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The Rise of Intangible Investment and the Transmission of Monetary Policy

Abstract: Monetary policy acts on the economy primarily through its effects on investment spending. But the nature of investment has evolved over time: “Intangible assets”—such as intellectual property or software—play an increasingly important role in the modern economy. In this Chicago Fed Letter, we study the implications of this change for the transmission of monetary policy. We show that investment in intangible assets is less sensitive to interest rates than investment in tangible assets. This suggests that the secular shift toward intangibles has reduced the responsiveness of aggregate economic activity to changes in the short-term interest rate set by the Federal Reserve—by about one-quarter according to our simple calculations.

Keywords: Investment; Intangible capital; Monetary policy; User cost of capital; investment; Capital; Intangible Capital; capacity; Interest rate; Monetary Policy;

JEL Classification: E22; E43; E44; E52;

Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Chicago Fed Letter

Publication Date: 2023-08

Volume: no 482

Pages: 8