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Investment, the cost of capital, and monetary policy in the nineties in France: a panel data investigation

  • Chatelain, Jean-Bernard
  • Tiomo, André

Using a large panel of 6,946 French manufacturing firms, this paper investigates the effect of monetary policy on investment from 1990 to 1999 through the cost-of-capital and the cash-flow channels. We compare several specifications of 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 traditional Within estimates, or as long as cash-flow is not added to the regression when using Generalised Method of Moments estimates. Asymmetries of effect of monetary policy are evaluated for different groups of firms which differ in terms of informational asymmetries. When dummy variables related to firms which are more sensitive to cash-flow are added in the model, the user cost elasticity is significant again JEL Classification: C23, D21, D92

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Paper provided by European Central Bank in its series Working Paper Series with number 0106.

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Date of creation: Dec 2001
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Handle: RePEc:ecb:ecbwps:20010106
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  1. Eugenio Gaiotti & Andrea Generale, 2001. "Does monetary policy have asymmetric effects? A look at the investment decisions of Italian firms," Temi di discussione (Economic working papers) 429, Bank of Italy, Economic Research and International Relations Area.
  2. Bronwyn H. Hall & Jacques Mairesse & Benoit Mulkay, 1998. "Firm-level investment in France an the United States: an exploration of what we have learned in twenty years," IFS Working Papers W98/10, Institute for Fiscal Studies.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. Mark L. Gertler & R. Glenn Hubbard, 1988. "Financial Factors in Business Fluctuations," NBER Working Papers 2758, National Bureau of Economic Research, Inc.
  8. 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.
  9. 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.
  10. Von Kalckreuth, Ulf, 2001. "Monetary transmission in Germany: new perspectives on financial constraints and investment spending," Working Paper Series 0109, European Central Bank.
  11. Donald W.K. Andrews, 1997. "Consistent Moment Selection Procedures for Generalized Method of Moments Estimation," Cowles Foundation Discussion Papers 1146R, Cowles Foundation for Research in Economics, Yale University.
  12. 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.
  13. Stephen D. Oliner & Glenn D. Rudebusch, 1994. "Is there a broad credit channel for monetary policy?," Working Paper Series / Economic Activity Section 146, Board of Governors of the Federal Reserve System (U.S.).
  14. 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.
  15. 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.
  16. 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.
  17. 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.
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