Working Paper: NBER ID: w29368
Authors: Thomas Kroen; Ernest Liu; Atif R. Mian; Amir Sufi
Abstract: Using high frequency interest rate shocks, we find that falling rates in a low interest rate environment favor industry leaders. A fall in interest rate near the zero lower bound leads to a stronger decline in the borrowing rate for industry leaders, who also borrow more, invest more aggressively, and acquire assets at a faster pace. This advantage from falling rates enjoyed by industry leaders diminishes in a higher rate environment. We estimate a “competition-neutral” nominal federal funds rate of about four percentage points, a level at which industry leaders and followers are impacted equally from an interest rate change.
Keywords: Interest Rates; Market Concentration; Industry Leaders; Financial Frictions
JEL Codes: E0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Falling interest rates (E43) | Stronger decline in borrowing rate for industry leaders (G21) |
| Falling interest rates (E43) | Increased debt issuance for industry leaders (G32) |
| Falling interest rates (E43) | Increased leverage ratio for industry leaders (G32) |
| Falling interest rates (E43) | Greater market concentration (L19) |
| Interest rate changes (E43) | Equal impacts for industry leaders and followers at nominal federal funds rate of about 4 percentage points (E43) |