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BOK Working Paper No.2018-9, Monetary Policy and Corporate Investment: Analysis of the Asset Price Channel and the Balance Sheet Channel

Author : SaangJoon Baak, Seung Whan Ryuk
Economic Research Institute(+82-2-759-5425) 2018.03.29 3484

Title : Monetary Policy and Corporate Investment: Analysis of the Asset Price Channel and the Balance Sheet Channel

Author : SaangJoon Baak(Waseda University), Seung Whan Ryuk(BOK)



This paper examines the validities of the asset price channel and the balance sheet channel among monetary policy transmission mechanism to confirm whether the monetary policy affect corporate investment or not.

Unbalanced dynamic panel model based on system GMM method is employed and financial statements data of Korean firms from 1990 to 2016 are used. 

‘Tobin’s q as independent variable is used to estimate the asset price channel, and cross products of liquidity asset ratio and call rate difference, interaction varible, is input to estimate the balance sheet channel.  

The empirical test results show that (1) both the asset price channel and the balance sheet channel of monetary policy function statistically significant and (2) the 2 channels’ effects on bottom 50% in firm size distribution are greater than those on top 50%. 

Policy implication of this study is that raising policy rate might reduce investments of relatively small firms under the circumstances that the asset price channel and the balance sheet channel are valid.

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