Falling Rates and Rising Superstars

56 Pages Posted: 18 Oct 2021 Last revised: 16 Apr 2023

See all articles by Thomas Kroen

Thomas Kroen

International Monetary Fund (IMF)

Ernest Liu

Princeton University

Atif R. Mian

Princeton University - Department of Economics; Princeton University - Princeton School of Public and International Affairs; NBER

Amir Sufi

University of Chicago - Booth School of Business; NBER

Multiple version iconThere are 2 versions of this paper

Date Written: October 2021

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.

Suggested Citation

Kroen, Thomas and Liu, Ernest and Mian, Atif R. and Sufi, Amir, Falling Rates and Rising Superstars (October 2021). NBER Working Paper No. w29368, Available at SSRN: https://ssrn.com/abstract=3944416

Thomas Kroen (Contact Author)

International Monetary Fund (IMF) ( email )

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Ernest Liu

Princeton University ( email )

Joseph Henry House
Princeton, NJ 08542
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Atif R. Mian

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

Princeton University - Princeton School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544-1021
United States

NBER

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Amir Sufi

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
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United States

NBER

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United States

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