The Effect of Monetary Policy on Firm Beliefs

We conduct a survey experiment targeting Swiss firms participating in the KOF Investment Survey. The intervention consists of exposing firms to a series of hypothetical scenarios (vignettes) about unexpected changes in the Swiss National Bank's (SNB) policy rate.

We conduct a survey experiment targeting Swiss firms participating in the KOF Investment Survey. The intervention consists of exposing firms to a series of hypothetical scenarios (vignettes) about unexpected changes in the Swiss National Bank's (SNB) policy rate.

Firms will be asked to respond to scenarios where the policy rate deviates from their expectations by increments of +0.50, +0.25, -0.25, or -0.50 percentage points. They will assess how such changes would affect their investment plans through various channels, including demand, the cost of finance, the availability of external finance, and exchange rates. In addition, a control group is asked to formulate their investment plans on the basis of a policy rate that is in line with their expectations.

The survey also collects information on firms' current financing structure, their expectations regarding the SNB's future policy decisions, and the reasons for potentially abstaining from investment. This structured approach enables us to simulate the causal impact of policy rate changes on firms' investment behavior in a controlled environment.

2024-10-01

2024-12-24

The primary outcome is the extent to which firms revise their planned investment volumes in response to hypothetical changes in the SNB policy rate. This is measured as the percentage increase or decrease in planned investments relative to their baseline plans. Investments are distinguished into equipment, construction, and research and development.

Change in Investment Plans:
The primary outcome is the extent to which firms revise their planned investment volumes in response to hypothetical changes in the SNB policy rate. This is measured as the percentage increase or decrease in planned investments relative to their baseline plans. Investments are distinguished into equipment, construction, and research and development.

Identified Channels of Influence:
Firms' self-reported assessment of the primary channels through which SNB policy rate changes affect their investment decisions. These channels include:
- Demand for their products or services
- Costs of external financing (e.g., loans, bonds)
- Availability of external financing
- Exchange rate effects

Asymmetry in Responses:
Differences in firms’ responses to positive versus negative policy rate shocks.

Nonlinearities in Responses:
Differences in firms' responses depending on the magnitude of the policy rate shocks (+0.50pp, +0.25pp, -0.25pp, -0.50pp).

Heterogeneity by Financing Structure:
Variation in investment revisions based on the firms’ financing sources (e.g., internal funds, bank loans, equity financing).

Change in Financing Structure (substitution effects):
Variation in firms' financing sources in response to the unexpected change in the SNB policy rate.

Further heterogeneity analyses:
Differences in firms' responses across sectors, firm size, export orientation

This study employs a survey experiment to analyze how Swiss firms adjust their investment plans in response to hypothetical changes in the Swiss National Bank's (SNB) policy rate. The experiment is conducted as part of the KOF Investment Survey, targeting firms from various sectors across Switzerland.

The experimental design consists of the following steps:

1) Baseline Information Collection, 2) Policy Rate Expectations, 3) Hypothetical Scenarios (Interventions), 4) Channels of Influence, 5) Outcome Assessment.

The randomized nature of the hypothetical scenarios ensures that the causal impact of policy rate changes on investment behavior can be identified, allowing for the examination of nonlinearities, asymmetries, and heterogeneities in firms' responses. Data analysis will focus on quantifying these effects and identifying key determinants of firms' sensitivity to monetary policy changes.

This study employs a survey experiment to analyze how Swiss firms adjust their investment plans in response to hypothetical changes in the Swiss National Bank's (SNB) policy rate. The experiment is conducted as part of the KOF Investment Survey, targeting firms from various sectors across Switzerland.

The experimental design consists of the following steps:

1) Baseline Information Collection: Firms are first asked to provide details on their current investment plans (previous year, current year, next year), financing sources (e.g., internal funds, bank loans, bonds, equity financing), and reasons for abstaining from investment (if applicable).

2) Policy Rate Expectations: Firms are asked to state their expectations for the SNB’s next policy rate decision.

3) Hypothetical Scenarios (Intervention): Firms are presented with a series of vignettes describing unexpected deviations in the SNB policy rate from their stated expectations (+0.50%, +0.25%, -0.25%, -0.50%). In addition, a control group is presented with a scenario in which the SNB's next policy rate decision aligns with their expectation.
- Control group: Assume that the SNB sets the policy rate at its next meeting in line with your expectations.
- Vignette 1: Assume that the SNB sets the policy rate at its next meeting 0.50 percentage points higher than you expected.
- Vignette 2: Assume that the SNB sets the policy rate at its next meeting 0.25 percentage points higher than you expected.
- Vignette 3: Assume that the SNB sets the policy rate at its next meeting 0.25 percentage points lower than you expected.
- Vignette 4: Assume that the SNB sets the policy rate at its next meeting 0.50 percentage points lower than you expected.
In response to each scenario, firms are asked to indicate how they would revise their investment plans.

4) Channels of Influence: Firms are asked to identify the primary mechanisms through which policy rate changes would affect their investment plans. These include demand, financing costs, availability of external financing, and exchange rate effects.

5) Outcome Assessment: Firms are asked to rate the certainty of realizing their revised investment plans under each hypothetical scenario.

The randomized nature of the hypothetical scenarios ensures that the causal impact of policy rate changes on investment behavior can be identified, allowing for examining nonlinearities, asymmetries, and heterogeneities in firms' responses. Data analysis will focus on quantifying these effects and identifying key determinants of firms' sensitivity to monetary policy changes.

The experiment is attached to the questionnaire of the long-standing KOF investment survey. Survey participants are representatives of Swiss companies who are invited to participate in an online survey. The companies are sampled according to industry classification (NOGA) and size (full-time employees). The survey is conducted in German, French, Italian and English.

Randomization is conducted in the office by a computer (at the firm's login). The hypothetical scenarios (vignettes) are randomly assigned to firms with equal probabilities for all treatment arms using a computer-generated random number algorithm to ensure unbiased and equitable assignment across participants. This randomization process ensures that the treatment groups are statistically comparable and that any observed differences in outcomes can be attributed to the intervention.

The unit of randomization is the firm. Each firm participating in the survey experiment is independently and randomly assigned to one of the hypothetical scenarios regarding changes in the SNB policy rate. Specifically, firms are randomized to one of the four increments (changes in policy rates by +0.50, +0.25, -0.25, or -0.50 percentage points from prior expectations) or the control group (policy rate as expected)

This approach ensures that the treatment groups (i.e., firms exposed to different policy rate changes) are statistically comparable, allowing us to identify the causal effects of these increments on investment behavior.

No

The RCT has four treatment groups and one control group. Each group is about the same size.

Approx. 3,500 respondents are invited to participate. They are randomly selected into the treatment arms where they are presented with different hypothetical scenarios. The expected number of respondents is about 1,700 firms.

The participating firms (approximately 1,700 expected) will be randomized with equal probabilities across the five treatment arms:

Control group: 340 firms
Vignette 1 (policy rate expectations +0.50 percentage points): 340 firms
Vignette 2 (policy rate expectations +0.25 percentage points): 340 firms
Vignette 3 (policy rate expectations -0.25 percentage points): 340 firms
Vignette 4 (policy rate expectations -0.50 percentage points): 340 firms