Monetary Policy and Investment in Germany

Nikolaus A Siegfried

No 955, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: This paper investigates monetary policy transmission on a microeconomic level. The credit rationing literature suggests that monetary policy has a larger effects on firms which are credit contrained. I use a large panel of German industrial firms to investigate whether this is empirically true in the German case. Whereas monetary policy has a strong effect on all firms, I find no evidence that tight monetary policy affects constrained firms more than others. This contrasts earlier findings for other countries. My result is robust to a wide array of measures of financial tightness. I conclude that the interest rate channel of monetary policy transmission is very important, whereas the credit channel is negligible in Germany. Given the findings for other countries this result indicates that with regard to a common monetary policy in the Euro area monetary policy may influence investment asymmetrically across member countries.

Date: 2000-08-01
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