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The interest rate and credit channels in Belgium: an investigation with micro-level firm data

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Author Info
Philip Vermeulen () (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
Paul Butzen () (National Bank of Belgium, Boulevard de Berlaimont 14, B-1000 Brussels, Belgium.)
Catherine Fuss () (National Bank of Belgium, Boulevard de Berlaimont 14, B-1000 Brussels, Belgium.)
Patrick Sevestre () (University of Paris XII Val de Marne, 61 avenue du General de Gaulle, 94010 Paris Creteil cedex, France.)
Andreas Worms () (Deutsche Bundesbank, Economics Department, Wilhelm-Epstein-Strasse 14, 60431 Frankfurt am Main, Germany.)

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Abstract

This paper investigates the effects of monetary policy on firms' investment behaviour. The analysis relies on a comprehensive database of Belgian firms covering all sectors of economic activity and firms of all sizes. We proceed in two steps. First, we estimate a reduced-form investment equation derived from the neo-classical model, augmented by cash flow. This equation is estimated by the Arellano and Bond (1991) GMM procedure. Second, we compute the elasticity of the user cost of capital and the cash flow/capital ratio to the policy-controlled interest rate. We estimate the model for various sample splits according to sectors and sizes. Our results indicate that small firms are more sensitive to monetary policy than large firms, and that services are almost unaffected. Since the impact differs across sectors and sizes, we can conclude that monetary policy produces distributional effects. JEL Classification: C23; D21; E50.

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Paper provided by European Central Bank in its series Working Paper Series with number 107.

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Length: 54 pages
Date of creation: Dec 2001
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Handle: RePEc:ecb:ecbwps:20010107

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Related research
Keywords: Investment; monetary transmission; credit channel; panel data.;

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References listed on IDEAS
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. 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)
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    Other versions:
  3. Philip Vermeulen, 2000. "Business fixed investment: evidence of a financial accelerator in Europe," Working Paper Series 37, European Central Bank. [Downloadable!]
    Other versions:
  4. Bronwyn H. Hall & Jacques Mairesse & Benoit Mulkay & Jacques Mairesse, 1999. "Firm Level Investment in France and the United States: An Exploration of What We Have Learned in Twenty Years," Econometrics 9902001, EconWPA. [Downloadable!]
    Other versions:
  5. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
  6. Chatelain, Jean-Bernard & AndrÈ Tiomo, 2002. "Investment, the Cost of Capital, and Monetary Policy in the Nineties in France: A Panel Data Investigation," Royal Economic Society Annual Conference 2002 45, Royal Economic Society. [Downloadable!]
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  7. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Mark E. Doms & Timothy Dunne, 1998. "Capital Adjustment Patterns in Manufacturing Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 409-429, April. [Downloadable!] (restricted)
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  12. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January. [Downloadable!] (restricted)
  13. Toni M. Whited, 1990. "Debt, liquidity constraints, and corporate investment: evidence from panel data," Finance and Economics Discussion Series 114, Board of Governors of the Federal Reserve System (U.S.).
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  16. R. Glenn Hubbard & Anil K Kashyap & Toni M. Whited, 1995. "Internal Finance and Firm Investment," NBER Working Papers 4392, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  18. 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.
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  21. Tychon, Pierre, 1997. "The Structure of Corporate Finance in Belgium: An Empirical Investigation," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1997019, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
  22. Ehrmann, M., 2000. "Firm Size and Monetary Policy Transmission - Evidence from German Business Survey Data," Economics Working Papers eco2000/12, European University Institute.
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  23. Guiso, Luigi, 1997. "High-Tech Firms and Credit Rationing," CEPR Discussion Papers 1696, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  24. Stephen Bond & Julie Ann Elston & Jacques Mairesse & Benoît Mulkay, 2003. "Financial Factors and Investment in Belgium, France, Germany, and the United Kingdom: A Comparison Using Company Panel Data," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 153-165, 09. [Downloadable!] (restricted)
  25. Maria Teresa Valderrama, 2001. "Credit channel and investment behavior in Austria: a micro-econometric approach," Working Paper Series 108, European Central Bank. [Downloadable!]
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  26. Patrick Lunnemann & Thomas Mathä, 2001. "Monetary transmission: empirical evidence from Luxembourg firm-level data," Working Paper Series 111, European Central Bank. [Downloadable!]
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  27. M Pesaran & Yongcheol Shin & Ron P Smith, 2004. "Pooled mean group estimation of dynamic heterogeneous panels," ESE Discussion Papers 16, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
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. Nancy Masschelein, 2007. "Monitoring pro-cyclicality under the capital requirements directive : preliminary concepts for developing a framework," Documents series 200711-22, National Bank of Belgium. [Downloadable!]
  2. Jean-Bernard Chatelain, 2002. "Structural modelling of investment and financial constraints: Where do we stand?," Research series 200205-9, National Bank of Belgium. [Downloadable!]
  3. Chatelain, Jean Bernard & Generale, Andrea & Hernando, Ignacio & Kalckreuth, Ulf von & Vermeulen, Philip, 2002. "Firm Investment and Monetary Policy Transmission in the Euro Area," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 A3-3, International Conferences on Panel Data. [Downloadable!]
    Other versions:
  4. Annick Bruggeman, 2007. "Can Excess Liquidity Signal an Asset Price Boom?," Research series 200708-08, National Bank of Belgium. [Downloadable!]
  5. 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!]
  6. Jean-Bernard Chatelain, 2003. "Structural Modelling of FinancialConstraints on Investment: Where Do WeStand?," Post-Print halshs-00112522_v1, HAL. [Downloadable!]
  7. Franklin Allen, 2004. "The Efficiency and Stability of Banks and Markets," Research series 200405-8, National Bank of Belgium. [Downloadable!]
  8. Stefaan Ide & Philippe Moës, 2003. "Scope of asymmetries in the Euro area," Documents series 200303-2, National Bank of Belgium. [Downloadable!]
  9. 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!]
  10. 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!]
  11. Paul Butzen & Catherine Fuss & Philip Vermeulen, 2002. "The impact of uncertainty on investment plans," Research series 200205-5, National Bank of Belgium. [Downloadable!]
  12. Carine Swartenbroekx, 2007. "The gas chain : influence of its specificities on the liberalisation process," Documents series 200711-24, National Bank of Belgium. [Downloadable!]
  13. Coucke, K. & Sleuwaegen, L., 2007. "Offshoring as a Survival Strategy in Globalizing Industries: New Evidence from Belgian Manufacturing," Vlerick Leuven Gent Management School Working Paper Series 2007-13, Vlerick Leuven Gent Management School. [Downloadable!]
  14. Grégory de Walque, 2004. "Voting on pensions: a survey," Research series 200410-2, National Bank of Belgium. [Downloadable!]
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  15. Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Research series 200210, National Bank of Belgium. [Downloadable!]
    Other versions:
  16. François Coppens & Fernando Gonzáles & Gerhard Winkler, 2007. "The performance of credit rating systems in the assessment of collateral used in Eurosystem monetary policy operations," Research series 200710-12, National Bank of Belgium. [Downloadable!]
    Other versions:
  17. Michele Cincera, 2002. "Financing constraints, fixed capital and R&D investment decisions of belgian firms," Research series 200205-13, National Bank of Belgium. [Downloadable!]
    Other versions:
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