The impact of interest: How loan rates shape firm investment by Lea Best , Benjamin Born, Manuel Menkhoff published by VOXEU (10/2025).
Monetary policy moves aggregate investment, but the underlying drivers remain unclear. This column opens the black box with a German firm survey. A one percentage point fall in loan rates raises investment by about 7%. Yet many firms do not adjust, often because they have ample cash or are off the margin. Firms’ narratives and their responses to actual monetary policy shocks indicate that the borrowing-cost channel is first-order for policy.
