A Comment on: “Low Interest Rates, Market Power, and Productivity Growth”

Craig A. Chikis, Jonathan Goldberg and David López‐Salido

Econometrica, 2023, vol. 91, issue 6, 2457-2461

Abstract: Using an endogenous growth model, Liu, Mian, and Sufi (2022) (LMS) show that a decline in the interest rate can lead to a fall in productivity growth and a rise in leader‐laggard productivity gaps and firm profits. We identify two issues in their quantitative analysis of transition dynamics: a time‐scale error and the omission of composition terms in calculating productivity growth along the transition to a new balanced growth path. Correcting the time‐scale error and including the composition terms, the decline in the interest rate that LMS study leads to a large and protracted productivity boom lasting about 20 years. In addition, the average leader‐laggard gap grows much more slowly than reported in their paper. We also point out an issue in their quantitative analysis of steady‐state profit shares. These issues are related to the quantitative exercises, and do not affect the key theoretical contributions of LMS.

Date: 2023
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