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Investment, the Cost of Capital and Monetary Policy in the Nineties in France: A Panel Data Investigation

  • Chatelain, J-B.
  • Tiomo, A.

Using a large panel of about 6,946 French manufacturing firms, this paper investigates the effect of monetary policy from 1990 to 1999 on investment through the cost of capital and the cash-flow channels. We compare several specifications of the neo-classical demand for capital, taking into account transitory dynamics. The user cost of capital has a significant negative elasticity with respect to capital using the traditional within estimates, or as long as cash-flow are not added in the regression when using Generalized Method of Moments estimates. Asymmetries of effect of monetary policy are evaluated on different groups of firms which differ with respect to informational asymmetries.

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Paper provided by Banque de France in its series Working papers with number 96.

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Length: 36 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:bfr:banfra:96
Contact details of provider: Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS
Web page: http://www.banque-france.fr/

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  1. Bronwyn H. Hall, Jacques Mairesse and Benoit Mulkay., 1998. "Firm Level Investment in France and the United States: An Exploration of What We Have Learned in Twenty Years," Economics Working Papers 98-261, University of California at Berkeley.
  2. Mojon, Benoît & Smets, Frank & Vermeulen, Philip, 2001. "Investment and monetary policy in the euro area," Working Paper Series 0078, European Central Bank.
  3. 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.
  4. Gaiotti, Eugenio & Generale, Andrea, 2001. "Does monetary policy have asymmetric effects? A look at the investment decisions of Italian firms," Working Paper Series 0110, European Central Bank.
  5. 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, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  6. Jacques Mairesse & Bronwyn H. Hall & Benoît Mulkay, 2001. "Investissement des entreprises et contraintes financières en France et aux États-Unis," Économie et Statistique, Programme National Persée, vol. 341(1), pages 67-84.
  7. Richard Duhautois, 2001. "Le ralentissement de l'investissement est plutôt le fait des petites entreprises tertiaires," Économie et Statistique, Programme National Persée, vol. 341(1), pages 47-66.
  8. Auerbach, Alan J, 1983. "Taxation, Corporate Financial Policy and the Cost of Capital," Journal of Economic Literature, American Economic Association, vol. 21(3), pages 905-40, September.
  9. Stephen D. Oliner & Glenn D. Rudebusch, 1996. "Is there a broad credit channel for monetary policy?," Economic Review, Federal Reserve Bank of San Francisco, pages 3-13.
  10. Gertler, M.L. & Hubbard, R.G., 1988. "Financial Factors In Business Fluctuations," Papers fb-_88-37, Columbia - Graduate School of Business.
  11. Brigitte Dormont, 1997. "L'influence du coût salarial sur la demande de travail," Économie et Statistique, Programme National Persée, vol. 301(1), pages 95-109.
  12. Butzen, Paul & Fuss, Catherine & Vermeulen, Philip, 2001. "The interest rate and credit channels in Belgium: An investigation with micro-level firm data," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 A3-1, International Conferences on Panel Data.
  13. 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.
  14. Benoit Mulkay & Bronwyn H. Hall & Jacques Mairesse, 2001. "Firm Level Investment and R&D in France and the United States: A Comparison," Economics Papers 2001-W2, Economics Group, Nuffield College, University of Oxford.
  15. Chatelain, Jean-Bernard & Generale, Andrea & Hernando, Ignacio & Von Kalckreuth, Ulf & Vermeulen, Philip, 2001. "Firm investment and monetary transmission in the euro area," Working Paper Series 0112, European Central Bank.
  16. Donald W. K. Andrews, 1999. "Consistent Moment Selection Procedures for Generalized Method of Moments Estimation," Econometrica, Econometric Society, vol. 67(3), pages 543-564, May.
  17. 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.
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