Monetary Policy and Intangible Investment

August 7, 2020

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Format: Chicago

Robin Döttling, and Lev Ratnovski. Monetary Policy and Intangible Investment, (USA: International Monetary Fund, 2020) accessed December 22, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We contrast how monetary policy affects intangible relative to tangible investment. We document that the stock prices of firms with more intangible assets react less to monetary policy shocks, as identified from Fed Funds futures movements around FOMC announcements. Consistent with the stock price results, instrumental variable local projections confirm that the total investment in firms with more intangible assets responds less to monetary policy, and that intangible investment responds less to monetary policy compared to tangible investment. We identify two mechanisms behind these results. First, firms with intangible assets use less collateral, and therefore respond less to the credit channel of monetary policy. Second, intangible assets have higher depreciation rates, so interest rate changes affect their user cost of capital relatively less.

Subject: Asset prices, Currencies, Depreciation, Intangible capital, Investment policy, Money, National accounts, Prices

Keywords: Abnormal returns, Adjustment cost, Asset prices, Cost of capital, Currencies, Depreciation, Differential monetary policy reaction, Heterogeneity, Intangible capital, Intangible investment, Investment policy, Investment response, Monetary Policy, Monetary policy shock, Response to monetary policy, Stock Returns, WP

Publication Details

Pages:

53
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/160
Stock No:

WPIEA2020160
ISBN:

9781513552521
ISSN:

1018-5941

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