Euro-monetary Transition

12 Pages 3038 Words

The Eurosystem Monetary Transmission Network
This issue of the ECB Working Paper Series contains research presented at a
conference on “Monetary Policy Transmission in the Euro Area” held at the European
Central Bank on 18 and 19 December 2001. This research was conducted within the
Monetary Transmission Network, a group of economists affiliated with the ECB and
the National Central Banks of the Eurosystem chaired by Ignazio Angeloni. Anil
Kashyap (University of Chicago) acted as external consultant and Benoît Mojon as
secretary to the Network.
The papers presented at the conference examine the euro area monetary transmission
process using different data and methodologies: structural and VAR macro-models for
the euro area and the national economies, panel micro data analyses of the investment
behaviour of non-financial firms and panel micro data analyses of the behaviour of
commercial banks.


Contents
Abstract 4
Non-technical summary 5
1. Introduction 7
II. A Brief account of some Luxembourg peculiarities 9
III. Theoretical aspects 11
IV. Data, variables and estimation methodology 12
V. Empirical results 21
VI. Concluding remarks 26
VII. References 27
VIII. Appendix 29
European Central Bank Working Paper Series 31

Abstract:
This paper investigates the transmission of monetary policy using data from a panel of
Luxembourg firms. The results indicate that the sales accelerator may be at work. A very
robust result is the negative effect of the user cost of capital on firms’ investment ratio.
Changes in user costs are significantly affected by changes in the monetary policy
indicator. In addition, firm specific balance sheet characteristics, such as the lagged cash
stock to capital ratio influence the investment behaviour according to the broad credit
channel theory. Using various sample splits, it is shown that young firms, in particular,
are more sensitive to user cost changes, sales growth and ...