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Firm investment and monetary transmission in the euro area

Author Info

Listed author(s):
  • 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.

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File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2001/2001-0431/tema_431_01.pdf
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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 431.

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Date of creation: Dec 2001
Handle: RePEc:bdi:wptemi:td_431_01
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Keywords: investment; monetary transmission channels; user cost of capital;

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Find related papers by 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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  1. Jacques Mairesse & Bronwyn H. Hall & Benoît Mulkay, 1999. "Firm-Level Investment in France and the United States: An Exploration of What We Have Learned in Twenty Years," Annals of Economics and Statistics, GENES, issue 55-56, pages 27-67.
  2. Eugenio Gaiotti & Andrea Generale, 2002. "Does Monetary Policy Have Asymmetric Effects? A Look at the Investment Decisions of Italian Firms," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 61(1), pages 29-59, June.
  3. von Kalckreuth, Ulf & Hernando, Ignacio & Generale, Andrea & Chatelain, Jean Bernard & Vermeulen, Philip, 2001. "Firm Investment and Monetary Policy Transmission in the Euro Area," Discussion Paper Series 1: Economic Studies 2001,20, Deutsche Bundesbank, Research Centre.
  4. Valderrama, Maria Teresa, 2001. "Credit channel and investment behaviour in Austria: a micro-econometric approach," Working Paper Series 0108, European Central Bank.
  5. Paxil Butzen & Catherine Fuss & Philip Vermeulen, 2002. "The interest rate and crédit channels in Belgium: an investigation with micro-level firm data," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 45(3), pages 5-36.
  6. Cummins, Jason G. & Hassett, Kevin A. & Hubbard, R. Glenn, 1996. "Tax reforms and investment: A cross-country comparison," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 237-273, October.
  7. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
  8. Chatelain, Jean-Bernard & Tiomo, André, 2001. "Investment, the cost of capital, and monetary policy in the nineties in France: a panel data investigation," Working Paper Series 0106, European Central Bank.
  9. Jason G. Cummins & Kevin A. Hassett & R. Glenn Hubbard, 1994. "A Reconsideration of Investment Behavior Using Tax Reforms as Natural Experiments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 1-74.
  10. Lünnemann, Patrick & Mathä, Thomas Y., 2001. "Monetary transmission: empirical evidence from Luxembourg firm level data," Working Paper Series 0111, European Central Bank.
  11. Mervyn A. King & Don Fullerton, 1984. "The Taxation of Income from Capital: A Comparative Study of the United States, the United Kingdom, Sweden, and Germany," NBER Books, National Bureau of Economic Research, Inc, number king84-1, October.
  12. Mervyn A. King & Don Fullerton, 1984. "Introduction to "The Taxation of Income from Capital: A Comparative Study of the United States, the United Kingdom, Sweden, and Germany"," NBER Chapters,in: The Taxation of Income from Capital: A Comparative Study of the United States, the United Kingdom, Sweden, and Germany, pages 1-6 National Bureau of Economic Research, Inc.
  13. Elston, Julie, 1997. "A Comparison of Empirical Investment Equations using Company Panel Data for France, Germany, Belgium and the UK," Working Papers 981, California Institute of Technology, Division of the Humanities and Social Sciences.
  14. Chirinko, Robert S. & Fazzari, Steven M. & Meyer, Andrew P., 1999. "How responsive is business capital formation to its user cost?: An exploration with micro data," Journal of Public Economics, Elsevier, vol. 74(1), pages 53-80, October.
  15. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
  16. Mojon, Benoit & Smets, Frank & Vermeulen, Philip, 2002. "Investment and monetary policy in the euro area," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2111-2129, November.
  17. Mankiw, N Gregory & Summers, Lawrence H, 1988. "Money Demand and the Effects of Fiscal Policies: Reply," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(4), pages 715-717, November.
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