Monetary Policy and Investment Dynamics: Evidence from Disaggregate Data

We use data on the components of private fixed investment (PFI) to estimate industry‐level responses of real investment and capital prices to unanticipated monetary policy. The response functions derive from a restricted large‐scale vector autoregression. Results point to significant cross‐sector heterogeneity in PFI prices and quantities, which we interpret as evidence of asymmetry in the transmission mechanism. For assets belonging to the equipment category of fixed investment, we find that quantities rather than prices absorb most of the fallout from a policy innovation. By contrast, price effects tend to be higher and output effects lower for nonresidential structures.