Introduction

This chapter investigates how monetary policy affects business real fixed investment in Belgium, through the interest rate channel and the broad credit channel. These channels are roughly associated with the effects that operate through the user cost of capital and the cash flow–capital ratio. An extensive version of this chapter can be found in Butzen, Fuss and Vermeulen (2001).

Our analysis relies on firm-level annual accounts data. To our knowledge, there is no firm-level evidence so far on the interest rate channel for Belgium. Only a few papers explicitly introduce the user cost of capital in their specification. One example is the cointegration analysis of Gérard and Verschueren (2000) on industry-level data that reveals differences in long-run elasticity of investment to the user cost across Belgian industries.

A couple of papers assess the relevance of financial constraints for particular groups of Belgian firms. The existence of these constraints is a necessary condition for the broad credit channel to be at work. Using an Euler equation framework Vermeulen (1998) finds that only firms that entirely depend on banks as providers of external funds are financially constrained. Deloof (1998) stresses the role of holding companies and corporate groups as providers of intra-group funds. Barran and Peeters (1998) show that firms affiliated to a coordination centre (a particular form of group membership, see section 2, p. 166) are less financially constrained than other firms. In contrast with this evidence, Bond et al. (1997) find no significant effect of financial variables in Belgium.