Monetary transmission in Germany: new perspectives on financial constraints and investment spending

Ulf von Kalckreuth

No 109, Working Paper Series from European Central Bank

Abstract: In order to obtain a better understanding of the transmission channels for monetary policy, this paper assesses the importance of the interest rate and credit channels on business fixed investment in Germany. Our unbalanced panel of financial statements contains 44,345 firm/year observations for 6,408 firms. We uncover a rather solid interest channel. A transitory increase in nominal interest rates by 100 basis points would depress investment demand by almost 4% within the first year. Using our direct measure of creditworthiness, we can also document a balance-sheet channel. Relative to unconstrained firms, financially constrained firms exhibit increased sensitivity to internal funds, and decreased sensitivity to the user cost as well as to market demand. Furthermore, changes in the rating of firms seem to affect investment demand in a way that is consistent with the presence of a balance-sheet channel. This balance-sheet channel, however, seems to be of secondary importance JEL Classification: E5, E2

Keywords: finance; firm investment; monetary transmission; user cost (search for similar items in EconPapers)
Date: 2001-12
References: Add references at CitEc
Citations: View citations in EconPapers (39)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp109.pdf (application/pdf)

Related works:
Working Paper: Monetary Transmission in Germany: New Perspectives on Financial Constraints and Investment Spending (2002)
Working Paper: Monetary transmission in Germany: New Perspectives on Financial Constraints and Investment Spending (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2001109

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().