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The interest rate and credit channels in Belgium: an investigation with micro-level firm data

  • Paul Butzen


    (National Bank of Belgium, Research Department)

  • Catherine Fuss


    (National Bank of Belgium, Research Department)

  • Philip Vermeulen


    (European Central Bank)

This paper investigates the effects of monetary policy on firms\u2019 investment behaviour. The analysis relies on a comprehensive database of Belgian firms covering all sectors of economic activity and firms of all sizes. We proceed in two steps. First, we estimate a reduced-form investment equation derived from the neo-classical model, augmented by cash flow. This equation is estimated by the Arellano and Bond (1991) GMM procedure. Second, we compute the elasticity of the user cost of capital and the cash flow/capital ratio to the policy-controlled interest rate. We estimate the model for various sample splits according to sectors and sizes. Our results indicate that small firms are more sensitive to monetary policy than large firms, and that services are almost unaffected. Since the impact differs across sectors and sizes, we can conclude that monetary policy produces distributional effects.

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Paper provided by National Bank of Belgium in its series Working Paper Research with number 18.

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Length: 51 pages
Date of creation: Dec 2001
Date of revision:
Handle: RePEc:nbb:reswpp:2001-12
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  1. 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.
  2. R. Glenn Hubbard & Anil K Kashyap & Toni M. Whited, 1993. "Internal Finance and Firm Investment," NBER Working Papers 4392, National Bureau of Economic Research, Inc.
  3. Guiso, Luigi, 1997. "High-Tech Firms and Credit Rationing," CEPR Discussion Papers 1696, C.E.P.R. Discussion Papers.
  4. Barran, Fernando & Peeters, Marga, 1998. "Internal finance and corporate investment: Belgian evidence with panel data," MPRA Paper 28504, University Library of Munich, Germany.
  5. Mark Doms & Timothy Dunne, 1994. "Capital Adjustment Patterns in Manufacturing Plants," Working Papers 94-11, Center for Economic Studies, U.S. Census Bureau.
  6. Stephen Bond & Julie Ann Elston & Jacques Mairesse & Beno�t Mulkay, 2003. "Financial Factors and Investment in Belgium, France, Germany, and the United Kingdom: A Comparison Using Company Panel Data," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 153-165, February.
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