Monetary Policy and Intangible Investment

IMF Working Papers, August 7, 2020

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The paper contrasts how monetary policy affects intangible relative to tangible investment.
Stock prices of firms with more intangible assets react less to monetary policy shocks, as identified from Fed Funds futures movements around FOMC announcements.
Instrumental variable local projections confirm:
- Total investment in firms with more intangible assets responds less to monetary policy.
- Intangible investment responds less to monetary policy compared to tangible investment.

Collateral channel:
- Firms with intangible assets use less collateral, and therefore respond less to the credit channel of monetary policy.
Depreciation / user cost channel:
- Intangible assets have higher depreciation rates, so interest rate changes affect their user cost of capital relatively less.

Identification of monetary policy shocks: Fed Funds futures movements around FOMC announcements.
Asset-price evidence: differential stock-price reactions by firms with varying intangible asset shares support the investment response results.
Econometric method: instrumental variable local projections used to estimate investment responses.

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

IMF Working Paper — Monetary Policy and Intangible Investment, by Robin Döttling and Lev Ratnovski (August 7, 2020).