MONETARY POLICY AND FIRMS' INVESTMENT IN MALAYSIA: A PANEL EVIDENCE
Abstracthis study examines the effects of monetary policy on firms’ balance sheets, witha particular focus onthe effects upon firms’ fixed-investment spending. Ituses a dynamic panel system GMM estimation proposedby Blundell and Bond (1998). The focal point concernsthe two mainchannels ofmonetary policy transmissionmechanism,namely theinterest rates and broad creditchannelsinaffectingfirms’ investmentspending.By estimating thefirms’ investment modelusing a dynamic neoclassical frameworkinan autoregressive distributed lagged(ARDL) model,the empirical results tendtosupport the relevance ofinterestrates and broad credit channels intransmittingto the firmbalance sheet condition, thatis, firms’ investmentspending. Theresultsalso reveal that theeffect of monetarypolicychannelstothe firms’ investmentare heterogeneous,in that the small firms which faced financial constraint responded more to monetarytightening ascomparedtothelarge firm(less constrained firms). Thus,themonetaryauthorityhastoconsiderthe microeconomicaspects of firmbehaviour informulating their monetarypolicy.
JEL Classification: E22, E52, C33
Key words: Monetarypolicy, Financialconstraint, Firminvestment, Dynamic paneldata
How to Cite
Karim, Z. A. (2013). MONETARY POLICY AND FIRMS’ INVESTMENT IN MALAYSIA: A PANEL EVIDENCE. International Journal of Economics, Management and Accounting, 18(2). Retrieved from https://journals.iium.edu.my/enmjournal/index.php/enmj/article/view/173