Monetary policy and firms’ investment: Dynamic panel data evidence from Malaysia
Zulkefly Abdul Karim
MPRA Paper from University Library of Munich, Germany
This study examines the effects of monetary policy on firms’ balance sheet, with a particular focus on the effects upon the firms’ fixed-investment spending. It uses a dynamic panel system GMM estimation proposed by Blundell and Bond (1998). The focal point has given to the two main channels of monetary policy transmission mechanism such as interest rates and broad credit channel in transmitting to firm investment spending. By estimating the firms’ investment model using a dynamic neo-classical framework, the empirical results tend to support the relevance of interest rates and broad credit channel in transmitting to the firm balance sheet condition that is firm’s investment spending. The results also reveal that the effect of monetary policy channels to the firms’ investment are heterogeneous fashioned, which is the small firms who faced financial constraint are responded more due to monetary tightening as compared to the large firm (less constraint firms). Thus, the monetary authority has to concern the microeconomic aspects of the firm in formulation their monetary policy.
Keywords: Monetary policy; Financial Constraint; Firm Investment; Dynamic Panel Data (search for similar items in EconPapers)
JEL-codes: C23 D92 E52 (search for similar items in EconPapers)
Date: 2010-02-10, Revised 2010-05-15
New Economics Papers: this item is included in nep-mon and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:23962
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