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The balance sheet channel of monetary policy: the panel evidence of Egypt

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  • Mohamed Aseel Shokr
  • Zulkefly Abdul Karim
  • Mohd Azlan Shah Zaidi

Abstract

This paper examines the effects of monetary policy on firms’ investments in Egypt using disaggregated data and generalized method of moments (GMM) technique. It develops the neoclassical investment model by adding the interaction between user cost of capital and cash flow (CF). Therefore, monetary policy affects investment through three effects: user cost of capital, CF and interaction between them. Using a sample of 124 firms, the empirical finding supports the relevance of balance sheet channel (BSC) and the heterogeneous effect of monetary policy on investment. This finding signals that monetary authority should take cognizance of the stability of interest rate to stabilize firm-level investment.

Suggested Citation

  • Mohamed Aseel Shokr & Zulkefly Abdul Karim & Mohd Azlan Shah Zaidi, 2017. "The balance sheet channel of monetary policy: the panel evidence of Egypt," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 10(3), pages 286-305, September.
    • Handle: RePEc:taf:macfem:v:10:y:2017:i:3:p:286-305
    DOI: 10.1080/17520843.2016.1252409
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