Loose Monetary Policy and Corporate Investment of Manufacturing Firms in the Czech Republic

Issue: 4/2018

Dagmar Linnertová

Masaryk University, Faculty of Economics and Administration, Institute of Financial Complex Systems, Lipová 41a, 602 00 Brno, Czech Republic. Email: dagmar.linnertova@econ.muni.cz

Veronika Kajurová

Mendel University, Faculty of Business and Economics, Department of Economics, Zemědělská 1, 613 00 Brno, Czech Republic. Email: vkajurova@seznam.cz

The aim of the paper is to evaluate the effects of loose monetary policy on corporate investment of manufacturing firms in the Czech Republic during the period between 2006 and 2015. The main focus of the paper is on the effect of low interest rates on investment activity of Czech firms; additionally, the effects of interactions between interest rate and other firm-specific variables are investigated. The results indicate that corporate investment is positively associated with firm size, investment opportunities, and long term debt. Also, a negative effect of the cash position is found. Further, the findings show that monetary policy is a significant determinant of firm investment activity: when the monetary policy is loose, investment is positively affected. Furthermore, differences in the determinants of investment between highly and low leveraged firms were revealed.

Pages: 
371-385
DOI: 10.2478/revecp-2018-0019
JEL: G31, E58, E52
Keywords: low interest rates, loose monetary policy, corporate investment, balance sheet channel
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