Inflation and Innovation-driven Growth
AbstractThis paper models the relationship between inflation and steady state growth in a model combining standard Schumpeterian growth with a standard New Keynesian specification of nominal price rigidity. Positive money growth has two clear-cut countervailing effects on the incentive to innovate. Past price rigidity causes the use of an inefficiently large quantity of cheap old intermediate goods, reducing demand for new ones and hence, the incentive to innovate. Future price rigidity erodes the new good’s relative price, increasing demand and therefore the current incentive to innovate. In numerical calibrations the negative effect of inflation on growth dominates.
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Bibliographic InfoPaper provided by University of Cologne, Department of Economics in its series Working Paper Series in Economics with number 16.
Date of creation: 15 Feb 2005
Date of revision:
Inflation; endogenous growth; price rigidity;
Other versions of this item:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
- O42 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-02-27 (All new papers)
- NEP-DEV-2005-02-27 (Development)
- NEP-MAC-2005-02-27 (Macroeconomics)
- NEP-MON-2005-02-27 (Monetary Economics)
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