A Comment on:“Low Interest Rates, Market Power, and Productivity Growth”

Abstract

Using an endogenous growth model, Liu, Mian, and Sufi (2022) (LMS) show that a decline in the interest rate can lead to a fall in productivity growth and a rise in leader-laggard productivity gaps and firm profits. We identify two issues in their quantitative analysis of transition dynamics: a time-scale error and the omission of composition terms in calculating productivity growth along the transition to a new balanced growth path. Correcting the time-scale error and including the composition terms, the decline in the interest rate that LMS study leads to a large and protracted productivity boom lasting about 20 years. In addition, the average leader-laggard gap grows much more slowly than reported in their paper. We also point out an issue in their quantitative analysis of steady-state profit shares. These issues are related to the quantitative exercises, and do not affect the key theoretical contributions of LMS.