Monetary policy effects on investment spending: A firm-level study of Malaysia

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

Purpose: The purpose of this paper is to explore the role of monetary policy transmission mechanism channel on firms' investment spending. The focal point is to investigate the differential of monetary policy effects across sub-sector firms' investment by examining the role of interest rates, and broad credit channel of monetary transmission. Design/methodology/approach: The following research design has been employed in examining the relevance of both monetary policy channels. First, the firm user cost of capital as a proxy for the interest rates channel is constructed. Second, the neoclassical model of firm-level investment function has been estimated using the dynamic panel data technique. Findings: The results revealed that the monetary policy transmission mechanism works through both interest rate, and broad credit channels in influencing firms' investment spending in the Malaysian economy. Monetary policy has heterogeneous effects in respect of sub-sectors of the economy. In the long-run, the firm investment in the consumer products and services sectors are significantly affected by the interest rate and broad credit channels. However, the firm investment in the industrial products and property sectors has only been significantly affected by interest rates and broad credit channel, respectively. Originality/value: The empirical results provide new evidence on the microeconomic effects of monetary policy in a small open economy (i.e. Malaysia) in two dimensions. First, this finding has supported the relevance of interest rates and broad credit channel of monetary transmission in a small open economy. Second, monetary policy effects are also heterogeneous by sub-sectors of the economy, as some sectors (for example, consumer products, industrial products, and services) are significantly affected by monetary policy, and other sub-sectors (for example, property) are not affected.

Original languageEnglish
Pages (from-to)268-286
Number of pages19
JournalStudies in Economics and Finance
Volume29
Issue number4
DOIs
Publication statusPublished - Sep 2012

Fingerprint

Interest rates
Monetary policy
Malaysia
Firm investment
Credit channel
Small open economy
Monetary policy transmission mechanism
Monetary transmission
Consumer products
Consumer services
User cost of capital
Service sector
Dynamic panel data
Microeconomics
Empirical results
Neoclassical model
Design methodology
Research design

Keywords

  • Dynamic panel data
  • Financial constraint
  • Firm investment
  • Heterogeneity
  • Malaysia
  • Monetary policy

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

Cite this

Monetary policy effects on investment spending : A firm-level study of Malaysia. / Abdul Karim, Zulkefly.

In: Studies in Economics and Finance, Vol. 29, No. 4, 09.2012, p. 268-286.

Research output: Contribution to journalArticle

@article{24fa3002e80b449ba5bde6adbfaa5745,
title = "Monetary policy effects on investment spending: A firm-level study of Malaysia",
abstract = "Purpose: The purpose of this paper is to explore the role of monetary policy transmission mechanism channel on firms' investment spending. The focal point is to investigate the differential of monetary policy effects across sub-sector firms' investment by examining the role of interest rates, and broad credit channel of monetary transmission. Design/methodology/approach: The following research design has been employed in examining the relevance of both monetary policy channels. First, the firm user cost of capital as a proxy for the interest rates channel is constructed. Second, the neoclassical model of firm-level investment function has been estimated using the dynamic panel data technique. Findings: The results revealed that the monetary policy transmission mechanism works through both interest rate, and broad credit channels in influencing firms' investment spending in the Malaysian economy. Monetary policy has heterogeneous effects in respect of sub-sectors of the economy. In the long-run, the firm investment in the consumer products and services sectors are significantly affected by the interest rate and broad credit channels. However, the firm investment in the industrial products and property sectors has only been significantly affected by interest rates and broad credit channel, respectively. Originality/value: The empirical results provide new evidence on the microeconomic effects of monetary policy in a small open economy (i.e. Malaysia) in two dimensions. First, this finding has supported the relevance of interest rates and broad credit channel of monetary transmission in a small open economy. Second, monetary policy effects are also heterogeneous by sub-sectors of the economy, as some sectors (for example, consumer products, industrial products, and services) are significantly affected by monetary policy, and other sub-sectors (for example, property) are not affected.",
keywords = "Dynamic panel data, Financial constraint, Firm investment, Heterogeneity, Malaysia, Monetary policy",
author = "{Abdul Karim}, Zulkefly",
year = "2012",
month = "9",
doi = "10.1108/10867371211266919",
language = "English",
volume = "29",
pages = "268--286",
journal = "Studies in Economics and Finance",
issn = "1086-7376",
publisher = "Emerald Group Publishing Ltd.",
number = "4",

