Does the Uncertainty of Monetary Policy Affect the Efficacy of Interest Rate Transmission Mechanisms? Micro-Evidence from the Investment-Capital Cost Sensitivity of Chinese Enterprises

Shenling Wang; Ling Jiang; Cai Chang

doi:10.62051/ijgem.v2n1.09

Authors

Shenling Wang
Ling Jiang
Cai Chang

DOI:

https://doi.org/10.62051/ijgem.v2n1.09

Keywords:

Interest Rate Transmission Mechanism, Monetary Policy Uncertainty, Corporate Investment, Capital Cost

Abstract

The uncertainty of monetary policy, as a latent cost of monetary policy regulation, increasingly captures the attention of the theoretical community and policy authorities worldwide. Employing empirical analysis on data from China's A-share non-financial listed companies between 2003 and 2019, it is found that monetary policy uncertainty undermines corporate confidence in development, leading to a diminished enthusiasm for adjusting investment strategies in response to economic fluctuations. This hampers the sensitivity of corporate investment to capital costs, suggesting that monetary policy uncertainty impedes market entity decision-making, not only impairing the effectiveness of monetary policy interest rate transmission mechanisms but also reducing the efficiency of corporate investment. Mechanism tests indicate that corporate confidence in development plays a crucial role in investment decisions in uncertain economic environments.

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