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On the German Monetary Transmission Mechanism: Interest Rate and Credit Channels for Investment Spending

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  • Robert S. Chirinko
  • Ulf von Kalckreuth

Abstract

The transmission channels through which monetary policy affects business investment remain opaque. This paper examines the importance of the interest rate and credit channels on business fixed investment in Germany. We have at our disposal three uniquely rich datasets -- a panel of financial statement data for 6,408 firms (44,345 datapoints) supplemented with user costs of capital and confidential measures of creditworthiness. We uncover a statistically significant interest rate channel. Its economic significance can be sizeable, but depends on auxiliary assumptions. Sorting firms with our direct measure of creditworthiness, we find that credit constraints are important for a subset of firms. Sortings by firm size or dividend payout ratios shed some light on continuing debates in the literature.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 838.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_838

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Cited by:
  1. von Kalckreuth, Ulf & Murphy, Emma, 2005. "Financial constraints and capacity adjustment in the United Kingdom: Evidence from a large panel of survey data," Discussion Paper Series 1: Economic Studies 2005,01, Deutsche Bundesbank, Research Centre.

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