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Firm investment and monetary policy transmission in the Euro area

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Author Info
Jean-Bernard Chatelain (University of Orleans - General, Rue de Blois, B.P. 6739, 45067 Orleans Cedex 2, France.)
Andrea Generale () (Banca d'Italia, Via Nazionale 91, 00184 Rome, Italy.)
Ignacio Hernando () (Banco de Espana, Alcala 50, 28014 Madrid, Spain.)
Philip Vermeulen () (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
Ulf von Kalckreuth () (Deutsche Bundesbank - Economic Research Centre, Wilhelm-Epstein-Strasse 14, D-60431 Frankfurt am Main, Germany.)

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Abstract

We present a comparable set of results on the monetary transmission channels on firm investment for the four largest euro-area countries (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 about the interest channel and the 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 countries to be quite sensitive to cash flow movements. However, only in Italy do smaller firms react more to cash flow movements than large firms, implying that a broad credit channel might not be equally pervasive in all countries. JEL Classification: E22; E50; D21.

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Paper provided by European Central Bank in its series Working Paper Series with number 112.

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Length: 49 pages
Date of creation: Dec 2001
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Handle: RePEc:ecb:ecbwps:20010112

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

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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.:
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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. Annalisa Ferrando & Rozália Pál, 2006. "Financing constraints and firms’ cash policy in the euro area," Working Paper Series 642, European Central Bank. [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. 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:
  4. 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!]
  5. Jean-Bernard Chatelain, 2003. "Structural Modelling of FinancialConstraints on Investment: Where Do WeStand?," Post-Print halshs-00112522_v1, HAL. [Downloadable!]
  6. Towa Tachibana & Sekine & Toshitaka, 2004. "Land Investment by Japanese Firms during and after the Bubble Period," Econometric Society 2004 Far Eastern Meetings 631, Econometric Society. [Downloadable!]
  7. Ignazio Angeloni & Anil K. Kashyap & Benoit Mojon & Daniele Terlizzese, 2003. "Monetary Transmission in the Euro Area: Does the Interest Rate Channel Explain it All?," NBER Working Papers 9984, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Greg Hannsgen, 2004. "The Transmission Mechanism of Monetary Policy: A Critical Review," Macroeconomics 0411004, EconWPA. [Downloadable!]
    Other versions:
  10. Frederic Boissay, 2006. "Credit chains and the propagation of financial distress," Working Paper Series 573, European Central Bank. [Downloadable!]
  11. 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:
  12. 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!]
  13. Hanna Putkuri, 2004. "Cross-country asymmetries in euro area monetary transmission: the role of national financial systems," Macroeconomics 0404037, EconWPA. [Downloadable!]
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  17. 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!]
  18. 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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