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Productivity responses of high-tech firms to monetary policy

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  • Alam, M. Jahangir

Abstract

This paper examines the effect of monetary policy shocks on the Total Factor Productivity (TFP) of high-tech versus low-tech firms, focusing on how changes in borrowing costs and credit availability influence productivity. To isolate the causal effect, I use firm-level longitudinal data from Compustat’s publicly listed firms and apply the Local Projections-Instrumental Variables (LP-IV) approach, with high-frequency interest rate surprises serving as instrumental variables. The results indicate that smaller, younger, and low-cash-holding high-tech firms are more vulnerable to contractionary monetary policy shocks. Specifically, a one-percentage-point increase in the 2-year treasury rate results in approximately a 0.5 percent decline in TFP for high-tech firms, with the negative effect becoming more pronounced when firms face financing constraints. Given that interest rate hikes are particularly harmful to high-tech firms, I recommend financial support to mitigate the adverse effects of contractionary monetary policy on these firms.

Suggested Citation

  • Alam, M. Jahangir, 2025. "Productivity responses of high-tech firms to monetary policy," The North American Journal of Economics and Finance, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:ecofin:v:80:y:2025:i:c:s1062940825001597
    DOI: 10.1016/j.najef.2025.102519
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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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