NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Ernest Liu

Princeton University
20 Washington Rd
214 Julis Rabinowitz Building
Princeton, NJ 08544

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliations: Princeton University and MIT

NBER Working Papers and Publications

January 2019Low Interest Rates, Market Power, and Productivity Growth
with Atif Mian, Amir Sufi: w25505
This study provides a new theoretical result that low interest rates encourage market concentration by raising industry leaders’ incentive to gain a strategic advantage over followers, and this effect strengthens as the interest rate approaches zero. The model provides a unified explanation for why the fall in long-term interest rates has been associated with rising market concentration, reduced business dynamism, a widening productivity-gap between industry leaders and followers, and slower productivity growth. Support for the model’s key mechanism is established by showing that a decline in the ten year Treasury yield generates positive excess returns for industry leaders, and the magnitude of the excess returns rises as the Treasury yield approaches zero.
 
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