Post by account_disabled on Feb 22, 2024 6:06:33 GMT -5
A one percentage point increase in interest rates, total factor productivity declines by 3 percent, the capital stock by 4 percent, and gross domestic product by 5 percent. Curiously, the result is asymmetrical; While money shortages hurt, easy money doesn't seem to stimulate the economy in the long run. And they find that other studies using different methods would have found (smaller) long-term effects of monetary policy if they had only looked.The idea that monetary contractions slow investment in research and development, hampering growth, is supported by another paper by Yueran Ma of the University of Chicago and Kaspar Zimmermann of the Frankfurt School of Finance and Management, presented at Jackson Hole.
They find that three years after a one percentage point increase in interest rates, spending on research and development falls by 1 to 3 percent, venture capital investment falls by a quarter, and Pakistan Phone Number patents and innovation fall 9 percent. One might scoff that if there's less money available to chase the cryptocurrency craze, that's not a bad thing. Low interest rates could even slow growth by encouraging the misallocation of resources to dumb ideas. But Ma and Zimmerman find that important technologies that are often mentioned in companies' earnings calls, such as cloud computing and electric vehicles, are particularly sensitive to rising rates.
Questioning old assumptions is healthy and economists should do it a lot. As evidence accumulates, central bankers should also ask what it might mean for policy. Perhaps, for example, they should think twice before aggressively crushing inflation if this could have long-term consequences for productivity growth. For now, the appetite to do anything more than reduce inflation is almost non-existent. Donald Kohn, former vice chairman of the Federal Reserve, commented at Jackson Hole that the Fed's contribution to innovation was "achieving the dual mandate." Being boring and stable gives companies the certainty they need to invest. Once you start considering side effects, where do you stop? What happens if your interest rate setting causes a financial crisis.
They find that three years after a one percentage point increase in interest rates, spending on research and development falls by 1 to 3 percent, venture capital investment falls by a quarter, and Pakistan Phone Number patents and innovation fall 9 percent. One might scoff that if there's less money available to chase the cryptocurrency craze, that's not a bad thing. Low interest rates could even slow growth by encouraging the misallocation of resources to dumb ideas. But Ma and Zimmerman find that important technologies that are often mentioned in companies' earnings calls, such as cloud computing and electric vehicles, are particularly sensitive to rising rates.
Questioning old assumptions is healthy and economists should do it a lot. As evidence accumulates, central bankers should also ask what it might mean for policy. Perhaps, for example, they should think twice before aggressively crushing inflation if this could have long-term consequences for productivity growth. For now, the appetite to do anything more than reduce inflation is almost non-existent. Donald Kohn, former vice chairman of the Federal Reserve, commented at Jackson Hole that the Fed's contribution to innovation was "achieving the dual mandate." Being boring and stable gives companies the certainty they need to invest. Once you start considering side effects, where do you stop? What happens if your interest rate setting causes a financial crisis.