Monetary policy and productivity: Unpacking multifaceted links

Filiz Unsal and Guido Franco

No 1843, OECD Economics Department Working Papers from OECD Publishing

Abstract: Relying on local projection methods and a large cross-country firm-level dataset, we provide a comprehensive assessment of how monetary policy shocks affect productivity dynamics. We find significant effects operating both through changes in firm-level productivity growth and through the reallocation of resources across firms. A 25-basis-point tightening (easing) reduces (raises) within-firm productivity growth by about 0.7 percentage points over five years, with the credit and cost channels playing the dominant role. These effects are amplified when financial development is weak or when monetary policy is pro-cyclical. On the reallocation side, easing episodes increase labour and capital misallocation by up to 7% over three years, partly by channelling resources toward zombie firms, with the impact strongest under low financial development, high barriers to competition, or during economic upturns, whereas monetary tightening does not, on average, significantly affect allocative efficiency.

Keywords: Monetary policy; Productivity; Reallocation (search for similar items in EconPapers)
JEL-codes: D22 D24 E52 O43 (search for similar items in EconPapers)
Date: 2025-09-26
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Persistent link: https://EconPapers.repec.org/RePEc:oec:ecoaaa:1843-en

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