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Monetary Policy, Product Market Competition and Growth

Phillipe Aghion, Emmanuel Farhi () and Enisse Kharroubi

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: In this paper we argue that monetary easing fosters growth more in more credit-constrained environments, and the more so the higher the degree of product market competition. Indeed when competition is low, large rents allow firms to stay on the market and reinvest optimally, no matter how funding conditions change with aggregate conditions. To test this prediction, we use industry-level and firm-level data from the Euro Area to look at the effects on sectoral growth and firm-level growth of the unexpected drop in long-term government bond yields following the announcement of the Outright Monetary Transactions program (OMT) by the ECB. We find that the monetary policy easing induced by OMT, contributed to raising sectoral (firm-level) growth more in more highly leveraged sectors (firms), and the more so the higher the degree of product market competition in the country (sector).

Keywords: growth; financial conditions; firm leverage; competition (search for similar items in EconPapers)
JEL-codes: E32 E43 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-eec, nep-fdg, nep-mac and nep-mon
Date: 2018-12
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http://cep.lse.ac.uk/pubs/download/dp1590.pdf (application/pdf)

Related works:
Journal Article: Monetary Policy, Product Market Competition and Growth (2019) Downloads
Working Paper: Monetary Policy, Product Market Competition, and Growth (2018) Downloads
Working Paper: Monetary policy, product market competition and growth (2018) Downloads
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