Monetary transmission to firm-level research and development

Ruslana Datsenko and Martin B. Holm

Monetary policy is usually evaluated through aggregate output and inflation, with less attention to how it reallocates innovative investment across firms. Existing evidence shows that higher rates reduce innovation, but the firms driving this response remain unclear. Combining Norway’s research and development (R&D) survey with administrative data and narrative monetary shocks for 2001–18, we estimate heterogeneous firm responses. Contractionary policy reduces R&D most in high-growth firms with recent equity issuance, consistent with the asset-price channel of monetary transmission. Standard debt-based measures explain little heterogeneity. Monetary policy therefore has long-run real effects primarily by reducing R&D in high-growth innovative firms.

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