The interest rate and credit channels in Belgium : an investigation with micro-level firm data

This paper investigates the effects of monetary policy on firms' investment behaviour. The analysis relies on a comprehensive database of Belgian firms covering all sectors of economic activity and firms of all sizes. We proceed in two steps. First, we estimate a reduced-form investment equation derived from the neo-classical model, augmented by cash flow. This equation is estimated by the Arellano and Bond (1991) GMM procedure. Second, we compute the elasticity of the user cost of capital and the cash flow/capital ratio to the policy-controlled interest rate. We estimate the model for various sample splits according to sectors and sizes. Our results indicate that small firms are more sensitive to monetary policy than large firms, and that services are almost unaffected. Since the impact differs across sectors and sizes, we can conclude that monetary policy produces distributional effects.