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Firm investment and monetary transmission in the euro area

Author

Listed:
  • J. B. Chatelain

    (Banque de France, Economic Research Department.)

  • Andrea Generale

    (Banca d�Italia, Economic Research Department)

  • I. Hernando

    (Banco de Espa�a, Economic Research Department)

  • U. von Kalckreuth

    (Deutsche Bundesbank, Economic Research Department)

  • P. Vermeulen

    (European Central Bank, Research Department)

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.

Suggested Citation

  • J. B. Chatelain & Andrea Generale & I. Hernando & U. von Kalckreuth & P. Vermeulen, 2001. "Firm investment and monetary transmission in the euro area," Temi di discussione (Economic working papers) 431, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_431_01
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    investment; monetary transmission channels; user cost of capital;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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