Monetary Policy and Intangible Investment

Author/Editor:

Robin Döttling ; Lev Ratnovski

Publication Date:

August 7, 2020

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

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.

Series:

Working Paper No. 20/160

Frequency:

regular

English

Publication Date:

August 7, 2020

ISBN/ISSN:

9781513552521/1018-5941

Stock No:

WPIEA2020160

Format:

Paper

Pages:

53

Please address any questions about this title to publications@imf.org