Low Interest Rates, Market Power, and Productivity Growth

Ernest Liu, Atif Mian, Amir Sufi

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

This study provides a new theoretical result that a decline in the long-term interest rate can trigger a stronger investment response by market leaders relative to market followers, thereby leading to more concentrated markets, higher profits, and lower aggregate productivity growth. This strategic effect of lower interest rates on market concentration implies that aggregate productivity growth declines as the interest rate approaches zero. The framework is relevant for antitrust policy in a low interest rate environment, and it provides a unified explanation for rising market concentration and falling productivity growth as interest rates in the economy have fallen to extremely low levels.

Original languageEnglish (US)
Pages (from-to)193-221
Number of pages29
JournalEconometrica
Volume90
Issue number1
DOIs
StatePublished - Jan 2022

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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