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

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  • Chatelain, Jean-Bernard

    (Banque de France)

  • AndrÈ Tiomo

Abstract

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.

Suggested Citation

  • Chatelain, Jean-Bernard & AndrÈ Tiomo, 2002. "Investment, the Cost of Capital, and Monetary Policy in the Nineties in France: A Panel Data Investigation," Royal Economic Society Annual Conference 2002 45, Royal Economic Society.
  • Handle: RePEc:ecj:ac2002:45
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    References listed on IDEAS

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    5. 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.
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    10. 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.
    11. 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.
    12. 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.
    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. 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.
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    Cited by:

    1. Andrew Benito & John Whitley, 2003. "Implicit interest rates and corporate balance sheets: an analysis using aggregate and disaggregated UK data," Bank of England working papers 193, Bank of England.
    2. Tomat, Gian Maria, 2002. "Durable goods, price indexes and quality change: an application to automobile prices in Italy, 1988-1998," Working Paper Series 0118, European Central Bank.
    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.
    4. 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.
    5. Nagahata, Takashi & Sekine, Toshitaka, 2005. "Firm investment, monetary transmission and balance-sheet problems in Japan: an investigation using micro data," Japan and the World Economy, Elsevier, vol. 17(3), pages 345-369, August.
    6. Jean-Bernard Chatelain & Jean-Christophe Teurlai, 2004. "The impact of the cost of capital and of the decision to invest or to divest on investment behaviour: an empirical investigation using a panel of French services firms," Money Macro and Finance (MMF) Research Group Conference 2003 13, Money Macro and Finance Research Group.
    7. Philippe Askenazy & Christophe Cahn & Delphine Irac, 2008. "Competition, R&D and the cost of innovation," Working Papers halshs-00586690, HAL.
    8. Ignacio Hernando & André Tiomo, 2002. "Financial constraints and investment in France and Spain: a comparison using firm level data," Working Papers 0214, Banco de España;Working Papers Homepage.
    9. Takashi Nagahata & Toshitaka Sekine, 2002. "The Effects of Monetary Policy on Firm Investment after the Collapse of the Asset Price Bubble: An Investigation Using Japanese Micro Data," Bank of Japan Working Paper Series Research and Statistics D, Bank of Japan.
    10. Surach Tanboon & Suchot Piamchol & Tanawat Ruenbanterng & Paiboon Pongpaichet, 2009. "Impacts of Financial Factors on Thailand's Business Cycle Fluctuations," Working Papers 2009-01, Monetary Policy Group, Bank of Thailand.
    11. Jean-Bernard Chatelain & Andrea Generale & Ignacio Hernando & Philip Vermeulen & Ulf Von Kalckreuth, 2003. "New Findings on Firm Investment and Monetary Policy Transmission in the Euro Area," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00119490, HAL.
    12. 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.
    13. Ulf von Kalckreuth, 2003. "Exploring the role of uncertainty for corporate investment decisions in Germany," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 139(II), pages 173-206, June.
    14. Jean-Bernard Chatelain & Andre Tiomo, 2002. "Investment and the Cost of Capital in the Nineties in France: A Panel Data Investigation," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00112540, HAL.
    15. Jean-Bernard Chatelain & Michael Ehrmann & Andrea Generale & Jorge Martínez-Pagés & Philip Vermeulen & Andreas Worms, 2003. "Monetary Policy Transmission in the Euro Area: New Evidence From Micro Data on Firms and Banks," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 731-742, 04/05.
    16. repec:hal:journl:halshs-00112523 is not listed on IDEAS
    17. repec:hal:journl:halshs-00119490 is not listed on IDEAS
    18. Bernhardt, Thomas, 2016. "South-South trade and South-North trade: which contributes more to development in Asia and South America? Insights from estimating income elasticities of import demand," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    19. Bernhardt, Thomas, 2014. "How promising is South-South trade as a contributor to economic development in Asia and South America? Insights from estimating income elasticities of import demand," MPRA Paper 56413, University Library of Munich, Germany.
    20. Gianni La Cava, 2005. "Financial Constraints, the User Cost of Capital and Corporate Investment in Australia," RBA Research Discussion Papers rdp2005-12, Reserve Bank of Australia.
    21. Mojon, Benoît & Kashyap, Anil K. & Angeloni, Ignazio & Terlizzese, Daniele, 2002. "Monetary Transmission in the Euro Area : Where Do We Stand?," Working Paper Series 0114, European Central Bank.

    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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