Study: Draghi gets backing in argument over how to best spur reforms

A study being released at the European Central Bank’s (ECB) yearly conference in Sintra, provided the much-needed backing to the ECB President Draghi, who believes that tough reforms are needed to realize growth-enhancing effort of monetary policy. Draghi’s view is widely argued by his German peers.

Key Points via Bloomberg:

The study by Philippe Aghion, Emmanuel Farhi and Enisse Kharroubi examines the impact of monetary policy stimulus on firms taking different regulatory environments into account. 

The authors noted, “When competition is low, large rents allow firms to stay on the market and reinvest optimally, no matter how funding conditions change. Cyclical fluctuations matter less for firms holding monopoly power than for those facing tight competition.”

“Heavily indebted sectors benefited disproportionately from this unexpected drop, but only in countries where product market regulation is rather low,” the study said.

“Vindicating Mario Draghi’s point about to the complementarity between a pro-active monetary policy and structural reforms, this set of evidence supports the idea of a New European Growth Pact.”