Monetary transmission in Germany: New Perspectives on Financial Constraints and Investment Spending

Ulf von Kalckreuth

No 2001,19, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank

Abstract: In order to obtain a better understanding of monetary transmission, this paper assesses the importance of the interest rate and credit channels on business fixed investment in the German manufacturing sector. Our panel of financial statements contains 44,345 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. Quantitatively, however, this balance-sheet channel seems to be of secondary importance.

Keywords: Monetäre Transmission; Investition; Kapitalnutzungskosten; finanzielle Restriktionen; Kreditkanal; Monetary Transmission; Firm Investment; User Cost; Finance Constraints; Credit Channel (search for similar items in EconPapers)
JEL-codes: E2 E5 (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (35)

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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)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdp1:4164

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