Working Paper: NBER ID: w18072
Authors: Philippe Aghion; Emmanuel Farhi; Enisse Kharroubi
Abstract: In this paper, we use cross-industry, cross-country panel data to test whether industry growth is positively affected by the interaction between the reactivity of real short term interest rates to the business cycle and industry-level measures of financial constraints. Financial constraints are measured, either by the extent to which an industry is prone to being "credit constrained", or by the extent to which it is prone to being "liquidity constrained". Our main findings are that: (i) the interaction between credit or liquidity constraints and monetary policy countercyclicality, has a positive, significant, and robust impact on the average annual rate of labor productivity in the domestic industry; (ii) these interaction effects tend to be more significant in downturns than in upturns.
Keywords: growth; financial dependence; liquidity dependence; interest rate; countercyclicality
JEL Codes: E32; E43; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| countercyclical monetary policy + credit or liquidity constraints (E51) | labor productivity (J24) |
| credit or liquidity constraints (E51) | labor productivity (J24) |
| countercyclical monetary policy (E52) | labor productivity (J24) |
| credit or liquidity constraints + countercyclical monetary policy (E51) | labor productivity (J24) |