Monetary Policy, Investment and Firm Heterogeneity

Vermeulen, P
Durante, E
Ferrando, A
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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 and that high leverage amplifies the effects, 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. Furthermore, this sectoral effect is longer lived. In line with the demand effects of the interest rate channel, we also provide evidence that sales growth of durables producing firms reacts stronger to a monetary policy shock.

Monetary policy transmission; Monetary policy shocks; Investment
European Economic Review, Volume 148, September 2022, 104251
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© 2022 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (