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Firm Investment and Monetary Policy Transmission in the Euro Area

Author

Listed:
  • Chatelain, Jean Bernard

    (Banque de France)

  • Generale, Andrea

    (Banca d'Italia)

  • Hernando, Ignacio

    (Banco de España)

  • Kalckreuth, Ulf von

    (Deutsche Bundesbank)

  • Vermeulen, Philip

    (European Central Bank)

Abstract

We present a comparable set of results on the monetary transmission channels on firm investment for the four largest euro-area countries (Germany, France, Italy and Spain). With particularly rich micro datasets for each country containing over 215,000 observations from 1985 to 1999, we explore what can be learned about the interest channel and the broad credit channel. For each of those countries, we estimate neo-classical investment relationships, explaining investment by its user cost, sales and cash flow. We find investment to be sensitive to user cost changes in all those four countries. This implies an operative interest channel in these euro-area countries. We also find investment in all countries to be quite sensitive to cash flow movements. However, only in Italy do smaller firms react more to cash flow movements than large firms, implying that a broad credit channel might not be equally pervasive in all countries.

Suggested Citation

  • Chatelain, Jean Bernard & Generale, Andrea & Hernando, Ignacio & Kalckreuth, Ulf von & Vermeulen, Philip, 2002. "Firm Investment and Monetary Policy Transmission in the Euro Area," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 A3-3, International Conferences on Panel Data.
    • Handle: RePEc:cpd:pd2002:a3-3
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    investment; monetary transmission; user cost of capital;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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