Monetary policy, investment and firm heterogeneity

Elena Durante, Annalisa Ferrando and Philip Vermeulen

European Economic Review, 2022, vol. 148, issue C

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 and that high leverage amplifies the effects, 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. Furthermore, this sectoral effect is longer lived. In line with the demand effects of the interest rate channel, we also provide evidence that sales growth of durables producing firms reacts stronger to a monetary policy shock.

Keywords: Monetary policy transmission; Monetary policy shocks; Investment (search for similar items in EconPapers)
JEL-codes: E22 E52 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Working Paper: Monetary policy, investment and firm heterogeneity (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:148:y:2022:i:c:s0014292122001489

DOI: 10.1016/j.euroecorev.2022.104251

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