the United States: A Comparison," Economics Papers 2001-W2, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
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  13. Benoit Mojon & Frank Smets & Philip Vermeulen, 2001. "Investment and monetary policy in the Euro area," Working Paper Series 078, European Central Bank. [Downloadable!]
    Other versions:
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Cited by:
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  1. Claudia M. Buch & Alexander Lipponer, 2005. "Business Cycles and FDI: Evidence from German Sectoral Data," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 141(4), pages 732-759, December. [Downloadable!] (restricted)
    Other versions:
  2. Ulf von Kalckreuth, 2005. "Financial constraints and real activity: a non-structural approach using UK survey data," BIS Papers chapters, in: Bank for International Settlements (ed.), Investigating the relationship between the financial and real economy, volume 22, pages 64-80 Bank for International Settlements. [Downloadable!]
  3. I. Arnold & P.J.A. van Els & J. de Haan, 2002. "Wealth Effects and Monetary Policy," WO Research Memoranda (discontinued) 719, Netherlands Central Bank, Research Department. [Downloadable!]
  4. Jean-Bernard Chatelain & Andre Tiomo, 2002. "Investment and the Cost of Capital in the Ninetiesin France: A Panel Data Investigation," Post-Print halshs-00112540_v1, HAL. [Downloadable!]
  5. Jean-Bernard Chatelain & Andre Tiomo, 2003. "Monetary Policy And Corporate Investment In France," Post-Print halshs-00112523_v1, HAL. [Downloadable!]
  6. Ulf von Kalckreuth & Emma Murphy, . "Financial constraints and capacity adjustment in the United Kingdom: evidence from a large panel of survey data," Bank of England working papers 260, Bank of England. [Downloadable!]
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  7. 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!]
  8. Annalisa Ferrando & Rozália Pál, 2006. "Financing constraints and firms’ cash policy in the euro area," Working Paper Series 642, European Central Bank. [Downloadable!]
  9. Andreas Worms, 2001. "The reaction of bank lending to monetary policy measures in Germany," Working Paper Series 096, European Central Bank. [Downloadable!]
  10. Carmen Martinez-Carrascal & Annalisa Ferrando, 2008. "Towards a monetary policy evaluation framework," Working Paper Series 943, European Central Bank. [Downloadable!]
  11. Jean-Bernard Chatelain, 2001. "Investment, the cost of capital, and monetary policy in the nineties in France: a panel data investigation," Working Paper Series 106, European Central Bank. [Downloadable!]
    Other versions:
  12. 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!]
  13. Andrew Benito, 2002. "Financial pressure, monetary policy effects and inventory adjustment by UK and Spanish firms," Banco de España Working Papers 0226, Banco de España. [Downloadable!]
  14. Dietrich Franz, 2006. "Welfarism, Preferencism, Judgmentism," Research Memoranda 005, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
  15. Hanna Putkuri, 2004. "Cross-country asymmetries in euro area monetary transmission: the role of national financial systems," Macroeconomics 0404037, EconWPA. [Downloadable!]
  16. Santiago Carbó Valverde & Rafael López del Paso, 2009. "Bank-lending channel and non-financial firms: evidence for Spain," Spanish Economic Review, Springer, vol. 11(2), pages 125-140, June. [Downloadable!] (restricted)
  17. Leo De Haan & Elmer Sterken, 2006. "The impact of monetary policy on the financing behaviour of firms in the Euro area and the UK," European Journal of Finance, Taylor and Francis Journals, vol. 12(5), pages 401-420, July. [Downloadable!] (restricted)
  18. Ulf von Kalckreuth, 2003. "Exploring the role of uncertainty for corporate investment decisions in Germany," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 139(II), pages 173-206, June. [Downloadable!]
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  19. Paolo Angelini, 2002. "Liquidity and Announcement Effects in the Euro Area," Temi di discussione (Economic working papers) 451, Bank of Italy, Economic Research Department. [Downloadable!]
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  20. Sylvia Kaufmann & Maria Teresa Valderrama, 2008. "Bank lending in Germany and the UK: are there differences between a bank-based and a market-based country?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(3), pages 266-279. [Downloadable!]
  21. Putkuri , Hanna, 2003. "Cross-country asymmetries in euro area monetary transmission: the role of national financial systems," Research Discussion Papers 15/2003, Bank of Finland. [Downloadable!]
  22. Santiago Carbó Valverde & Rafael López del Paso, 2005. "Do non-financial firms react to monetary policy actions as banks do?," ThE Papers 05/03, Department of Economic Theory and Economic History of the University of Granada.. [Downloadable!]
  23. Silvia Magri, 2002. "Italian households' debt: determinants of demand and supply," Temi di discussione (Economic working papers) 454, Bank of Italy, Economic Research Department. [Downloadable!]
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