Working Paper: CEPR ID: DP2508
Authors: Luca Dedola; Francesco Lippi
Abstract: This paper presents new evidence on the monetary transmission mechanism based on the effects that unexpected monetary policy shocks exert on the activity of 21 manufacturing industries in 5 OECD countries (France, Germany, Italy, UK and USA). The goal is twofold. First, documenting the cross-industry heterogeneity of monetary policy effects. Second, explaining this heterogeneity in terms of some microeconomic characteristics which are suggested by theory, using an original firm-level database. The results highlight the following empirical regularities: (i) a significant cross-industry heterogeneity of policy effects; (ii) a cross-industry distribution of policy effects similar across countries. These patterns are systematically related to the industry output durability and investment-intensity and to measures of firms' borrowing capacity, size, and interest payment burden. The ?credit channel? variables are quantitatively as significant as the traditional ones (durability, investment intensity) in explaining the differential impact of monetary policy.
Keywords: balance sheet data; credit channel; interest rate channel; monetary policy transmission
JEL Codes: E32; E52; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unexpected monetary policy shocks (E39) | output effects of manufacturing industries (L60) |
| type of industry (L69) | magnitude of response to monetary policy changes (E52) |
| industry characteristics (L81) | monetary policy impacts (E52) |
| credit channel variables (E51) | differential impacts of monetary policy (E49) |
| country-specific fixed effects (C23) | influence of institutional and legal factors (O17) |