NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Monetary Policy, Liquidity, and Growth

Philippe Aghion, Emmanuel Farhi, Enisse Kharroubi

NBER Working Paper No. 18072
Issued in May 2012
NBER Program(s):   EFG   ME

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.

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Document Object Identifier (DOI): 10.3386/w18072

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