Productivity responses of high-tech firms to monetary policy

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.