}

TY - JOUR

T1 - Monetary policy effects on investment spending

T2 - A firm-level study of Malaysia

AU - Abdul Karim, Zulkefly

PY - 2012/9

Y1 - 2012/9

N2 - Purpose: The purpose of this paper is to explore the role of monetary policy transmission mechanism channel on firms' investment spending. The focal point is to investigate the differential of monetary policy effects across sub-sector firms' investment by examining the role of interest rates, and broad credit channel of monetary transmission. Design/methodology/approach: The following research design has been employed in examining the relevance of both monetary policy channels. First, the firm user cost of capital as a proxy for the interest rates channel is constructed. Second, the neoclassical model of firm-level investment function has been estimated using the dynamic panel data technique. Findings: The results revealed that the monetary policy transmission mechanism works through both interest rate, and broad credit channels in influencing firms' investment spending in the Malaysian economy. Monetary policy has heterogeneous effects in respect of sub-sectors of the economy. In the long-run, the firm investment in the consumer products and services sectors are significantly affected by the interest rate and broad credit channels. However, the firm investment in the industrial products and property sectors has only been significantly affected by interest rates and broad credit channel, respectively. Originality/value: The empirical results provide new evidence on the microeconomic effects of monetary policy in a small open economy (i.e. Malaysia) in two dimensions. First, this finding has supported the relevance of interest rates and broad credit channel of monetary transmission in a small open economy. Second, monetary policy effects are also heterogeneous by sub-sectors of the economy, as some sectors (for example, consumer products, industrial products, and services) are significantly affected by monetary policy, and other sub-sectors (for example, property) are not affected.

AB - Purpose: The purpose of this paper is to explore the role of monetary policy transmission mechanism channel on firms' investment spending. The focal point is to investigate the differential of monetary policy effects across sub-sector firms' investment by examining the role of interest rates, and broad credit channel of monetary transmission. Design/methodology/approach: The following research design has been employed in examining the relevance of both monetary policy channels. First, the firm user cost of capital as a proxy for the interest rates channel is constructed. Second, the neoclassical model of firm-level investment function has been estimated using the dynamic panel data technique. Findings: The results revealed that the monetary policy transmission mechanism works through both interest rate, and broad credit channels in influencing firms' investment spending in the Malaysian economy. Monetary policy has heterogeneous effects in respect of sub-sectors of the economy. In the long-run, the firm investment in the consumer products and services sectors are significantly affected by the interest rate and broad credit channels. However, the firm investment in the industrial products and property sectors has only been significantly affected by interest rates and broad credit channel, respectively. Originality/value: The empirical results provide new evidence on the microeconomic effects of monetary policy in a small open economy (i.e. Malaysia) in two dimensions. First, this finding has supported the relevance of interest rates and broad credit channel of monetary transmission in a small open economy. Second, monetary policy effects are also heterogeneous by sub-sectors of the economy, as some sectors (for example, consumer products, industrial products, and services) are significantly affected by monetary policy, and other sub-sectors (for example, property) are not affected.

KW - Dynamic panel data

KW - Financial constraint

KW - Firm investment

KW - Heterogeneity

KW - Malaysia

KW - Monetary policy

UR - http://www.scopus.com/inward/record.url?scp=84866707413&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84866707413&partnerID=8YFLogxK

U2 - 10.1108/10867371211266919

DO - 10.1108/10867371211266919

M3 - Article

AN - SCOPUS:84866707413

VL - 29

SP - 268

EP - 286

JO - Studies in Economics and Finance

JF - Studies in Economics and Finance

SN - 1086-7376

IS - 4

ER -