Monetary transmission in Germany: new perspectives on financial constraints and investment spending
AbstractIn order to obtain a better understanding of the transmission channels for monetary policy, this paper assesses the importance of the interest rate and credit channels on business fixed investment in Germany. Our unbalanced panel of financial statements contains 44,345 firm/year observations for 6,408 firms. We uncover a rather solid interest channel. A transitory increase in nominal interest rates by 100 basis points would depress investment demand by almost 4% within the first year. Using our direct measure of creditworthiness, we can also document a balance-sheet channel. Relative to unconstrained firms, financially constrained firms exhibit increased sensitivity to internal funds, and decreased sensitivity to the user cost as well as to market demand. Furthermore, changes in the rating of firms seem to affect investment demand in a way that is consistent with the presence of a balance-sheet channel. This balance-sheet channel, however, seems to be of secondary importance JEL Classification: E5, E2
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Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 0109.
Date of creation: Dec 2001
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Other versions of this item:
- von Kalckreuth, Ulf, 2001. "Monetary transmission in Germany: New Perspectives on Financial Constraints and Investment Spending," Discussion Paper Series 1: Economic Studies 2001,19, Deutsche Bundesbank, Research Centre.
- von Kalckreuth, Ulf, 2002. "Monetary Transmission in Germany: New Perspectives on Financial Constraints and Investment Spending," Royal Economic Society Annual Conference 2002 179, Royal Economic Society.
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
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