Monetary Policy and Corporate Investment: Analysis of the Asset Price Channel and the Balance Sheet Channel (in Korean)

SaangJoon Baak () and Seung Whan Ryuk ()
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SaangJoon Baak: Faculty of International Research and Education, Waseda University
Seung Whan Ryuk: Economic Research Institute, The Bank of Korea

No 2018-9, Working Papers from Economic Research Institute, Bank of Korea

Abstract: This paper examines the validities of the asset price channel and the balance sheet channel among monetary policy transmission mechanism to confirm whether the monetary policy affect corporate investment or not. Unbalanced dynamic panel model based on system GMM method is employed and financial statements data of Korean firms from 1990 to 2016 are used. ‘Tobin’s q as independent variable is used to estimate the asset price channel, and cross products of liquidity asset ratio and call rate difference, interaction varible, is input to estimate the balance sheet channel. The empirical test results show that (1) both the asset price channel and the balance sheet channel of monetary policy function statistically significant and (2) the 2 channels’ effects on bottom 50% in firm size distribution are greater than those on top 50%. Policy implication of this study is that raising policy rate might reduce investments of relatively small firms under the circumstances that the asset price channel and the balance sheet channel are valid.

Keywords: Monetary policy; Investment; Tobin’s q; Transmission mechanism; Asset price channel; Balance sheet channel (search for similar items in EconPapers)
JEL-codes: E22 E52 G32 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2018-03-30
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