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Monetary policy, investment and firm heterogeneity

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  • Ferrando, Annalisa
  • Vermeulen, Philip
  • Durante, Elena

Abstract

This paper provides new evidence on the channels of monetary policy transmission combining 9 million observations on firm level investment and high-frequency identified monetary policy shocks. We show that the reaction of firms’ investment to a monetary policy shock is heterogeneous along dimensions that correspond to the two main channels of monetary policy transmission. First, we show that young firms are more sensitive to monetary policy shocks, supporting the existence of a credit channel of monetary policy. Second, we document large cross-sectional heterogeneity related to the industry the firm operates in. We find that firms producing durable goods react more than others, which is consistent with traditional interest rate channel effects of monetary policy. Third, we find that the effect of monetary policy shocks is longer lived for firms that are durable goods producers than for young firms indicating that demand effects last longer than credit effects. JEL Classification: E22, E52

Suggested Citation

  • Ferrando, Annalisa & Vermeulen, Philip & Durante, Elena, 2020. "Monetary policy, investment and firm heterogeneity," Working Paper Series 2390, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20202390
    Note: 235236
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    More about this item

    Keywords

    investment; monetary policy shocks; monetary policy transmission;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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