We study how firms’ investment responds to interest rate changes based on a German firm survey, combining hypothetical vignettes, open-ended questions, and rich firm data. We estimate a 7 percent semi-elasticity of investment to loan rates—about half the total corporate investment response to monetary policy shocks. Adjustment is heterogeneous: many firms do not react, citing cash buffers or a lack of opportunities, while adjusters revise sharply. Managers’ narratives about monetary policy transmission to investment emphasize direct borrowing-cost effects and rarely mention general-equilibrium channels. Local projections show this direct channel is central to output dynamics after monetary policy shock.
"The impact of interest: Firms’ investment sensitivity to interest rates" "The impact of interest: Firms’ investment sensitivity to interest rates"
The article "The impact of interest: Firms’ investment sensitivity to interest rates" by Lea Best, Benjamin Born, and Manuel Menkhoff was published.
- Lea Best, LMU University of München
- Benjamin Born, University of Bonn
- Manuel Menkhoff, University of Copenhagen