In particular, at both the micro and macro levels, structural reforms are pivotal to encourage firms to capitalise on the easing of financial conditions and undertake new investment projects. At the micro level, any investment project will happen if the return on investment sufficiently exceeds the cost of capital.
Monetary policy can increase the wedge between the two on the downside, by lowering the cost of capital. But structural reforms can increase the wedge on the upside, by raising returns – for example by reducing costs arising from unnecessary red tape. At the macro level, monetary policy can influence investment through lowering the real interest rate.