Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/334940 
Year of Publication: 
2025
Series/Report no.: 
ECB Working Paper No. 3080
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
This paper provides novel empirical evidence on the impact of monetary policy on innovation investment using unique firm-level data. First, we document the effect of a large, systematic monetary tightening (ECB rate increases from 0% to 4.5% during 2022-23), with average firm-level innovation cuts of 20%. These cuts persist over the medium term, indicating a sustained innovation slowdown. Second, we use the survey to identify elasticities of innovation expenditure to exogenous policy rate changes. Responses to hikes and cuts are significant and largely symmetric at the baseline rate (4.5%), though we detect potential state-dependent asymmetry due to the extensive margin. The financing channel emerges as one of the transmission channels, with more pronounced effects in firms with higher shares of bank loans and variable-rate loans. Crucially, we show that monetary policy transmits via aggregate demand, with stronger responses in firms with pessimistic demand expectations. Forward guidance provides substantial additional stimulus by reducing uncertainty about future rates, suggesting long-term, supply-side effects of announcements. These results challenge monetary long-run neutrality and are suggestive of policy endogeneity of R* operating through innovation-driven technology growth.
Subjects: 
Monetary Policy Transmission
R&D
Endogenous Growth
Forward Guidance
R*
monetary policy
research and development
innovation
investment
corporate finance
JEL: 
E52
E22
E24
O30
D22
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-7390-8
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.