Monetary Policy and Investment Dynamics: Evidence from Disaggregate Data

We use disaggregated data on the components of private fixed investment (PFI) to estimate industry-level responses of real investment and capital prices to unanticipated monetary policy. The response functions derive from a restricted large-scale VAR estimated over 1959-2007. Our results point to significant cross-sector heterogeneity in the behavior of PFI prices and quantities. For assets belonging to the equipment category of fixed investment, we find that quantities rather than prices absorb most of the fallout from a policy shock. By contrast, the price effects tend to be higher and the output effects lower for nonresidential structures.