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Monetary policy, investment and firm heterogeneity

Annalisa Ferrando, Philip Vermeulen and Elena Durante

No 2390, Working Paper Series from European Central Bank

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

Keywords: investment; monetary policy shocks; monetary policy transmission (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
Note: 235236
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20202390

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