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A vectorautoregressive investment model (VIM) and monetary policy transmission: panel evidence from German firms

  • Ulf von Kalckreuth

This paper proposes a new framework for studying the effects of monetary policy on business investment, modeling investment spending as a VAR. Based on a panel of financial statement data for 6,408 German firms (44,345 datapoints) supplemented with user costs of capital and confidential measures of creditworthiness, we generate GMM estimates of a Vectorautoregressive Investment Model (VIM) containing investment, cash flow, sales, and the user cost of capital. Apart from reporting several substantive findings, this paper demonstrates that the panel VAR approach is useful for modeling firm dynamics and real/financial interactions and for assessing monetary policy transmission.

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Paper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2003 with number 107.

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Date of creation: 27 Sep 2004
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Handle: RePEc:mmf:mmfc03:107
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  1. Joe Peek & Eric S. Rosengren, 1995. "Is bank lending important for the transmission of monetary policy: an overview," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 39, pages 1-14.
  2. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November.
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  5. Kaplan, Steven N & Zingales, Luigi, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 169-215, February.
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  8. Coen, Robert M, 1969. "Tax Policy and Investment Behavior: Comment," American Economic Review, American Economic Association, vol. 59(3), pages 370-79, June.
  9. Janice C. Eberly & Andrew B. Abel, 2004. "Q Theory Without Adjustment Costs & Cash Flow Effects Without Financing Constraints," 2004 Meeting Papers 205, Society for Economic Dynamics.
  10. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1997. "Monetary policy shocks: what have we learned and to what end?," Working Paper Series, Macroeconomic Issues WP-97-18, Federal Reserve Bank of Chicago.
  11. Joao F. Gomes, 2001. "Financing Investment," American Economic Review, American Economic Association, vol. 91(5), pages 1263-1285, December.
  12. Steven N. Kaplan & Luigi Zingales, 2000. "Investment-Cash Flow Sensitivities Are Not Valid Measures Of Financing Constraints," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 707-712, May.
  13. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
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  15. Chirinko, Robert S., 1997. "Finance Constraints, Liquidity, and Investment Spending: Theoretical Restrictions and International Evidence," Journal of the Japanese and International Economies, Elsevier, vol. 11(2), pages 185-207, June.
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  21. repec:hal:journl:halshs-00112522 is not listed on IDEAS
  22. Jean-Bernard Chatelain, 2003. "Structural Modelling of Financial Constraints on Investment: Where Do We Stand?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00112522, HAL.
  23. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  24. 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.
  25. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 2000. "Investment-Cash Flow Sensitivities Are Useful: A Comment On Kaplan And Zingales," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 695-705, May.
  26. Agresti, Anna Maria & Mojon, Benoît, 2001. "Some stylised facts on the euro area business cycle," Working Paper Series 0095, European Central Bank.
  27. Frederic S. Mishkin, 1995. "Symposium on the Monetary Transmission Mechanism," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 3-10, Fall.
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