Cash in advance constraint on RD in a Schimpeterian growth model with an endogenous market structure
AbstractIn this paper we explore the effects of monetary policy on the number of firms, firm market size, inflation and growth in a Schumpeterian growth model with endogenous market structure and cash-in-advance CIA constraints on two distinct types of RD investment in-house RD and entry investment. This allows us to match the empirical evidence and provides novel implications to the literature. We show that if in-house RD (quality improvement-type R&D) is subject to the CIA constraint, raising the nominal interest rate increases the number of firms and inflation, but decreases the firm size and economic growth. By contrast, if entry investment variety expansion-type RD is subject to the CIA constraint, these variables adversely respond to such a monetary policy. Besides, our model generates rich transitional dynamics in response to a change in monetary policy, when RD entry is restricted by a cash constraint.
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Bibliographic InfoPaper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2013-16.
Date of creation: Sep 2013
Date of revision:
CIA constraints on RD; endogenous market structure; monetary policy; economic growth;
Other versions of this item:
- Chien-Yu Huang & Juin-Jen Chang & Lei Ji, 2013. "Cash-In-Advance Constraint on R&D in a Schumpeterian Growth Model with an Endogenous Market Structure," IEAS Working Paper : academic research 13-A009, Institute of Economics, Academia Sinica, Taipei, Taiwan.
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-11 (All new papers)
- NEP-DGE-2013-10-11 (Dynamic General Equilibrium)
- NEP-FDG-2013-10-11 (Financial Development & Growth)
- NEP-INO-2013-10-11 (Innovation)
- NEP-MAC-2013-10-11 (Macroeconomics)
- NEP-MON-2013-10-11 (Monetary Economics)
- NEP-TID-2013-10-11 (Technology & Industrial Dynamics)
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