Monetary policy and endogenous market structure in a Schumpeterian economy
AbstractIn this note, we develop a monetary Schumpeterian growth model to explore the effects of monetary policy on endogenous market structure, economic growth and social welfare. We find that an increase in the nominal interest rate reduces the equilibrium number of firms. Although long-run economic growth is independent of the nominal interest rate due to a scale-invariant property of the model, a higher nominal interest rate leads to lower growth rates of innovation, output and consumption during the transition path. Taking into account transition dynamics, we find that social welfare is decreasing in the nominal interest rate; therefore, Friedman rule is socially optimal in this economy.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 40467.
Date of creation: Aug 2012
Date of revision:
monetary policy; economic growth; R&D; endogenous market structure;
Other versions of this item:
- Angus C., Chu & Lei, Ji, 2012. "Monetary policy and endogenous market structure in a schumpeterian economy," MPRA Paper 41027, University Library of Munich, Germany.
- 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-2012-08-23 (All new papers)
- NEP-FDG-2012-08-23 (Financial Development & Growth)
- NEP-INO-2012-08-23 (Innovation)
- NEP-MAC-2012-08-23 (Macroeconomics)
- NEP-MON-2012-08-23 (Monetary Economics)
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