Monetary Policy, Liquidity, and Growth

57 Pages Posted: 12 May 2012

See all articles by Philippe Aghion

Philippe Aghion

College de France and London School of Economics and Political Science, Fellow; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Emmanuel Farhi

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Enisse Kharroubi

Bank for International Settlements (BIS)

Date Written: May 2012

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.

Suggested Citation

Aghion, Philippe and Farhi, Emmanuel and Kharroubi, Enisse, Monetary Policy, Liquidity, and Growth (May 2012). NBER Working Paper No. w18072. Available at SSRN: https://ssrn.com/abstract=2056700

Philippe Aghion (Contact Author)

College de France and London School of Economics and Political Science, Fellow ( email )

London
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Emmanuel Farhi

Harvard University - Department of Economics ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Enisse Kharroubi

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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