Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/339378 
Year of Publication: 
2026
Series/Report no.: 
ECONtribute Discussion Paper No. 394
Publisher: 
University of Bonn and University of Cologne, Reinhard Selten Institute (RSI), Bonn and Cologne
Abstract: 
We study how firms' investment responds to interest rate changes based on a German firm survey, combining hypothetical vignettes, open-ended questions, and rich firm data. We estimate a 7 percent semi-elasticity of investment to loan rates-about half the total corporate investment response to monetary policy shocks. Adjustment is heterogeneous: many firms do not react, citing cash buffers or a lack of opportunities, while adjusters revise sharply. Managers' narratives about monetary policy transmission to investment emphasize direct borrowing-cost effects and rarely mention general-equilibrium channels. Local projections show this direct channel is central to output dynamics after monetary policy shocks.
Subjects: 
Interest rates
firm investment
survey experiment
monetary policy
narratives
hurdle rates
aggregate investment
JEL: 
D25
E43
E52
G31
Document Type: 
Working Paper

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