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Robin Döttling and Mr. Lev Ratnovski
We contrast how monetary policy affects intangible relative to tangible investment. We document that the stock prices of firms with more intangible assets react less to monetary policy shocks, as identified from Fed Funds futures movements around FOMC announcements. Consistent with the stock price results, instrumental variable local projections confirm that the total investment in firms with more intangible assets responds less to monetary policy, and that intangible investment responds less to monetary policy compared to tangible investment. We identify two mechanisms behind these results. First, firms with intangible assets use less collateral, and therefore respond less to the credit channel of monetary policy. Second, intangible assets have higher depreciation rates, so interest rate changes affect their user cost of capital relatively less.
Robin Döttling and Mr. Lev Ratnovski

1 Introduction Technological progress and the transition to a service economy have increased the importance of corporate intangible assets. Intangible investment—that in intellectual property, organizational structure, business strategy, and brand equity—was under half of tangible investment in the 1970s, and now exceeds tangible investment ( Corrado and Hulten, 2010 ). This paper asks how the rise of corporate intangible assets affects the effectiveness of monetary policy. Our headline result is that intangible investment responds less to monetary policy