Abstract
This study examines the long-term economic effects of monetary policy, focusing on its impact on research and development (R&D) investment and firm productivity. Using data from Compustat, we analyze productivity’s response to monetary policy shocks, with an emphasis on the role of firm size, age, and leverage as indicators of credit constraints. We use high-frequency financial market data to identify monetary policy shocks through a local projections–instrumental variables (LP-IV) approach. Our findings reveal that smaller, younger, and less leveraged firms are more adversely affected by contractionary monetary policies, suggesting a significant impact on their R&D investments and subsequent productivity, particularly in the manufacturing sector. The findings also highlight that tight monetary policy has a persistent negative impact on firm productivity via reduced R&D investment, underscoring the need for policies like R&D subsidies to support long-term economic growth.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
