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What are the effects of monetary policy on productivity?

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  • Guérin, Pierre

Abstract

We assess the effects of monetary policy shocks on total factor productivity (TFP) using a cross-country panel of firm-level data. We find that monetary policy shocks have a significant effect on TFP: a 100 basis points contractionary monetary policy shock is associated with a 112 percent decline in TFP at a 6-year horizon. The effects of monetary policy shocks on TFP are stronger for financially constrained or vulnerable firms. Further, we find support for a credit channel transmission mechanism of monetary policy on TFP in that intangible investment reacts adversely to contractionary monetary policy shocks.

Suggested Citation

  • Guérin, Pierre, 2023. "What are the effects of monetary policy on productivity?," Economics Letters, Elsevier, vol. 233(C).
    • Handle: RePEc:eee:ecolet:v:233:y:2023:i:c:s0165176523004664
    DOI: 10.1016/j.econlet.2023.111440
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    References listed on IDEAS

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    1. Choi, Sangyup & Willems, Tim & Yoo, Seung Yong, 2024. "Revisiting the monetary transmission mechanism through an industry-level differential approach," Journal of Monetary Economics, Elsevier, vol. 145(C).
    2. Romain Duval & Gee Hee Hong & Yannick Timmer & Philip Strahan, 2020. "Financial Frictions and the Great Productivity Slowdown," The Review of Financial Studies, Society for Financial Studies, vol. 33(2), pages 475-503.
    3. Díez, Federico J. & Fan, Jiayue & Villegas-Sánchez, Carolina, 2021. "Global declining competition?," Journal of International Economics, Elsevier, vol. 132(C).
    4. Oscar Jorda & Alan Taylor & Sanjay Singh, 2019. "The Long-Run Effects of Monetary Policy," 2019 Meeting Papers 1307, Society for Economic Dynamics.
    5. Charles J. Hadlock & Joshua R. Pierce, 2010. "New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index," The Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 1909-1940.
    6. Yueran Ma & Kaspar Zimmermann, 2023. "Monetary Policy and Innovation," NBER Working Papers 31698, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Monetary policy shocks; Financial frictions; Productivity;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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