Beyond the Short Run: Monetary Policy and Innovation Investment

Elfsbacka-Schmöller, Michaela, Olga Goldfayn-Frank and Tobias Schmidt

No 21992, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study monetary policy transmission to innovation using a representative survey of German firms. Firms report persistent innovation investment reductions averaging 20% due to the ECB’s 2022–23 monetary tightening. A survey-based experiment shows that rate hikes lower and cuts raise innovation investment, with state-dependent asymmetry reflecting exit from innovation activity at high policy rates. Forward guidance stimulates innovation investment by resolving policy-rate uncertainty, providing novel evidence of its medium-term, supply-side effects. We document two distinct transmission channels—financing and demand expectations—with amplification under simultaneous exposure. Our findings suggest that monetary policy affects innovation-driven technological progress typically considered longer-term and policy-exogenous.

Keywords: Monetary policy transmission; Forward guidance; Innovation; Survey experiments; Endogenous growth (search for similar items in EconPapers)
JEL-codes: D22 E22 E52 O31 O40 (search for similar items in EconPapers)
Date: 2026-09
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